SmartAds or Sad Marts for Yahoo!

I had three distinct reactions to Yahoo! 's (Nasdaq: YHOO) introduction of SmartAds, which attempt to target display ads more efficiently by basing their content on what the site knows about individual users.

Google (Nasdaq: GOOG).I can rearrange SmartAds to spell "sad marts." Anyone who's been burned by Yahoo!'s disappointing shortfalls in paid-search market share knows exactly where the sadness comes from.Hey, this is pretty smart.

Keep in mind that Yahoo! actually leads Google in rich-media display advertising. Google's growing quickly -- and its pending acquisition of DoubleClick will make it a titan -- but Yahoo! is still a strong player here.

SmartAds are bound to be unpopular with privacy-watchers who feel that search engines already pry too much into our surfing habits. It may seem too 1984 to see ads based on where you are, past product searches, and how much money you're making. However, that's just the kind of information advertisers crave in pinpointing ideal candidates for their marketing messages.

Smarter search technology is a major reason why the search-engine stars -- Google, Yahoo!, Microsoft 's (Nasdaq: MSFT) MSN.com, and IAC/InterActiveCorp 's (Nasdaq: IACI) Ask.com -- are companies worth watching. Local.com (Nasdaq: LOCM) shares soared nearly 30% yesterday, solely on the news of a patent win in online directory-assistance services.

So I'm cutting SmartAds some slack. If the technology serves up higher-converting ads, Yahoo! will be able to charge more. It would be great to see Yahoo! milk more from every page it serves. That's definitely better than DumbAds -- which I guess I could rearrange as "bad muds."