February 20, 2009

Yahoo's been arguing for years that its two main advertising businesses, search and display, are stronger together than separately, but a new development Wednesday could illustrate just how much truth there is to that statement.

Traditionally, search ads combine a short amount of text with a Web link, but Yahoo is testing the use of display ads such as graphics and video alongside search results in "Rich Ads in Search," described in a blog post Wednesday. The move opens a new chapter in the company's competition with Google, whose search-driven ad system dominates online advertising.

Right now, Yahoo argues one of its strategic advantages is being involved in both search and display advertising. For example, people's search terms help Yahoo better target display ads, the company has said. But so far the company's search and display ads are widely separated operations, with advertisers grappling with independent systems to use both types of ads.

Now that's changing. The company has been testing rich ads for search since the fourth quarter, and now has opened the invitation-only program to more people. Later this year, though, Yahoo plans to integrate them with its Panama search-ad technology, which will make the technology a self-service operation that won't require Yahoo ad sales personnel to manually set up the ads, spokeswoman Kristen Morquecho said Thursday.

Given Yahoo's large base of display advertisers, the move has the potential to change the online advertising balance of power. Google holds the biggest search market share by far, but Yahoo's roughly 20 percent share is considerable, and if advertisers like branded search ads, it could help the Internet pioneer bolster its revenue.

Google hasn't tried display ads in its search results, though it has experimented with "plus boxes," small icons that if clicked can show images. Although Google acquired Doubleclick in 2008, Yahoo remains the leader in display ad technology.

Another reason the ads could appeal to advertisers: a recurring issue between Google and advertisers is the fact that advertisers in the United States can bid on rivals' search terms. Google won one search keyword trademark lawsuit over Geico; American Airlines settled a related suit against Google earlier this year and now is suing Yahoo.