(Adds background, comments from Google executive and analyst; updates with closing share price.)
By Scott Morrison
Of DOW JONES NEWSWIRES
SAN FRANCISCO (Dow Jones)-Google Inc. (GOOG) said Monday it agreed to acquire display advertising startup Teracent Corp., which has developed machine learning algorithms designed to deliver optimized Web ads in real time.
The acquisition is Google's latest move to bolster its presence in the online display ad market, a business dominated by rival Yahoo Inc. (YHOO). It wasn't immediately clear how the deal will affect Teracent's partnership with Yahoo to deliver mobile ads.
"The Google threat to Yahoo in display is still largely in the future, but Google is building up a pretty significant war chest to take on that side of the market, potentially at Yahoo's expense," said Gartner analyst Andrew Frank.
Terms of the deal weren't disclosed.
The algorithms developed by San Mateo, Calif.-based Teracent allow advertisers, agencies and ad networks to pick and choose the format of display ads in real time, such as changing an ad's images, products, messages or colors.
The formats vary based on the user's geographic location, language, the content of the Web site, or the past performance of different ad formats. The technology can be applied across image, rich media and video ads.
Google, which makes almost all of its revenue from text ads that appear next to search results, indicated its interest in display ads by acquiring DoubleClick for $3.1 billion last year.
Neal Mohan, a vice president who oversees Google's display business, said Teracent technology would be integrated into Google's ad network and DoubleClick offerings.
Google Chief Executive Eric Schmidt said in October the company was once again looking at acquisitions and expected to buy on average one small company per month. He said Google had looked at a handful of startups working on better ways to sort and deliver display ads.
Google earlier this month bought Internet telephony startup Gizmo5 Technologies Inc. and mobile advertising group AdMob Inc.
Google shares closed up 2.2% at $582.35.
-By Scott Morrison, Dow Jones Newswires; 415-765-6118; scott.morrison@dowjones.com