• by Tameka Kee , September 6, 2007

Yahoo's imminent acquisition of the BlueLithium ad network for $300 million comes at the midway mark of CEO Jerry Yang's 100-day strategic planning period, on the heels of a management overhaul by president Sue Decker, and prior to government clearance of rival Google's deal to buy DoubleClick.

Incorporating San Jose-based BlueLithium's targeting and analytics technology will bolster Yahoo's ability to serve behavioral and contextual ads both on and off of its Publisher Network, and will improve the Web giant's Smart Ads service.

According to Todd Teresi, senior vice president of the Yahoo Publisher Network, the benefits go beyond enhanced behavioral targeting. BlueLithium will help Yahoo move into the performance-based online ad space, with the ad network's sales teams providing insight into the needs and habits of direct marketers. The deal also diversifies Yahoo's inventory options, as BlueLithium will also help balance longer-term, strategic partnerships with companies like Comcast and McClatchy, through spot buys and short-term ad bundles.

Contrary to prevailing opinions about Yahoo's inability to be decisive, Teresi said the Web giant had worked with a clear road map. "We have methodically identified where we need to move and move quickly. The strong, off-network deals with companies like eBay, Comcast, and the newspaper consortium were the first steps, acquiring Right Media was the second step, and now increasing direct marketing and performance expertise with BlueLithium is the third," said Teresi. He added that the strategy was about having all the tools, capabilities and processes to effectively manage such a massive network.

The BlueLithium acquisition is the kind of bold move that financial analysts had been nudging Yahoo to make in order to strengthen its global ad offering, boost earnings, and improve market perception.

Industry insiders on Wednesday said the move was not surprising--as BlueLithium's size and brand equity made it an attractive buy, and the momentum from this spring's feeding frenzy (with WPP, AOL, Google and Microsoft all acquiring ad networks) was bound to continue.

"Yahoo bought two, AOL bought two. The category has shown it's got a lot of value, and I'm pretty sure we'll see at least two more [acquisitions] before the end of the year," said Mike Cassidy, CEO of Undertone Networks. "They can double BlueLithium's business in a few years, and it complements the Right Media purchase, which was valuable, but not a full solution."

But Cassidy also thinks keeping the ad network out of a competitor's grasp was a major factor for Yahoo. "They realized that if they didn't buy BlueLithium, a potential competitor, a vendor, or even one of their customers would make that acquisition. And while $300 million is a rich purchase price for the size of the company, it's still pretty cheap for Yahoo," he said.

"This was a move that Yahoo had to make to stay competitive with Google and MSN. Since both companies have purchased ad networks recently, Yahoo has been limited to its own properties and a fairly small publisher network plus the Right Media exchange," said Martin Laetsch, senior director of search strategy at SEMDirector. "This acquisition will enable Yahoo to maintain its role as a key player in the online advertising space, as the deal will expand Yahoo's share of the display advertising market to include an additional 145 million unique visitors per month."

Shoring up its display offering is key to Yahoo's growth, as sub-par display ad performance is partly what dragged down the Web giant's second-quarter numbers. But according to Roger Barnette, president of SearchIgnite, it's the ability to offer diversity--from high-quality and remnant display inventory, to search and behavioral ads, to CPA and auction-based pricing--that Yahoo was seeking. "Increasing the breadth of their product offerings gives Yahoo the option of reaching different kinds of advertisers--and sometimes even different budgets within the same advertiser," said Barnette.

And if Yahoo can merge BlueLithium and Right Media's technologies--thus expanding the auction-based model to behavioral, direct response, and even video and offline channels--it will create a more aggregated and yet targeted media buy, said Barnette. "It will push the ball forward on auction-based buying industry-wide. But that's a pretty daunting task to do in the short term," he added.