Yahoo’s acquisition of Associated Content (AC), a business that creates content based on search and advertising trends, signals a trend towards a content on demand strategy.

Associated Content uses proprietary algorithms to commission content, calculating how much advertising revenue that content can generate, and splitting that with thousands of content producers.

Yahoo has a platform that will enable it to scale Associated Content’s content and deliver higher advertising revenues than Associated Content can get on its own, because it has to share advertising revenue with online ad networks.

Yahoo can provide Associated Content with massive amounts of data that can improve the effectiveness of its algorithms. Yahoo Media VP James Pitaro explained to PaidContent:

Associated Content gets access to Yahoo’s data from search, click thru rates and Yahoo Buzz for its SEO efforts. Pitaro explains, “Associated Content can now take their existing algorithms and all this Yahoo data and generate content based on all these insights.”

It’s a content on demand strategy, in that Yahoo hopes to be able to expand its content and make it more topical, adapted to what Internet users are interested now, such as the trending topics identified by Yahoo Buzz.

Mr Pitaro says, the AC acquisition will help in "producing content directly in response to audience needs, “which is by the way something we’ve done historically but really will be able to scale now.’

Mr Pitaro is essentially describing a news content strategy. This means content has to be commissioned and published relatively quickly because user interest changes hourly, and certainly daily.

There is a huge flaw in this strategy: AC produces very little news.

In a recent interview with Silicon Valley Watcher, Patrick Keane, CEO of AC said:

We have a different approach to Demand Media and AOL, they are focused on news content, we focus on evergreen content, such as how to potty train a two year old. Less than 10 per cent of our content is news related.

The reason AC creates so little news content is that it is a less profitable part of its business — otherwise it would be producing more of it.

About 90 per cent of Associated Content’s content is "evergreen" because that gives the content a longer lifespan and thus a longer period of time against which it can run ads. News content is short-lived and less profitable — yet that’s one key area where Yahoo hopes AC will make a significant contribution.

[Editor’s Note: Tom cross-posted this on Silicon Valley Watcher. –mrh]