• by Gavin O'Malley  @mp_gavin, November 23, 2009

San Mateo, Calif.-based Teracent develops "machine-learning" algorithms that automatically choose from thousands of different creative elements to customize an ad in real-time.

"We think that this technology has great potential to improve display advertising on the Web," Neal Mohan, vice president of product management, and Joerg Heilig, engineering director at Google, wrote in a co-authored blog post on Monday.

"We've been busy releasing new features and products to help improve display advertising on the Web for everyone," they added. "We believe that Teracent's technology fits neatly into these efforts."

Industry watchers see the move as aligned with Google's well-demonstrated interest in display advertising. "Google is stepping up its display ad efforts across the board," said Paul Knegten, head of marketing and senior director of business development at performance-based marketing and ad platform Dapper.

Added Knegten: "It is interesting that they see dynamic creative -- bringing performance back to display -- as a key component to assure a full service for all advertisers."

Teracent's technology can pick and choose from thousands of creative elements of a display ad in real-time -- tweaking images, products, messages or colors, according to Google. These elements can be optimized depending on factors like geographic location, language, the content of the Web site, the time of day or the past performance of different ads.

This technology can help advertisers get better results from their display ad campaigns, Google believes. In turn, this should help publishers make more money from their ad space and deliver Web users better ads and more ad-funded Web content.

Teracent's technology will be made available to Google's display advertising clients, including those who run display ad campaigns on the Google Content Network, as well as DoubleClick clients.

"In-line with earnings call commentary, Google continues to make small acquisitions," Imran Khan, J.P. Morgan managing director and Web analyst, said in a research note released Monday. "We think these acquisitions are geared to jumpstart the R&D that they slowed during the downturn as part of cost saving efforts." The Nikkei recently quoted Google CEO Eric Schmidt as saying the search giant was poised to begin "seriously looking at acquisitions again." According to the Japanese newspaper, Schmidt was considering smaller investments in venture-stage firms poised for growth, rather than mega deals.

To that end, Google earlier this month confirmed the acquisition of VoIP startup Gizmo5. Financial details were not disclosed -- but, like Teracent, the deal was no doubt a small investment by Google's standards.

In the bigger scheme of things, Khan said of the Teracent deal: "We don't expect this acquisition to be material." It could, however, "drive healthier CPMs," while "this level of targeting is differentiated and highly desired."

Teracent previously raised $5 million in a funding round led by New Enterprise Associates in 2007. It presently has a partnership with Yahoo to target mobile ads, the future of which has yet to be addressed by either company.