• by Mark Walsh  @markfwal, October 5, 2010

Yahoo said Tuesday it acquired ad technology firm Dapper to bolster its core display advertising business. The company's technology allows marketers to assemble display ad creative on the fly -- and, it says, show the right ad or offer to the right audience at the right time. Terms of the deal were not disclosed.

Yahoo has already been working with Dapper under a program the Web portal launched last year to partner with outside ad technology providers to bolster its Smart Ads platform and to extend the customized display ad format to mobile phones.

"Yahoo currently partners with Dapper, along with others in this space, and owning this technology will help the company deliver innovative solutions to an even broader range of advertisers and integrate dynamic ad serving into key Yahoo properties," read the company's statement about the acquisition, expected to close by year's end.

Dapper's solution promises to let marketers use creative elements pulled from their own Web site, product inventory data, or database of marketing offers to automatically tailor display ads according to each impression delivered. The company also helps marketers buy display ad impressions on exchanges via real-time bidding.

Online weather service Weather Underground, among others, has used Dapper to generate dynamic ads with creative drawn from advertisers' product catalogs, Web sites and inventory systems. A fashion retailer, for instance, could then associate each item in its catalog with a particular weather condition so a user would see only apparel suitable to the local climate.

The San Francisco-based startup, which had raised $3 million in venture funding since 2006, hired ex-Efficient Frontier CEO James Beriker as chief executive. Beriker was quoted applauding the deal in the Yahoo statement, but the company did not indicate what role he would play following the acquisition or whether Dapper would be maintained as a separate brand.

For Yahoo, the acquisition amounts to playing to its traditional strength in display advertising rather than expansion into a new area. Yahoo increased profit 50% in the second quarter, but revenue grew only slightly as the company saw little gain from the gradual recovery in display advertising. While display ad revenue was up 19% in the second quarter, it fell short of the 20% growth rate in the first quarter.

In a research note, RBC Capital Markets analyst Ross Sandler said the Dapper deal makes sense for Yahoo, especially in light of Google's widening push into display advertising through properties like YouTube, DoubleClick, the Adx display ad exchange, and Teracent. "The deal should eventually help Yahoo offer advertisers better tools and technologies, and ultimately, to increase the value of its own un-sold display inventory through better ad targeting," he wrote.

Dapper competes with Teracent, which Google acquired in November 2009, as well as ad companies like Tumri and Adready, which Yahoo has also partnered with.

Yahoo has also continued to suffer from executive turnover, with U.S. operations head Hilary Schneider, U.S. audience chief David Ko, and vice president of media Jimmy Pitaro all exiting the company in the last week. The company will report third-quarter earnings Oct. 19.