Google’s AdSense programme is finally going to get some competition. What does Yahoo’s move into lower-traffic site advertising mean for the Web?

Yahoo is poised to launch an ad network for small Web publishers styled on a similar offering from Google, sources familiar with the plan told ZDNet UK sister site CNET News.com, a move that promises to sharpen competition between the search giants.

While Yahoo and Google already go head-to-head for major search advertising partners such as America Online, Google has largely enjoyed a monopoly serving its signature text-only ads to smaller Web sites, including blogs.

Now Yahoo plans to launch its own advertising option for small publishers, a source familiar with the plan said. Like Google’s service, Yahoo’s self-serve product will display text ads deemed relevant to the content of specific Web pages. Advertisers pay only when a reader clicks on their ad. Yahoo and publishers will split the fees.

UBS Warburg this week upgraded Yahoo on expectations that the company will enter this new arena. In a further sign that a launch may be imminent, text ads have recently been spotted on some Yahoo employee blogs.

Dan Boberg, director of business partnerships for Yahoo subsidiary Overture Services, confirmed in an interview last week that Yahoo is interested in the market, although he declined to discuss details. “We’re headed in that direction,” he said.

Yahoo’s push to expand its advertising reach comes as the market for search advertising is taking off, fuelling record revenue and profits at the Web portal. At the same time, Yahoo is busy looking for new revenue sources as it seeks to transform itself into an online media conglomerate and beat Google in the Web search game.

Tapping small publishers offers a promising growth path, given Google’s earlier efforts in this niche.

In June 2003, Google expanded its ad services for large publishers, dubbed AdSense, adding a self-serve, automated product specifically aimed at small sites. As opposed to search-related ads, which are triggered by keywords entered into its search engine query bar, AdSense ads are targeted to the content of a page and its meaning. For example, a news story about a soccer match might display a sponsored link for soccer gear.

Google does not break out AdSense sales but includes them in a broader category that encompasses all syndicated search revenue. Collectively, those businesses made up 48 percent of Google’s $3.1bn in revenue in 2004.

Bringing ads to small publishers would expand Yahoo’s current advertising portfolio, which caters to its search engine and larger Web sites.

Yahoo’s Overture subsidiary, which will be renamed Yahoo Search Marketing next month, has served ads to publisher Web pages since 2003, in a program called Content Match. The service is designed for large publishers, such as The Financial Times, and requires a vetting process to ensure quality when it comes to matching pages with ads.

Courting small publishers
Yahoo has shown increasing interest in courting small publishers of late. Speaking at the Search Engine Strategies show in New York last week, Yahoo co-founder Jerry Yang hinted that the company would do more to cater to the small content owners. Yahoo also recently released Y!Q, code that analyzes the text of a Web page and shows search results based on its content. Publishers can add the code to their Web pages to automatically generate a list of related links.

Yahoo also recently launched a publisher alert service to notify publishers of new publishing and advertising tools.

Web publishers responded positively to news that Yahoo plans to compete with Google, given Google’s unchallenged pricing power to date. Many publishers and industry watchers have also criticised Google for its rigid partnership contracts, which prevent publishers from having visibility into the total money generated from AdSense on their sites and disallow customers from talking about their paychecks.

“Great! More competition should force AdSense and others to give the publishers a bigger piece of the pie,” one publisher wrote on the Webmasterworld.com forum.

Yahoo will face several sticky issues by entering the self-service, automated side of the business. Matching content-targeted ads can also be tricky, and by opening up the service more broadly in an automated fashion, Overture could run into problems.

Google’s AdSense, for example, in the past matched a Fox News article, “Deep Fried Turkey Can Be Dangerous,” with ads to buy a deep fryer at Amazon.com.

In another problem for the industry, fraudulent Web site operators have been known to erect phony sites to bilk money from Google’s self-service ad program a strategy known as click fraud. A click thief might create a Web site featuring legal information and tips, based on the fact that legal ads often fetch high fees per click. It would then sign up with Google’s self-service program to display legal ads, and then unleash an automated bot to click on the ads. If the fraud goes undetected, Google would send a check to the site owner.

Yahoo already employs algorithms and detection methods to fend off click fraud. The company is likely to use some oversight in allowing new publishing partners, according to a source