Yahoo pins its hopes on new online hybrid for advertising

Yahoo is gauging advertisers' interest for a new kind of online ad – a hybrid of search and display advertising – which it hopes could help boost the fortunes of its perennially disappointing search business.

The technology giant has launched an improved version of its search engine which it hopes will lure users back to its site. Yahoo, once a pioneer in ways to search the web, has been losing market share to Microsoft's Bing and is now at risk of falling into third place in terms of numbers of search queries.

The new Yahoo Search Direct is aimed at catching up with the market leader Google, adopting some of the same innovations that have improved the speed of Google's search results in the past year. Search Direct will predict the end of a search query as a user is typing, and will bring up search results as the user types. In a pop-up box, Yahoo will also aim to display information and web content that users might be looking for, such as weather and cinema listings.

But analysts said the biggest innovation could be the commercial opportunities for making money from adverts shown inside that pop-up box, and Yahoo executives signalled that they would begin experimenting in partnership with advertisers in the coming months.

Shashi Seth, Yahoo's head of search and marketplaces, said advertisers could pay to have graphical ads or even video ads – known as display ads – appear inside the Search Direct box. That would be a marked departure for a search business, which has traditionally only sold text ads that appear alongside search results. "Over the course of the next couple of months you're probably going to see some of these ideas at play," Mr Seth said.

Yahoo hopes the new features will improve its share of the search market. In the US, it has fallen to 16 per cent, from 20 per cent two years ago, while Microsoft has risen from 5 per cent to 13 per cent. Google has two-thirds of the market.

The new kind of ads could bring additional turnover and profits for Yahoo, which in 2009 outsourced large parts of its search operation to Microsoft in return for a revenue-sharing deal.