You can choose to display either text ads or image / rich media ads for Google AdSense, or you could also chose to let Google display both types (which is the default, recommended option). Google will display whichever ads with the highest bid regardless of the type if you choose to display both types.
The default Google AdSense setting is to display both. Some people claim that text ads perform best while some has more success with image ads. Google's advice however is to display both.
So, which type of AdSense ad unit should you use for your site?
As with other Google AdSense optimization tips, it all depends on the type of site you're running. Also note that choosing the right ad type could complement to your site's design. The following lists the pro and cons of each ad unit's type.
Many AdSense publishers report that text ads perform best on their websites. This is probably due to the fact that more ads are displayed in one ad unit as compared to only one ad when using image ads. The CTR and CPC are normally higher than image ads. Text ads perform well if your site has a lot of images, or if the ad unit itself is placed next to an image.
Image ads are catchy and can easily attract your site visitor's attention, especially if your site is mostly text. More image ads are eCPM based compared to text ads, which means you'll get your earning based on pageviews, not on clicks. This is good if you have sites that have low CTR.
Images ads performs best compared to text ads when used in leaderboard unit (728×90) as banner ad.
Image ads normally pay less per click, but with high CTR in some cases, you can earn more with it.
In most other situations, the best idea is to display both type of ad units. This is because AdSense displays the highest paying ads in an ad unit, and so image ads will only be displayed if the CPC is higher than all the text ads in one ad unit combined. This will ensure you earn more with each ads clicked.
Since every site is different, it's best to perform A/B testing by using each type of ad for a specific time period and then to compare the earnings of each periods.