Yahoo! Defends Ad-Sales Turf

"There is a lot of nonpremium inventory being created from many sources, including user-generated content as well as from traditional companies," Yahoo! CEO Terry Semel said in an interview on Monday. "That raises the question of how that inventory gets the best exposure, and we were fascinated by what we saw Right Media doing and the reactions we were seeing."

The increasing mix of lower-priced nonpremium inventory slowed the growth rate of Yahoo!'s overall display ad revenue during the first quarter and caused the company's share price to tumble after Yahoo! reported its latest quarterly results.

Google's(GOOG Quote) recent charge into the display ad market through its $3.1 billion acquisition of DoubleClick will likely put further pressure on Yahoo! in an arena where it has long assumed its lead.

In the short term, Yahoo! is hoping to increase the rates that its growing roster of nonpremium spots command by bringing more buyers into the mix.

"We believe the biggest fundamental issue regarding Yahoo! shares now is the significant deceleration in its display ad business," Citigroup analyst Mark Mahaney wrote in a research note on Monday. "If this deal allows Yahoo! to materially better monetize its nonpremium display ad inventory (perhaps one-third of its total display inventory), then we believe this deal will work." Citigroup makes a market in Yahoo! shares.

But far from Yahoo!'s merely boosting prices for nonpremium inventory, Semel sees a "revolutionary" potential in the "open" model -- one in which a marketplace dictates a price, as opposed to one in which prices are predetermined -- that Yahoo! is seeking to forge.