The New York Times reports that Yahoo has recently come out with its set of advertising tools that present customizable display ads to users on the fly. Tagged as “SmartAds,” the system targets ads toward users by combining data from the advertisers (such as logos, tag lines, and images) with the information from retailers (such as product inventories). The system matches the data in real-time with the user information (such as location and age) to provide targeted and relevant display ads.

“We’re doing real-time creative assembly that leverages what we know about our audience,” said Todd Teresi, senior vice president of display marketplaces at Yahoo. “You can buy the entire Wall Street Journal site, and when a female shows up, we will create a different ad or when someone from New York shows up, another one.”

Display ads have traditionally lagged behind textual ads when it comes to behavioral advertising. Yahoo’s already testing the service across its network sites and it’s freely available across ads bought on the RightMedia Ad exchange platform (which Yahoo owns). Also, the Sunnyvale, California-based company plans to take display ads to the next level, where users could even complete their purchases via display ads (such as booking tickets for the right price with just a click).

With a major re-jig among the top executive ranks ( CEO Terry Semel quit very recently ), Yahoo is seeking to reposition itself among the reigning Web giants and the launch of the ‘SmartAds’ platform is a great start. Is this the beginning of a serious challenge to Google in the online Ad-space? Join the discussion