Yahoo!'s (YHOO) high IQ ads

Yahoo!'s (NASDAQ: YHOO) bread and butter, the display advertising business, is not growing very fast. Revenue from that source rose only 13% in Q2. The company has launched an upgraded version of its search ad business, Panama, but the portal still have a lot of display space to fill.

The solution that Yahoo! hopes will work is what The Wall Street Journal is calling "SmartAds". Under the program, advertisers give the big internet company a large number of creative units. These are served based on the search behavior of individual users. Young people looking for imported cars in the New York area would get a different display ad than someone over 50 looking for an expensive domestic car.

The market for ads based on targeted behavior is expected to be $1 billion in the US next year.

Yahoo!'s biggest challenge will be to get a working system that has the scale to handle large ad campaigns to market soon. Other large internet companies including Google (NASDAQ: GOOG) and AOL are working on display targeting of their own.

Yahoo! has a reputation of being late to the game on new technologies and trends that drive internet traffic and ad dollars. That may be why its shares trade near 52-week lows.

The question is not whether the company has the technology. It is whether it can execute before its competition.

Douglas A. McIntyre is a partner at 24/7 Wall St.