One thing we’ve learned about online advertising, says Brad Flora, founder and president of Chicago’s Windy Citizen: “Banner ads suck.” Big time. “They’re static, they’re boring, readers don’t like to see them — and publishers don’t like to sell them.”

But online advertising doesn’t have to be adversarial, Flora realized; done well, it can actually serve the interests of media consumers and media producers at the same time. And local ads, in particular, can be informative and entertaining and — hey, maybe! — illuminating. Couple that with the fact that, according to reports that the local online ad space is going to be a $9 billion market by 2012…and investing in attempts to make local ads more engaging is an idea that may be just crazy enough to work.

Which is possibly why, in this year’s Knight News Challenge, the journalism foundation awarded Flora $250,000 to test one particular idea for ad-engagement in Chicago. Flora’s experiment, which officially goes by the name and website of NowSpots.com, will provide, he says, “a dead-simple way for publishers to sell and serve real-time ads.”

The broad goal? “Local ads that actually work.”

“Real-time ads,” as Flora defines the project, are “spots that show the latest updates from businesses’ social media accounts: their latest tweet, their latest Facebook update, or the latest photo posted to their Flickr account.” Essentially, they’ll syndicate social media content from sponsors — and, in that, offer “smarter, more dynamic, interesting ads that readers actually want to check out because they actually have information” that people want to learn.

If that social-media-ized approach to advertising sounds familiar, there’s good reason: the Windy Citizen has already been experimenting with them (currently featuring its Twitter feed on the WC site: Medill, Flora’s alma mater). So has MinnPost, which launched a real-time ad initiative last year.

But the Knight prize isn’t just about creating the ads; it’s about expanding their reach, systematically. This is Flora’s third attempt at the Knight prize money; what distinguished NowSpots this time around was the networked approach it promises to bring order and intelligence to online advertising. Flora’s already started talking with local publishers — “some big, some small” — about integrating real-time ads on their sites. And he’ll focus, in particular, on the analytic side of the real-time ad strategy, experimenting with “different approaches to ads” and tracking how each iteration performs. “That,” Flora says, “is the magic sauce.”

The idea, ultimately, is one that local publishers can get behind: financial gain. Because no matter how good sites’ content — their journalism — is, Flora says, “they all have the same problem at the end of the day, which is: ‘I’ve got to make money.'” A small business “has to innovate or starve.” Windy Citizen, Flora points out, is “a boot-strapped company that employs 1.5 people” (Flora and a part-time staffer) — but “we reach about 100,000 people a month. And we reach that by learning a whole heck of a lot about local advertising.”