Yahoo is launching a new display advertising product called SmartAds, which allows marketers to offer ads that are customized according to the user's demographics and online activities.

The product, Yahoo SmartAds, would help marketers create custom advertisements on the fly, using information on individual buyers and information on real prices and availability from the vendors. For example, a person who had recently searched for information about blenders might see an ad from Target that gives the prices for the blenders that are on the shelves in the store closest to that person’s home.

While the news look straightforward, the technology I presume powering SmartAds will be quite complex. From the same NYTimes article:

This is how Yahoo’s new system works: the advertiser (or its agency) would provide Yahoo with the components of its display ads — including the logos, tag lines and images. The retailer would share information from its inventory databases that track the items on the shelves in each of its stores. Next, Yahoo would combine that data with the information it has about its users’ demographics and actions online to create a product-specific advertisement.

For airlines, SmartAds uses Yahoo’s information about its Web surfers to create display advertisements for each person that feature ticket offers with actual prices listed. In time, Yahoo plans to offer rich media advertisements where users can buy the ticket at that price right within the ad unit, rather than having to click through to another Web site.

Yahoo is not the only one targeting user demographics and online activities. Similar thing is being experimented in Microsoft adCenter. Check out the Demographics Prediction and Local Ads by PC Address Tools from Microsoft adCenter Labs.

Demographics Prediction: You can use adCenter technology to predict a customer's age, gender, and other demographic information according to his or her online behavior-that is, from search queries and webpage views. General Distribution is the breakdown by age of MSN Search users-based on a one-month MSN Search log-regardless of search query used. Predicted Distribution is the predicted breakdown by age of MSN Search users for a single search query, based on the adLabs predictive model.
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Local Ads by PC Address: Microsoft adCenter technologies can detect customer's location by his or her computer's IP address and then list relevant local ads based on this location.