Digg.com announced today a new ad program that will include ads/sponsored content next to user-Dugg content. It’s a lot like the Conde-Reddit ad deal we mentioned back in March: mark the sponsored content as sponsored, but otherwise make the stuff behave just like user-generated content.

But Chadwick Matlin, writing in The Big Money today, says Digg’s model is “even more brilliant than you think”. See, users can vote on the ads just as they would vote on a Dugg story. The more an ad is Dugg, the more frequently it appears. With Digg’s system, the price of the ad also decreases with its popularity.

He writes:

Digg has impressively taken advantage of something very simple: the multiplication table. Six times 10 equals 60, yes. But so does 5 by 12. What I mean: If you reduce an ad’s price from, say, $6 to $5, as long as you increase the number of times the ad appears from, say, 10 to 12, revenue stays the same, cost to the advertiser stays the same.

This also means that advertisers have huge incentives to create ads that people like, not just tolerate. The more people who like the ad, the more exposure advertisers get, without spending a penny more.

Neato.