NEW YORK ( TheStreet) -- Jim Cramer made an interesting observation about Web ads on CNBC last week -- they stink. Cramer made the point that Web companies that are dependent on basic banner ads and other display ads are seeing their business just evaporate. AOL ( AOL) and Yahoo! ( YHOO) are two companies that have been struggling since the first quarter of last year with sustaining their ad-based business. Although AOL has seen some marginal increase in its display ad business in the last quarter, it has been under enormous pressure in the last year to sustain that business. It launched its ambitious Project Devil initiative last spring in order to try and face this problem head on.
The problem is that there appears to be an infinite inventory of ads on the Web. Not many consumers are interested in clicking on them. The laws of basic supply and demand suggest that prices in that environment will drop and they have. The aim of Project Devil was intended to combat that problem by creating new kinds of ads that would appeal to publishers and seem unique to users. The ads were much larger and more interactive than basic ads. They take a lot more time to create but the early indications were that consumers had a higher click-through rate for these ads compared to the run-of-the-mill ones. Yet, AOL hasn't spoken much about Project Devil since the summer. One of the challenges is the time needed to build these ads and therefore the ability to get them out there on scale. Another issue that has come up is how such ads take up the entire web page. People wonder if that lowers AOL's overall display ads because they have to give up some relied on revenues today for the hope of greater Project Devil revenues in the future. For whatever reason, we haven't heard much on Project Devil recently. Yahoo! has also seen its display business challenged since the second quarter -- and that's been the greatest strength for the whole company. Its response to date has been to try and be more efficient at matching ads to the right viewers and cutting out the middle men handling their Class 2 inventory. With new CEO Scott Thompson and his background in data at PayPal, he will certainly maximize whatever value is there that's not being captured.