And the short answer is, "where people will see it the most".
But it's not that easy to figure out. It's actually a science.
My experience tells me to place it where...
- Where people will see it most often
- Where people will see it before they notice your content
- Where it doesn't get in the way of your content
First consider this, statistics for most websites show that between 40% and 60% of your visitors will spend less than 5 seconds on your website. Yes, you read that right! Only 5 seconds, and about half of your visitors! The other 50% who stay longer, may range anywhere from 6 seconds to several hours.
Basically, the best place to display an ad, is "above the fold". That phrase means to display something on a webpage that doesn't require any scrolling. Usually, that's at or near the top of your webpage. If at least half of your visitors will stay no longer than 5 seconds, you HAVE TO place the ad above the fold if you want a shot at getting them to click.
The reason why you want to place it where visitors see it before seeing your content, is because you want to store some kind of "teaser" in their back of their mind. Once they've finished looking at your website, you want them to go back to the ad they saw.
The western world reads things from left to right, and from top to bottom. So, placing ads at the left and at the top of your content, will get these ads noticed more often.
Take a look at the design of this website that you're at. Sure enough, I have AdSense placed at the left of the content. I don't have any placed directly above the content, however I do have an AdSense Link Unit creative within the dark-gray bar above the content.
Google created this "heat map" shown on the right, that displays which placements end up getting the best click through rates.
The darker orange colors represent the higher click through rates.
Notice that best placements are in fact, the left, as well as directly above the content. This fits into what I said, that if you place AdSense where people see it first, they'll come back to it when they're finished looking at whatever else they want to see.
Finally, don't place AdSense where it interferes with the content, or purpose of the website. That just annoys your visitors, and creates a negative experience. Give them a positive experience and they'll more likely click on your ads.