Yahoo! to Buy BlueLithium

NEW YORK Yahoo! became the latest large Internet player to buy an ad network, inking a deal to buy BlueLithium for $300 million in cash.

The deal will bring to Yahoo! a performance display ad network that uses behavioral-targeting technology to match ads to users on about 1,000 Web sites. According to comScore MediaMetrix, BlueLithium is the No. 6 ad network in the U.S., reaching 120 million users in July.

Yahoo! hopes the move will give it larger chunks of direct response budgets.

“Our brand business is doing really well and we’re encouraged by work with major marketers around the world,” said Todd Teresi, svp of display marketplaces at Yahoo!. “We have the ability to create additional opportunities within the direct-marketing space.”

“This is a trend of aggregating more inventory, especially behavioral inventory, to give advertisers more scale and simplify the media buy,” said Bryan Wiener, CEO of 360i, a New York digital agency.

“It goes along with their strategy which is around owning Web inventory and having the greatest scale,” said Carl Fremont, global media director at Boston-based i-shop Digitas. However, he added, “BlueLithium doesn’t have any great technology or any proprietary processes the way Right Media does.”

The move comes as Yahoo! is in the midst of a changing of the guard after co-founder Jerry Yang replaced Terry Semel as CEO in June. Greg Coleman, the company’s head of global ad sales, is also leaving the company. Yang is in the middle of a 100-day review of Yahoo!’s operations.

Yahoo! and other Internet giants are morphing from large Web sites to platforms that show ads across thousands of destinations, most of which they do not own. AOL recently bought behavioral-ad network Tacoda, which complements, the Internet’s largest ad network.

Microsoft, as part of the aQuantive deal, gained DrivePM network. Google’s network business now accounts for over half of its revenue.

“Some of the larger players have seen their growth start to slow based on total inventory and users,” said Teresi. “In order to maintain relevancy, they need to make sure they maintain the greatest reach and frequency.”

Yahoo! has made several moves to expand its network business. It now sells ads on eBay, Comcast properties and over 250 newspaper Web sites. The company also bought Right Media, an operator of an exchange for ad networks.

BlueLithium runs campaigns for advertisers like the University of Phoenix, Blockbuster and T-Mobile that look to lead directly to sales or leads. It uses prior Web behavior, such as searches, page visits and ad clicks, to show ads users are most likely to act on. Like most ad networks, BlueLithium does not let an advertiser see where its ads will run.

The portal remains the centerpiece of the company’s business, Teresi said. Without it, Yahoo! would be unable to get deep customer insights from their activity on the site, which it can then use to show ads across the Web.

Yahoo! plans to marry BlueLithium’s data platform with its own, creating a single view of user’s Web behavior. In such a circumstance, a visitor checking out hybrid car information on Yahoo! Green could then see an ad for such a car while on MySpace through the BlueLithium network, Teresi said.

The company signaled the importance of direct-response advertising when it combined its search and display ad sales teams. The head of search ad sales, David Karnstedt, took over the combined entity, while Yahoo!’s longtime brand sales chief, Wenda Harris Millard, departed. Yahoo! also introduced an ad option for direct response advertisers to create targeted display ads on the fly. Yahoo! plans to merge BlueLithium’s sales team with its own by the middle of next year.

The acquisition is expected to close in the fourth quarter. CEO Gurbaksh Chahal will remain with the company during the integration. Teresi said the deal was “open ended” for him to remain.