• by Mark Simon , July 9, 2007

A good number of the online searches I do -- perhaps even the majority -- are about search. But I'm not looking to hire a search firm. And that's a real problem for behavioral targeting programs like Yahoo's new Smart Ads.

Consider the explanation of Smart Ads provided in the program's demo. If I regularly play poker on Yahoo Games, the demo tells me, and I run a search for "Las Vegas deals," the system assumes I'd like to fly out to Las Vegas. The next time I'm reading Yahoo News, Smart Ads will show me an ad for flight deals to Las Vegas.

It's a fair assumption that if I dedicate a good chunk of my online life to Vegas and poker, then I'd like to head out to Sin City. But that assumption isn't always right -- because a lot of our online activity is purely research, and will never amount to a transaction. I, again, do a lot of online research about search marketing, but I'm not looking to hire a search marketing firm anytime in the near future. By the same token, plenty of kids could read up on how to buy World Series tickets, but very few parents would pay for their kids to go.

To be truly efficient, it's not enough to build up a history of your users. You need to understand just how siloed online life really is -- between research and purchases, personal life and work life, and even between the multiple users who might be sharing a single Yahoo account on a single computer. The online world is siloed in many and often subtle ways; to get maximum efficiency, the best behavioral targeting systems work brilliantly at parsing those subtleties. But the jury's still out on whether Smart Ads is one such brilliant system.

Am I saying that Smart Ads is a bad program? Absolutely not. Any targeting is good targeting; and, even with its potential flaws, Smart Ads looks to be the start of something superb. On its initial test-run, Yahoo found that click-through rates for Smart Ads were at least double the standard for static display ads. Of course, initial test results don't always reflect what happens in real life -- but these results do sound extremely promising.

But even so, Yahoo is under enormous pressure to perform. All eyes are on Yahoo to see how it will pick itself up again, and in that environment, tremendous steps forward can still be mixed blessings. Even if Smart Ads turn out to be amazing, the system could still hurt Yahoo if it doesn't live up to its full promise.

Take Panama. Though a platform of that complexity takes the better part of a year to ramp up to full steam, plenty of industry analysts were ready to voice disappointment within a few months, and Yahoo's reputation was hurt by the criticism. Now that Terry Semel is out, Yahoo is at a clear turning point, the scrutiny of Yahoo will only grow, and any disappointment will only show up quicker than it has before. That's the environment in which Smart Ads has been introduced.

The situation highlights the predicament Yahoo finds itself in now. On the one hand, the Street has given word that going aggressive will be critical to Yahoo's recovery, and the industry has long complained that Yahoo hasn't done enough to integrate the sectors of its far-flung online kingdom together. Smart Ads ties together content and search, and shows the world just how Yahoo plans to come out swinging from its slump.

But at the same time, as I said above, anything Yahoo does now will be subject to Wall Street's fine-tooth comb -- and so even acceptable difficulties may be seen as dire when they're coming from Yahoo. That, after all, is the state of Yahoo today. It's berated for dragging its feet when it moves too slowly; but when it rushes to compensate for dragging its feet, it's berated again for imperfect execution. In that environment, even a tremendously promising Smart Ads may not get by on promise alone. It needs to excel.

How will Smart Ads hold up? We'll have to see. For my part, I'm looking forward to finding the answer in my next search about the online industry. Of course, as always, that search won't lead to a purchase.