ORLANDO, Fla. (AdAge.com) -- For the past year, Wall Street has clamored for Yahoo to do something about its search business, a distant No. 2 to Google. But Madison Avenue hasn't been so sure that's a good idea. And now Yahoo is binding its search business more tightly to its market-leading display-ad business.
This week the company announced it would start targeting display ads across Yahoo and its 500 network sites based on search queries, what it calls "search retargeting." The announcement comes a week after Yahoo started showing display ads against search results. Taken together, the two moves seem to indicate Yahoo is building a case for why search should remain part of the company.
This is also a glimpse into what advertisers have suggested could be a long-term advantage for the beleaguered portal. Yahoo might be No. 2 in search, but it has an opportunity to use that channel to make display, a category it leads, more valuable.
Until now, Yahoo has targeted ads based on the clicks web surfers leave behind. Now, those who use Yahoo search won't have to click; their search terms will be used to serve them ads based on keywords they've typed into Yahoo's search engine.
"It's a more refined technical offering and the next level of targeting," Yahoo Senior VP-Advertising Joanne Bradford said in an interview at the Interactive Advertising Bureau conference here. The offering will be sold on a cost-per-thousand-viewers basis, but for a premium over the price of less-targeted ads.
Advertisers say search retargeting is likely to yield better returns than less targeted ads and give them deeper data about Yahoo search users, who are more likely to be users of other Yahoo services.
Bryan Wiener, CEO of digital agency 360i, said merging search with other targeting data is more likely to lead to a "conversion," which could mean anything from a click to a purchase.
"The beauty of search is you're capturing interest at the point in time when they're most engaged in seeking information," he said. "To be able to follow up on that search with additional messaging in a display unit is very powerful from a conversion perspective."
While Yahoo is integrating search into its display business, Microsoft CEO Steve Ballmer has indicated that if Yahoo wants to combine its search business with his, he's interested. In a Microsoft Strategic Meeting update yesterday, he told analysts that he would like to find a way for Yahoo and Microsoft's search teams to come together and provide greater competition for Google.
That's not off the table. New Yahoo CEO Carol Bartz has said she would pursue options for Yahoo's search business, including a joint venture or sale of the business, perhaps to Microsoft. Yahoo has explored options for its search business in the past, including an attempted search-ad deal with Google that failed to pass regulator muster. But even in the Google deal, Yahoo was adamant that it would retain responsibility for "algorithmic," or natural, search results, because doing so would allow it to use valuable data about what users are searching for.
And while advertisers say they'd like to see stronger competition to Google, they also argue Yahoo needs search because it is closely linked to display.
"No marketer just uses one media type," Ms. Bradford said. "We think it's important to have multiple media types."
Google is sitting on the world's largest trove of search data, but it lacks scale in display. However, it is making inroads into Yahoo's area of dominance.