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Yahoo Buying Ad Network for $300 Million

Yahoo Inc. is buying online advertising network BlueLithium for $300 million in cash, building upon an expansion aimed at ending a financial malaise that has ravaged the Internet pioneer's stock price.

The deal announced late Tuesday marks the latest step in Yahoo's attempt to regain some of the ground that it has lost during the past three years to Google Inc., whose Internet-leading search engine propels the most lucrative online ad network.

As part of its comeback efforts, Yahoo recently spent nearly $700 million to buy a major online ad exchange, Right Media Inc., and upgraded its system for distributing ad links tied to search requests. The Sunnyvale-based company also has extended its reach by agreeing to deliver ads to more partners, including the Web sites of Internet auctioneer eBay Inc., cable provider Comcast Corp. and hundreds of daily newspapers.

Yahoo is betting it can boost its recently sagging profits by offering more ways for Internet advertisers to connect with consumers shopping for products and services on the Web.

Besides operating a large ad network, BlueLithium provides tracking technology, known as "behavioral targeting," that identifies Web surfers with particular interests so the ads they see will be more interesting to them. As an example of how this works, a person who had been looking up information about home loans on the Internet would be more likely to see ads about mortgages.

"We think this is the next logical step in our evolution," said Todd Teresi, senior vice president of Yahoo's publisher network. A long list of major advertisers, including General Motors, already rely on BlueLithium, Teresi said.

Both Google and Microsoft Corp. also are trying to supplement their advertising services through acquisitions. Microsoft last month completed a $6 billion takeover of aQuantive Inc., while Google hopes to buy DoubleClick Inc. for $3.1 billion if it can gain approval of federal antitrust regulators.

Yahoo expects to complete the BlueLithium deal before the end of the year.

Privately held BlueLithium says it became profitable three months after its 2004 inception. The San Jose-based company has about 135 employees scattered in 10 offices in the United States and Europe.

Once the kingpin of Internet advertising, Yahoo has been trounced by Google in recent years.

Yahoo's profit fell by nearly 7 percent to $303 million during the first half of this year, while Google's earnings soared 47 percent to $1.9 billion.

The disparity has dismayed investors, contributing to a nearly 40 percent drop in Yahoo's stock price since the end of 2005. Yahoo shares rose $1.24 to finish Tuesday's regular session at $23.97 before the BlueLithium deal was announced, then increased by another 15 cents in extended trading.

Wall Street's backlash prompted Yahoo Chairman Terry Semel to step down as chief executive in June and turn over the reins to company co-founder Jerry Yang.

Yahoo negotiated the Right Media acquisition while Semel was still CEO, so the BlueLithium deal represents the company's first major purchase under Yang's leadership. Yang has promised to provide further details about his turnaround plan when Yahoo announces its third-quarter earnings next month.

Several key positions in Yahoo's advertising operations already have been reshuffled under the management of its new boss, former chief financial officer, Susan Decker.

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