New Yahoo Search Ad System Said To Be Adding Up So Far

BY PETE BARLAS
INVESTOR'S BUSINESS DAILY
Posted 3/14/2007

Panama might well channel more ad revenue Yahoo's (YHOO) way.

The Web portal is getting positive reviews for its new paid search advertising system, which the company dubbed Project Panama. Analysts, though, also say that it's too soon to tell how effective it will be over the long term.

Panama is Yahoo's renewed effort to challenge Web search king Google (GOOG) for a bigger piece of the multibillion-dollar paid search market � the fastest-growing type of online advertising.

Yahoo launched the long-awaited Panama in February. The system aims to offer advertisers a more effective online marketing service.

The system seems to be living up to Yahoo's promises, says Danielle Leitch, executive vice president of client services for MoreVisibility. The search marketing firm helps advertisers with search ad campaigns.

"They have bridged a big part of their gap with Google," she said.

Others agree.

"They're doing a good job," said Ellen Siminoff, chief executive of Efficient Frontier, another search marketing firm. "But this is just the first stage of improvements."

Paid search services offered by Google, Yahoo and others let advertisers place text ads near specific search results. With these services, advertisers pay only when a consumer clicks on the ad. Web sites can track click rates.

With the Yahoo and Google services, advertisers bid for the best placement with certain search queries, or keywords or phrases.

Before Panama, Google and Yahoo's services differed in one big respect. Yahoo placed ads solely based on how much advertisers paid. Google, though, also considered such factors as how relevant the ad is to the search query.

With Panama, Yahoo now also factors in relevance with ad placement.

The result is that consumers see more relevant ads, and advertisers get better leads, Leitch says.

"That's where we have seen a lot of benefits in terms of our advertisers' performance," she said.

The number of consumers clicking Yahoo search ads has risen steadily since the Panama launch.

In the first week, the ad "click-through rate" rose 5% from the week before. In the second week, it jumped 9%, says market tracker comScore Networks, which won't yet release updated figures.

Such increases so early are encouraging for Yahoo, says comScore analyst James Lamberti.

"They needed to improve their ad click-through rate, and we are seeing that they have," he said.

This, he says, gives Yahoo a good chance to boost search ad revenue.

How does Panama compare with the early going for Google's paid search?

"We have (that data), but we're not releasing it," Lamberti said. "Those data points are extremely valuable, and we're really reluctant to put it out in the press."

Google is still No. 1, but "Yahoo has narrowed the gap," he said.

Sue Decker, Yahoo's executive vice president and head of its advertiser and publisher group, confirmed the company's progress with Panama at a Morgan Stanley technology conference on March 6.

"We are really pleased with the new system," she said. "What we had hoped would happen was that we expected the relevance of the listings to improve � that means that click-through rates are better since we launched" Panama.

Yahoo doesn't expect the new system to boost revenue much until after the first quarter.

As for Google, "We have not seen any impact from Panama, which would indicate to me that (our) monetization lead has been maintained," Google CEO Eric Schmidt said at a Bear Stearns media conference on March 6. "We make continual changes every day...and they are very small improvements in ad targeting."

Even if Yahoo improves its ad click-through rate, it might not take much revenue away from Google or other search services, says Siminoff, a former Yahoo executive.

"It will be additive to the search industry," she said. Those dollars, she says, will come from other media, not from other search services.

Also, most search marketers advise advertisers to use several search engines. A scattershot approach works best, says Mark Peterson, a spokesman for Marchex, (MCHX) a search marketing firm.

"Advertisers want to have as broad and comprehensive a reach as possible," he said. "Google and Yahoo both have such an extensive reach that it's advisable to work with both and not one or the other."

Yahoo plans more tweaks to Panama this year. It also aims to roll out the service to Japan next quarter.