Google gobbles display ad startup Teracent

Google is growing its display advertising business today with the acquisition of Teracent, a startup that provides companies with tools for customizing display ads like web banners and interactive modules. Still making most of its revenue from text ads listed next to search results, the tech giant sees display as the next biggest area of opportunity.

Right now, Google is actually coming in second to Yahoo in display advertising — having only launched its strategy in earnest last year with the $3.1 billion purchase of online ad service DoubleClick. That company served and managed ads for publishers and brands (making sure the right ads appeared on the right pages). Three-year-old Teracent, based in San Mateo, Calif. — a mere 18 miles from Google’s Mountain View, Calif. headquarters — actually changes the look and feel of ads in order to grab more attention.

Teracent has developed an algorithm that allows ads to change to fit targeted audiences based on web traffic, geography, content they are running alongside, and even time of day. The service changes display ads’ images, designs, products messages and colors automatically. It works with ads incorporating audio and video media as well. Not surprisingly, the company was led by executives from both Yahoo and DoubleClick.

Neither company has released the financial terms of the acquisition. But Google certainly isn’t strapped for cash, recently reporting $22 billion in cash on hand at the end of the third quarter. The company recently announced that it is buying mobile advertising network AdMob for $750 million, a major breakthrough for it in the mobile space. And Teracent isn’t likely to be its last acquisition in the near term.

Teracent had raised $5.8 million to date — most recently $2 million in March of this year — almost entirely from New Enterprise Associates.

Here’s an example of some Teracent ads: