(FORTUNE Magazine) – Advertising has been good to us. Sure, it's often tiresome, but it's brought us cheap newspapers, as well as free radio and television. It pays for most of this magazine. On the Internet, however, it's not doing its job. We're not paying attention to online advertising and not buying what it's promoting. That's a major problem, given that most Internet companies count on advertising revenues. And that's also a major opportunity. Startups are creating new ways to pitch products and services on the Web, which could render the ubiquitous banner ad of today antique and enable the Net to rival cable TV and even radio as an advertising medium.

Study after study has shown that Web users all but ignore banners. People click on fewer than one out of every 100 they see, and the declining click-through rate may soon hit half a percent. Even when users do click, the impression doesn't last: Most Web surfers don't remember the last ad they clicked on.

Yet more and more ad dollars flow to the Web. Spending is expected to reach $3.2 billion this year, up 52% from $2.1 billion last year, and may exceed $22 billion in five years. Banner ads alone can't possibly support such spending, much less deliver on the oft-repeated Net promise of ads that pitch the right product to the right person at the right time.

The obvious remedy is to try to attract more attention, which is why Web ads are becoming flashier. An increasing number of onscreen messages use so-called streaming media animations from Bluestreak.com of Newport, R.I., Enliven of Waltham, Mass., a division of Excite@Home, Macromedia, and Thinking Media of New York City. (I am an investor in Excite@Home.) Technology from AudioBase of Sausalito, Calif., embeds voice, music, or other sounds in banners, and listening doesn't require software downloads or plug-ins. Even video is possible: InterVU offers what it calls V-Banners, online ads with short loops of digitized clips. The goal is to transform static banners into compelling, television-like zones in which viewers can play games, find out more about a product, and even buy it.

In addition, advertiser demand for promotions that look more like TV commercials is one force behind the rising interest in Akamai of Cambridge, Mass., and Sandpiper Networks of Thousand Oaks, Calif. Both companies help Web pages pop up on PC screens much more rapidly by storing popular pages on special computers close to those likely to want them.

But wait. Before you read on, let me tell you about interstitial advertising, which interrupts you without warning, as this sentence has done. In their short life, interstitials have become the most controversial form of online advertising because of their very intrusiveness. Media buyers and marketers say intrusiveness is what's needed to turn the Web into a serious branding medium, like television. Users, though, swear they hate these ads. And yet the attention-grabbing nature of interstitials does convert lookers into buyers at a significantly higher rate than traditional ads. One type--called Superstitials by the originator, Unicast Communications of New York City--even streams unnoticed into your idle computer, stores itself on the hard drive, and then takes over parts of your screen to display a commercial message, sometimes even after you've left the Website responsible for the ad.

Razzle-dazzle and interruptions can only do so much, however. Technologies also are being devised to reach and retain the specific audience an advertiser seeks. Affiliate marketing companies such as Be Free of Marlborough, Mass., LinkShare of New York City, Phase2Media of Norwalk, Conn., and SmartAge of San Francisco display advertising across a network of sites on the Net that attract users with similar interests or demographics. Engage Technologies (a unit of CMGI) records the path of individuals as they move from site to site, creating anonymous profiles that are used to select the appropriate advertising.

Ways have even been found to bring Internet advertising to our desktops when we're not browsing the Internet. RadicalMail of Marina del Rey, Calif., can wrap streaming Internet media into an ordinary e-mail. The result is not only messages with motion and sound but messages that can be tracked, so an advertiser knows at once who has looked at the ad and whether a purchase was made. Several companies--such as Aureate Media of Indianapolis, Conducent of Harrisburg, Pa., and NetJumper.com of Southfield, Mich.--have devised techniques to embed advertising in freeware, so that clicking on a banner in the program will automatically take you to the advertiser's Website.

Other companies, such as Event411 of Marina del Rey, Calif., Evite of San Mateo, Calif., and LifeMinders of Herndon, Va., provide free event-planning or reminder services in exchange for personal data, which are used to send ads in the form of e-mail.

This is far afield of the lowly banner, and that's all to the good. Internet advertising is at a turning point. The decay of the banner has created a fertile compost in which new forms of online advertising and marketing are taking root. Who knows? The result may even be programming worth watching.

RICHARD A. SHAFFER is founder of Technologic Partners, an information company focused on emerging technology. To join his e-mail distribution list, send e-mail to list@technologicp.com. For an expanded version of Watch This Space online, visit www.tpsite.com/tp/fortune/. Except as noted, Shaffer has no financial interest in the companies mentioned. Send comments or questions to shaffer@technologicp.com.