Yahoo (YHOO) today announced SmartAds a service to create customized contextual display ads on the fly. Google and Microsoft have been targeting text based ads to search query terms for years. What is new here is that Yahoo is generating customized display ads, commonly known as banner ads.
According to the New York Times, here is how the system will work:
The advertiser (or its agency) would provide Yahoo with the components of its display ads — including the logos, tag lines and images. The retailer would share information from its inventory databases that track the items on the shelves in each of its stores. Next, Yahoo would combine that data with the information it has about its users’ demographics and actions online to create a product-specific advertisement.
For airlines, SmartAds uses Yahoo’s information about its Web surfers to create display advertisements for each person that feature ticket offers with actual prices listed. In time, Yahoo plans to offer rich media advertisements where users can buy the ticket at that price right within the ad unit, rather than having to click through to another Web site.
In the past Yahoo would have display ads from hundreds of companies and they would try to match up an ad with the content on a page. For example, Yahoo would put a mortgage company ad on the Finance section and an airline ad on the Travel section. Most of Yahoo's traffic is non-targeted, meaning hits on the Yahoo home page, hits on Yahoo Mail, or some other general page. Because the ads were not well targeted advertisers paid very low CPM rates, as opposed to Google's higher CPC rates.
With SmartAds Yahoo will be able to dynamically assemble a display ad targeted to the user based on behavioral and demographic information Yahoo has collected. This is a major step forward for Yahoo, the leader in online display advertising, and should result in higher advertising rates.
The Panama project was supposed to do great things for Yahoo's ad targeting too. The results from Panama are unclear. SmartAds sounds like a better approach to display ads but only time will tell if it works and advertisers are willing to pay more to use it.