Yahoo's New ‘Panama' Ad System Expected to Boost Revenue

The technology has been in works for several years, and is believed to be one of the main tools the search company has to regain ground lost to its rival, Google Inc. Sue Decker, Chief Financial office at Google said in a conference call on Tuesday that she expects Revenue Per Share (RPS) to see double digit growth in the second half of 2007 in its sponsored search business when the new ad system is implemented.

"Panama is the most obvious and anticipated catalyst for improved financial results [at Yahoo], Rob Sanderson of American Technology Research said.

To date, search ads on Yahoo! and its distribution partner sites have been ranked solely by bid price - the higher the bid, the higher an ad appears within the search results. Panama, however, will take into account both the bid and the ad's quality to determine where an ad appears in the search results.

The quality of an ad will be determined by its historical performance in the new system and its expected performance relative to other ads displayed at the same time. Ads of higher quality will generally receive better placement on the results page.

Yahoo's new system should help it catch up to rival Google, which has a similar system already in place. The company will also need to face software giant, Microsoft, as it ramps up its next-generation advertising platform as well.

Microsoft showcased its adCenter advertising platform to customers and the media last week in Redmond, Wash. The new system will feature targeted demographics, video ad capabilities, and enhanced keyword association. Analysts expect the system to go live in March, one month after the Yahoo's Panama - which is already seeing positive feedback.

"The advertiser front-end was implemented last quarter and feedback from advertisers has been very positive, Sanderson continued. "The back-end implementation, a new ranking algorithm for paid search results (new marketplace design), seems like low-hanging fruit for increasing search monetization beginning in Q207."

In addition to the American launch, Yahoo said International rollout will be conducted on a market-by-market basis.