Yahoo! Puts Its Targeting Smarts on Display

No one’s saying Yahoo! has conceded the search marketing race to Google, but the second largest search engine has lately been doing all it can to leverage its current lead-horse status in another online ad channel: display ads.

Late last week Yahoo! became the first of the big three engines to close its display-related acquisition, crossing the wire ahead of both Google’s DoubleClick buy and Microsoft’s purchase of aQuantive. The deal gives Yahoo! full control of Right Media, a New York-based exchange that brings together advertisers who want to run display ads and Web publishers with inventory to sell.

Graphical ads have been around longer than text-based search ads, of course. But they haven’t had the same kind of frictionless auction-based market that has made keyword-based sponsored listings easy to bid on, buy and deliver. Except for those Web sites that count as “premium” properties, the buys have largely happened in an ad hoc fashion, between individual advertisers and single Web sites or small networks.

Of course, the greatest part of the content conveyed on the Internet comes from these non-premium sites. And while their readerships may be small, they may also be highly focused and eminently qualified for the right marketer with the right message.

In addition, many sites with display inventory for sale have been unable to give advertisers much detailed data about the readers their ads are reaching. As a result, a large portion of display ad spending has come from brand marketers rather than direct-response advertisers and gone into cost-per-thousand (CPM) placements rather than cost-per-action (CPA).

By spending about $650 million to expand its 20% stake in Right Media and own the whole company, Yahoo! is betting that making display ads easier to buy, target and customize will appeal to a broader group than simply brand marketers. That strategy is related to the thinking behind the decision last month to integrate Yahoo!’s search and display ad sales groups under one roof: to give advertisers who want to take aim at specific audiences the option to mix graphical ads (or in time rich media and video ads) with their keyword-triggered text-based campaigns and do it all on a CPA basis.

“Right Media will help expand our ability to enable advertisers to reach their customers wherever they are across the Internert,” Yahoo! president Sue Decker said yesterday in a conference call on the company’s Q2 financials. By opening a broad market in auction-based ads that come with reporting and campaign management tools, Right Media will help publishers make money while helping to “convert CPM buys to CPA buys for performance marketing advertisers,” she said.

Late last month, Yahoo! began rolling out the targeting portion of that display platform with the introduction of Yahoo! SmartAds. The new ad format combines various types of targeting—demographic, geographic and behavioral—with a system that assembles custom ads on the fly from templates of different creative, offers and other product information supplied by the marketer.

In other words, an advertiser—a car maker or national retailer, for example—could use the SmartAds platform to deliver one ad to a man in New York featuring the city’s skyline and a Golden Gate-themed ad to a woman in San Francisco.

Those art changes might give an ad a skosh more relevance to viewers in those markets. But the ability to link demographic or behavioral knowledge to actual product data will be a more compelling proposition, says Todd Teresi, senior vice president for display marketplaces at Yahoo!

“SmartAds takes the concept of targeting and pushes it into the creative execution to deliver a much more relevant experience to the consumer,” Teresi says. “We’re taking what we know about a consumer’s broad interests, the categories they’re interested in, and marrying that to information we have from the marketer. In a travel marketing scenario, that could mean real live fares coming out of advertisers’ inventory systems into the ads. Now the consumer sees not just a stock piece of creative—a corporate logo and a slogan—but we can deliver a specific fare route that user was interested in three days ago along with a real-time fare.”

The application of rich media technology to SmartAds could even let viewers do business inside the ad, booking their travel and converting on the spot, Teresi says.

And adding marketers’ inventory data could make SmartAds even more relevant. In the auto example, a manufacturer might be overstocked in sedans on the East Coast but want to push SUVs in the West; SmartAds could tailor display ads to the marketing aims in those regions.

But it’s combining behavioral targeting with customization that could really give SmartAds a relevance edge. For example, a consumer who recently visited a cooking Web site might be targeted with an ad from Target or Williams-Sonoma featuring a blender and including not only its current sale price but its in-store availability at the nearest store. A visitor who’s recently been to a boxing Web site might see an ad for flights from his location to Las Vegas, with creative that tied into an upcoming heavyweight fight.

Targeting information for the ads will come from a combination of sources. Yahoo! has about 250 million registered users worldwide, so it is able to track where they enter and exit the Yahoo! portal and what they look at on its vertical properties. Other information will come from cookie data or from search behavior.

The SmartAds platform is getting a gradual rollout on Yahoo!’s owned and operated properties, beginning with the travel vertical, where a couple of unnamed airlines are using the format. From there, Teresi says, the system will expand to other Yahoo! verticals—autos being a likely candidate—and will in time probably be incorporated into Yahoo!-managed inventory traded on the Right Media Exchange.

“We might purchase inventory from MySpace, for example, that might otherwise be nondescript and that a marketer might not be very interested in using,” Teresi says. “But a platform like SmartAds can turn it into something highly relevant and highly valuable to advertisers.”

SmartAds will be sold by the Yahoo! sales force, not as a self-service account. “This is a considered purchase for an advertiser, and we want to help guide them” Teresi says. They will also be sold on both a CPM and CPA basis.

“We’re open to whatever meets the business needs of our marketers,” he says. “There are some advertisers who are less sensitive to time and placement and more concerned about cost per acquisition. So we might allow them to buy on a cost per acquisition basis, but that gives us the flexibility to run the ad wherever we can get that cost for them. Other advertisers might want specific placement on a specific site—say, auto marketers preparing for a product launch. They can do that but then pay a premium to use the SmartAds customization features within the CPM buy they’ve already made.”

Yahoo! started offering the ability to target display ads according to search behavior last year, points out Emily Riley, ad analyst with JupiterResearch. “The problem was that it’s a relatively cumbersome thing to do if you want different banners for a lot of different types of behavior or targeting,” she says. “This provides the next generation of that ad targeting.”