Yahoo! Targets Ad Riches

Yahoo!(YHOO) may yet have a card up its sleeve.

With its stock languishing below $35 for nearly 18 months now, the Internet giant is in the best position to capitalize on a rapidly growing trend in advertising called behavioral targeting.

Behaviorally targeted ads, which are "displayed to a selective audience whose interests or intentions are revealed by Web site tracking data," according to research firm eMarketer, accounted for $350 million in ad spending during 2006.

But that number is expected to grow almost 11-fold to $3.8 billion by 2011.

"Targeted advertising in display is the exploding market, compared with search-based advertising," Microsoft(MSFT) chief advertising strategist Yusuf Mehdi told a conference of investors in May.

But Yahoo! -- and not Microsoft -- has what it takes to dominate this field. Yahoo! runs the most visited network of Web sites in the world and is in a solid second place when it comes to search. That gives it plenty of expensive space in which to place ads on -- and lots of data about user behavior to better target those ads.

It may also give the company a way out of a developing conundrum that contributed to the stock getting crushed after it reported first-quarter earnings. Much of the new ad space on Yahoo!'s network is not premium and connected to its most-trafficked Web sites. It therefore fetches lower prices.

To view Vishesh Kumar's video take of this column, click here