Sunnyvale, California — Struggling internet pioneer Yahoo Inc., which is exploring strategic options to regain its lost glory, on Tuesday announced that it has agreed to acquire behavioral targeting network agreed to buy Interclick Inc. for $270 million in cash to help advertisers reach online users with more targeted messages.
The deal is cemented at an interesting time considering since Yahoo is often rumored to be an acquisition target. The Web portal said the deal, in which it valued Interclick at $9 a share, would enrich its data-targeting and optimization capabilities. It will also provide new premium inventory supply drawn from disparate sources.
“This investment emphasizes our focus on enhancing the performance of both our guaranteed and non-guaranteed display business across Yahoo and our partner sites and, combined with Yahoo’s reach and advertising leadership, will deliver a powerful solution for marketers,” said Ross Levinsohn, EVP, Americas region.
Yahoo’s display ad growth has significantly decreased during the last two quarters, in part because of challenges monetizing remnant inventory. The Sunnyvale, Calif.-based Yahoo has been exploring an ad partnership with Microsoft and AOL to compete better with Google. That partnership would pool inventory into premium packages.
In fact, Tim Morse, Yahoo’s caretaker CEO, admitted in the company’s third-quarter conference call that it needed to enhance its earnings on its non-guaranteed ad inventory. Thus, the addition of Interclick’s optimization technology and ad sales force could help Yahoo address that issue. Interclick employees will join Yahoo and get an interesting ride to say the least.
Yahoo may incorporate the purchase to revive sales of display advertising, such as banner ads, which stalled last quarter. The company is seeking a chief executive officer after sacking Carol Bartz in September, and has embarked on a strategy review as it tackles with competition from Google Inc. and Facebook Inc.
“The company needs to embellish their display advertising business, it is not a major acquisition for Yahoo,” according to Colin Gillis, an analyst at BGC Partners who recommends holding Yahoo’s shares, said in an interview. Besides, the deal is not going to alter whether buyers are going to come or not.
Interclick could serve as an adhesive if such an ad partnership were to develop completely. Interclick develops tools to help marketers target online customers. Yahoo noted in a statement that Interclick’s team is [experienced in selling audiences across disparate sources of pooled supply].
Here’s how Interclick’s parts fit together:
“Interclick’s behavioral targeting application could help Yahoo to reap its display advertising revenue faster,” said Kerry Rice, an analyst at Needham & Co. in San Francisco who recommends buying Interclick shares. “Yahoo could give Interclick more resources to expand into areas like mobile and video advertising.”
As for Interclick’s platform, it has two flagship tools–Open Segment Manager and Genome Platform–that combines ad campaigns and data sources. On its site, Interclick mentions that its Open Segment Manager (OSM) is designed to do behavioral targeting at scale. The company said on its Open Segment Manager overview:
The biggest challenge in data targeting was the perceived lack of scale. The scale issue partly stemmed from technical and statistical problems. But we also believed that “single algorithm” approaches had severe limitations. OSM’s new multi-algorithm approach overcomes this by appropriately dealing with core statistical challenges faced in digital advertising: enormous dimensionality, sparsity, noise, rare events, and more.
OSM launched in late 2009.
Interclick founder and CEO Michael Katz stated that the combination of Yahoo’s premium data and inventory with the company’s platforms will create “tremendous value” for clients.
Interclick, which is based in New York City and was established in 2006, had revenue of about $53 million in the first half of 2011. The acquisition is expected to close in early 2012. Yahoo paid $9 a share for Interclick, which closed at $7.40 on Monday.