Friday, August 17, 2007

Yahoo Delivers on Ad Promise

Yahoo began implementing a critical overhaul to its search engine Monday.
The Sunnyvale, California, company is activating a new ad system it has been testing and hopes will allow it to compete more competitively for online ad revenue.

Yahoo will transition from the old Overture Services pay-per-click advertising technology, acquired for $1.6 billion in 2003, to its Project Panama model.

Panama is Yahoo’s effort to compete more competitively with Google in the race for advertising dollars. In fact, thousands of advertisers and billions of dollars in adverting are at stake. Analysts are closely watching the transition.

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Among those keeping an eye on the move is Steve Weinstein, a senior analyst with Pacific Crest Securities, who sees potentially a 50 percent increase in Yahoo’s revenue from search, with about $1 billion at stake, if the company succeeds in creating a better advertising model.

“That’s just on their own network, not including partners,” he noted.
Annual spending on keyword ads is expected to reach $10 billion in 2010, up from $6.8 billion in 2006, according to the research firm eMarketer.
Changes in Rank

As Yahoo’s new ranking model rolls out over the course of several hours, advertisers will begin to see changes in the way their ads are ranked. The change could either elevate or lower the ranking for a given ad.

Yahoo’s new ranking model, with help from software algorithms, will list search results based on historical click-through rates and keywords in an effort to provide more relevant search results to users.

Yahoo’s prior advertising ranking model was based on an auction system. The company bidding the most money on a word received the highest ranking each time an Internet user searched on a term.

The new model isn’t expected to favor larger brands with bigger budgets, but instead put all advertisers on a more level playing field because companies will no longer compete based on advertising budgets, according to a Yahoo spokesperson.

The full rollout of the service isn’t expected to be complete until March. Advertisers can find additional information on the changes at Yahoo’s site.

Shares of Yahoo fell $0.21 to close at $28.56 on Monday, while shares of Google dropped $14.34 to close at $467.16.

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