• by Craig Macdonald , July 5, 2007

The introduction of SmartAds by Yahoo! provides advertisers with an opportunity to improve banner performance; however, it also inflates spending.

In addition, the new product challenges advertising networks because the game in advertising is ultimately based on the ability of platforms to bring to bear multiple forms of data in order to target ads with consumer preferences.

SmartAds provides Yahoo! with a unique dataset that can bring proactive intelligence on the viewer and determine the relevancy of advertising in addition to projecting click through rates and conversions.

SmartAds, with the identification data from Yahoo!, allows an advertiser to marry demographic data on the viewer with the demographic characteristics of the target audience, which then provides the opportunity to serve a targeted advertisement.

The more cross-referenced databases that can be mined, the more specific the targeting and the more effective the advertising.

This new capability presents a set of opportunities and challenges for advertisers. In certain verticals, advertisers will be able to target display ads with increased specificity, as is being done now in the search advertising market. This should lead to better response rates and conversions.

There are, however, some caveats on the wide distribution of this technology. The effectiveness of behavioral targeting requires large transaction volumes in order to have the data set necessary to segment ads by geography, age group, sex and purchase preference. This limits the application to specific verticals.

While the opportunity to enhance precision in targeting exists, it also brings forth a significant challenge: the application of more advanced targeting technologies that reveal hard ROI will increase advertising rates.

The burden will be placed on the advertiser to determine whether this increase in rates is offset by increases in performance, which requires investment in technologies to evaluate display advertisements versus search at the ad level.

As with search, this is a non-trivial task. It introduces a massive amount of data from which the evaluation of the effectiveness and conversion rates can only be accomplished through automation. In many cases, the transaction volumes do not provide the information basis necessary to effectively segment to a level that significantly impacts conversions.

Advertisers should expect this unique capability of the Yahoo! network to be short-lived.

MSN in particular, through its Passport data on the demographics of users of the Microsoft platform, will be able to leverage Atlas to serve display ads through the aQuantive system in a way similar to Yahoo!. In addition, both Google and Yahoo! are not limited to a specific network due to the ubiquity of the DART and AQNT tags.

All in all, Yahoo has discovered the secret to success: the platform with the most information about consumers wins. Being able to demonstrate improved targeting capabilities, both for search and for display advertising, through the integration of unique third party demographic data will become a key attribute of advertising platforms, necessary to attract advertisers and to justify rates based on conversion performance.