Yahoo! has announced a new display ad format that could potentially be huge. From The New York Times:

The product, Yahoo SmartAds, would help marketers create custom advertisements on the fly, using information on individual buyers and information on real prices and availability from the vendors. For example, a person who had recently searched for information about blenders might see an ad from Target that gives the prices for the blenders that are on the shelves in the store closest to that person’s home.

How it works is pretty simple:

1. Advertisers provide Yahoo! with graphical creative like logos, slogans, etc.
2. Advertisers provide Yahoo! with a feed to their databases of inventory, prices, etc.
3. Yahoo! uses information like a person’s most recent searches, settings and/or customizations in Yahoo! services (like zip codes, sex, age, etc), and other behavioral information to create a personal snapshot of the user.
4. Yahoo! combines the provided creative, information from the advertiser’s database, and the information it has collected into a customized, relevant graphical ad on the fly.

So let’s say you were searching Yahoo! for Barry Manilow’s Greatest Hits. Yahoo!’s system would know where you were from the zip code entered in your Yahoo! profile. The advertisement displayed to you would show the current price and inventory level of Barry Manilow’s Greatest Hits at the CD Warehouse down the street from your house. In the future, Yahoo! says the advertisements will even allow people to make purchases right from the ad space… without having to click through to another site.

For now, SmartAds are being phased-in on a per-industry basis. The ads are currently available to the travel industry and will run on Yahoo!’s owned properties. Over the coming months, the company plans to roll SmartAds out to other verticals as well. Eventually, the ads will be available across the entire Yahoo! network.

According to the company’s official press release, testing of SmartAds against traditional display advertisements resulted in 2 - 3 times the click-through rate.

This could potentially be a huge boon in display advertising. So far, display ads have been pretty static in the information they could display. Systems have been in place to select pre-created display ads based on behavioral/contextual information. But, like I said, those ads are pre-created and static. SmartAds will give advertisers the option of creating ads that literally speak directly to the person looking at them.

What do you think about this technology? Would you be more likely to click on ad if it was specifically displaying information to you? Do you think the stigma attached to display ads can be overcome with personalization?

More discussion at Techmeme