Yahoo! Acquires BlueLithium for $300 Million

Yahoo! announced Tuesday its intention to acquire BlueLithium, an online advertising network provider, for $300 million in cash. The deal, which is expected to finalize before the end of the year, is seen a move by the search giant to improve its own online ad network and to boost total revenue, and comes as the company has been slipping compared to top competitors Google, Microsoft, and Time Warner's AOL. "What Yahoo! is looking to do is increase its reach across properties outside of the Yahoo.com world and [purchasing BlueLithium] certainly does help them do that," says Emily Riley, an analyst at JupiterResearch. While Sunnyvale, Calif.-based Yahoo! does have its own behavioral targeting capabilities, which also monitor search behavior, Riley adds that it will rely on the technologies of BlueLithium to help "measure behaviors outside [Yahoo!'s] own network, or serve ads outside [its] network. So this gives [the company] that wider reach outside the Yahoo! properties that [it] was looking for." With this capability, Yahoo! can even measure online customer behavior of its partner sites. Yahoo!'s move may also be seen as a response to competitors, several of which have made recent acquisitions. The BlueLithium announcement comes on the heels of Time Warner's acquisition of Tacona, a provider of targeted online marketing technology, and just a few months after's Google mid-April acquisition of DoubleClick. (In picking up BlueLithium, Yahoo! may also be grasping at leftovers: DoubleClick, Riley says, is the best-known name in the ad-serving space.) In the aftermath of Google's purchase, Microsoft in mid-May acquired aQuantive, whose Atlas component competes with DoubleClick. "I think many of the large players realize that ad-serving in general is really the key to revenue generation online," Riley explains. Strategically, Riley adds that "the more they control the platform and the ads themselves, the more they stand to win over the long term." As it turns out, Yahoo! might have been looking for a long-term solution: The company's profit fell by nearly 7 percent to $303 million during the first half of this year, while Google's earnings over the same period rose 47 percent to $1.9 billion, according to the Associated Press. In April, Yahoo! had acquired the 80 percent of open media exchange Right Media that it didn't already own, for $680 million (the total price, including the initial 20 percent acquired last October, was closer to $900 million). Riley considers that purchase to have been "pricey" since Right Media lacks the functions typical to a network -- such as behavioral targeting and analytics -- and focuses more as a technology platform "for massive reach and scale for generic ad-serving--for banners," she says. Therefore, she adds, the acquisition "was really more just simply about the technology itself and the promise of creating a marketing place." BlueLithium's focus on tracking behaviors as well as advertiser and publisher relationships will make the acquisition a nice complement to Right media, Riley says. Only three years old, San Jose, Calif.-based BlueLithium is already recognized as the fifth-largest U.S. online network and the second-largest in the U.K. Purchased at a more modest price than were some of the earlier acquisitions in the space, Riley explains that BlueLithium is relatively brand new and the relationships the company has "are not at the same level" as those enjoyed by Right Media, DoubleClick, or aQuantive. With that in mind, she adds, aside from some valuable relationships, Yahoo!'s main goal in acquiring BlueLithium "was [more] for the technology." For the past three years, Yahoo! has been trailing behind Google, which currently hosts the "most lucrative online ad network," according to the Associated Press. But even though Google, as Riley puts it, wins "hands down" in the search- and text-advertising categories with AdSense and AdWords, Yahoo! leads the industry with Yahoo! Mail, which contains the "largest single banner-advertising piece of inventory online today," she says. As the largest free email service online, Yahoo! Mail hosts more banner ads than any other. Because the ads lack targeting capabilities, however, their overall value to advertisers is relatively low, Riley says. Yahoo! Mail will need to be "more profitable, become more targetable, and just become more desirable in general for advertisers," Riley says. If Yahoo! doesn't deploy behavior targeting, as Google does in its email service, the company will have to rely on performance, Riley says--testing various banners and seeing which ones work. Although Yahoo! lags behind its competitors overall, Riley still provides a complimentary assessment of its offerings. As an online ad network, Yahoo! supports a "nice package that spans both display and search advertising," she says. Furthermore, she adds, Yahoo! has achieved "good integration on the sales cycle and on the reporting cycle that does make advertisers' lives a little bit easier and it makes it a little easier to see a full picture of what a consumer is doing across both search and displays." Even after the BlueLithium acquisition, Yahoo!'s journey is far from over, Riley warns. The company still needs to strengthen its search capabilities, the source of most online revenue. Otherwise, or perhaps in addition, Yahoo! will have to beef up the value proposition of its banner campaigns -- "either through higher-quality content or through behavioral targeting," according to Riley. After all the acquisitions and the steps taken, "it will be interesting to see how Yahoo! manages not only the expanded advertiser relationships but how they work with publishers on the display side," Riley says. Related Articles Yahoo! Is the New E-Biz Satisfaction Leader The site, known for its strong portal business, has unseated perennial leader Google. European Online Marketing: A Continental Divide Europeans are set to double their online marketing spend over the next five years, thanks to consumer interest in the Web and marketers' growing affinity for online ads. Feature: Endless Possibilities Web designers now enjoy unlimited site enrichment tools, which will help companies take e-commerce sites to new levels as broadband adoption rates soar. Re:Tooling: Tech Solution: Search engine marketing tools Business Problem: A company's marketing department cannot effectively track and manage campaigns across multiple search engines. 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