Yahoo Acquisition of BlueLithium May Help Close Analytics Gap

It's very clear now that one of Yahoo's principal goals in this latest reorganization, led by once-and-future CEO Jerry Yang and newly elevated President Susan Decker, is to distinguish itself from Google rather than catch up to it. Last week, those efforts culminated in executive reassignments to shore up its content business. This week, they resulted in the company acquiring British advertising firm BlueLithium, perhaps closing one of the most oft-noted gaps in its arsenal: a smart analytics tool.

Boasting of a higher overall audience reach than Google Search, AOL, MSN, or eBay by virtue of the sites it targets, BlueLithium positions itself as an advertising network in much the same way Right Media - last year's Yahoo acquisition - positioned itself as an advertising network.

But mechanically speaking, they're two different beasts. While Right Media brought a unique, open "ad market" approach to the table, BlueLithium brings an extensive toolkit for advertisers who insist on smarter applications for tracking user behavior at a more granular level.

Yahoo had been using an analytics toolset it inherited during its 2003 acquisition of Overture - a brand of "deep analysis" software originally called Keylime. But by November 2005, when Google rolled out its first full-scale analytics feature for campaign-scale advertisers, the Keylime package was already deemed old and outdated. Reviewers still liked its more intuitive approach, but conceded that Google's tool yielded more data - not exactly as intelligible, but more data nonetheless.

This despite the fact that just months earlier, Google acquired analytics firm Urchin, with the stated goal of helping its customers better understand how their users are interacting with their sites.

So what will yesterday's BlueLithium acquisition buy Yahoo that it didn't get with Urchin and Keylime? Quite possibly a unique mindset and approach to the business - as unique as Right Media's approach to its advertising exchange.

Despite boasting of its own massive audience reach, BlueLithium's approach is to create an extremely fine-grained segment of an advertiser's core audience -- truly, just a few people who fit a detailed profile and who best represent the advertiser's prime customer -- and follow the behavior of that customer with an exhaustive array of data. Then, using heuristics, its tools can - according to the company - help identify possible members of that fine-grained target set based on behavior, not identifying data.

What that implies is the potential absence of personally identifiable data in making judgments about a customer. This assumes you can buy into the theory that an analytics tool can isolate someone belonging to an "IT influencer" or "online poker player" group (two examples taken from BlueLithium's own literature) based not on who she says she is but by what she's doing, when she's doing it, and how often. Consider it a kind of "behavior signature."

"One of the capabilities that differentiates BlueLithium from other 'next generation' ad networks," reads the company's online brochure, "is our ability to effectively combine behavioral with demographic and contextual targeting within a single campaign." Once it has broken down these individual behaviors, it goes on, "our optimization technology then takes over, making sure each user across our network sees the most relevant ad no matter what site they're on."

Just last month - probably while negotiations between the two companies were in the works - BlueLithium released a white paper (PDF available here) whose contents presented perhaps exactly the message Yahoo would want to hear: A site's whole ad targeting process works so much more effectively, it concluded, when its publisher is in charge of its own editorial content rather than its users.

"There has been extensive trade press coverage about the risks and rewards of advertising in user generated online content [UGC]," BlueLithium's white paper stated. "However the public discussion has focused on issues of brand integrity." In other words, does the public put enough faith in a publishing brand presenting mostly or entirely UGC, to trust clicking through to its advertiser?

The study concluded that while there was an obvious price/performance benefit to investing in UGC sites for limited campaigns, if an advertiser expected to generate real "conversions" - making viewers into paying customers - they needed to rely on major Web sites that produced their own content in-house. "If marketers are not running ads on UGC and don't want to participate in that media type," stated BlueLithium, "dollars should be steered towards the comScore 250, as they outperformed other non-UGC sites from an ROI [return on investment] perspective."

Yahoo's Decker stated this morning, "BlueLithium's expertise in network management will better enable Yahoo to manage supply and demand across our network, by balancing advertiser goals with publisher value."

She then referred to last year's Right Media acquisition, giving investors a clue that the company is strategically integrating its acquisitions together -- or at least plans to -- rather than stacking them atop one another so that the newer one overrides the older one. No matter the outcome, it appears that this Yahoo reorganization -- the latest of several -- is being conducted with a fine-grained strategy in mind.