Wake Up, Yahoo!

When Yahoo! (NASDAQ:YHOO) acquired the pioneer in the lucrative paid search arena, it seemed as though it was just a matter of time before Overture's market leader position, coupled with the marketing muscle of Yahoo!, would leave its rivals eating cyberdust. However, under that assumption, the clock's been running slow.

Overture is still a force to reckon with these days, but one has to wonder how much longer it will be willing to rest on its historical laurels. See, there are two sides to making paid search work. You need the supply of new ads, and market leaders Yahoo! and Google (NASDAQ:GOOG) have fared well on that front of attracting sponsors.

However, you also need the industry's equivalent of demand, and that is page impressions. While arguing that Yahoo! is lacking eyeballs may sound heretical -- I mean, of course, Yahoo! is a traffic magnet in just about every conceivable way -- it did drop the ball when Google launched its AdSense service for small online content publishers last year.

If you ever come across an independent reference site, unofficial fan site, or a renegade blog with text-based advertisements underscored with an Ads by Goooooogle link, then you have been touched by the long arm of AdSense's reach.

Google splits the ad proceeds with the publisher for any generated leads, and everyone is usually happy. While one can argue that the mighty Overture never needed the little webmasters given its established distribution network, the point here is that Google has been carving this market all alone for over a year and plastering the Internet with its brand in the process.

Yesterday, a new player stepped into the game. No, it's not Yahoo!, as it is still tapping the snooze bar button. Kanoodle launched its BrightAds service for small and midsize content publishers.

While BrightAds is less restrictive and more transparent than AdSense, it may suffer on the supply side as it lacks the vibrant high-bidding sponsors that flock to Google and Overture. This isn't to write Kanoodle off as a small fish as it does serve up paid ads on popular sites for MarketWatch (NASDAQ:MKTW), USA Today, and Autobytel (NASDAQ:ABTL).

However, the fact that upstart Kanoodle is now joining Google in toiling away in a sandbox that Overture continues to ignore should be worrisome to Yahoo! investors. Is the pioneer too proud to be a follower?

Longtime Fool contributor Rick Munarriz is a big fan when it comes to the potential of contextual text-based advertising. He does not own shares in any company mentioned in this story.