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Yahoo (NASDAQ:YHOO) has launched an advertising platform called SmartAds, which allows display ads to be customized “on the fly” based on a user’s behavioral profile, taking a significant step towards the long-promised but thus far poorly-delivered paradigm of total customization for online display ads.

The product, Yahoo SmartAds, would help marketers create custom advertisements on the fly, using information on individual buyers and information on real prices and availability from the vendors. For example, a person who had recently searched for information about blenders might see an ad from Target that gives the prices for the blenders that are on the shelves in the store closest to that person’s home.

Search advertising, i.e. keyword driven ad delivery, has shown how much better targeted, highly relevant ads perform, at least as measured by click. But even search advertising is a one-size-fits-all proposition — everyone who types in a particular keyword sees the same ads.

The challenge for ad customization is infinite complexity and the resources required to deal with that complexity, which is a slippery slope — the more data that's available about a user, the more an ad can, in theory, be customized. At the extreme, each individual would see different creative message, perfectly tailored to their consumer psyche. But there are no ad agencies prepared to handle such complexity.

Yahoo’s solution is smart because they aren’t trying to tackle the full complexity. They are customizing the ads based on a product database and they have templatized the creative aspects, which makes creating a customized ad “on the fly” a viable scenario.

In fact, such template-based customized ads are already used in search advertising — for example, compare the Circuit City ad that appears on a search for “hp photo printer” vs. the one that appears for “canon photo printer”:

Google HP Photo Printer

Google Canon Photo Printer

Circuit City (CC) advertises “HP Printers & Accessories” vs. “Canon Printers & More” — it’s customized, but it doesn’t address the fact that I’m looking for a photo printer, and it doesn’t show any products or product-specific pricing in the ad — and a text ad doesn’t really have room for such information. But a display ad does.

The ad also doesn’t take into account other pages I’ve visited in doing my research on printers, which might give more clues as to what I’m shopping for, e.g. have I been checking out reviews for high-priced printers or low-priced printers?

Still, it’s easy to customize a text ad — customizing a display ad could lead down a path of infinite complexity, which has been a huge barrier to implementing customization. But Yahoo solves this problem by using the template approach.

It’s notable that SmartAds is about more than just customization — it’s about navigating the “fuzzy middle between branding and direct response ads,” by building direct response product information into a branding ad. Yahoo is smart to trumpet this in their press release title: Yahoo!’s New “SmartAds” Meld Brand and Direct Response Advertising. There my be even more to gain from bridging the branding/direct response divide (which maps to the display/search ad divide) than from solving the customization problem — or perhaps it’s one and the same.

Given all the data that cookie tracking makes available for behavioral targeting and all of the product data easily available online, it’s a wonder that no one has created such a customized, branding/direct response ad platform before — even more of a surprise that Yahoo beat Google (NASDAQ:GOOG) to the punch.

Good for Yahoo — and good for advertisers, who finally have a way to make their display ads more relevant — and more direct response oriented — without an expensive increase in ad agency resources, and good for consumers, who might actually start experiencing the kind of relevancy in display ads that they have enjoyed in search text ads.

Source: Yahoo SmartAds Addresses Customized Online Display Ad Complexities