Yahoo, still striving for relevance
At high noon today (Easter Standard Time), Yahoo (YHOO) will flip the final switch on its overhauled search advertising system, code-named Panama. Miguel Helft at The Times has the color commentary in today's paper, calling the Panama "the most important new product for Yahoo in years."

In a nutshell, the key change is this: in the past Yahoo prioritized ads based soley on how much advertisers were willing to pay for them. But the new system takes into account how the ads actually perform, that is, how often users click on them. Yahoo hopes the tweaked algorithm will improve the efficiency of its ads, allowing it to close the revenue gap with Google (GOOG). According to Citigroup (C) analyst Mark Mahaney, who was quoted by Helft, "Google made 4.5 cents to 5 cents on every search, while Yahoo generated only 2.5 cents to 3 cents a search."

Of course, greater yield is only part of the problem, a point not lost on the many Yahoo critics poring over today's news. "Will Panama make a huge difference for Yahoo?" asks Don Dodge. "No, I don't think so."

Yes, he says, it will improve revenues per search, but the bigger problem is that Yahoo just doesn't have enough search traffic. "Most of Yahoo's traffic comes from Yahoo Mail (33%) and home page visits (32%), both of which can not be easily targeted because there is no user indication of interest like a search keyword. Yahoo generates less than 11% of its traffic from search while Google 88% from search."

That's a critical metric -- and Panama doesn't look like it's going to change it.

UPDATE: While not strictly disputing Don Dodge's numbers above, a Yahoo PR agent was quick to call The Browser to provide further numerical context. In essense, Yahoo would like you to know that their search volume is still pretty good thank you very much: First, please note that according to Nielson/NetRatings, Yahoo's search business grew faster in December (30.1%) than Google's (22.6%.) Second, the latest Comscore data shows that "Yahoo Sites" actually gained .3 share points of U.S. searches in December, keeping themselves in a solid second place with 28.5% of searches vs. Google's 47.3%. Fair enough. But keep in mind that Google actually gained .4 share points in the same month. When you have a bigger base, even if you grow more slowly in absolute terms, you can still be winning the market share battle. And that quantitative insight remains problematic for Yahoo, and presumably even more so for the likes of Microsoft and AOL.
Posted by Oliver Ryan 11:11 AM 10 Comments comment | Add a Comment

This Panama rollout does not even include the equivalent of Google's "Adsense" so Yahoo is making nothing off of contextual ads on publishers sites. I don't even know I have heard a production date for this and i have seen it beta for 2 years now!
Posted By glenn, germantown MD : 1:24 PM  

anybody with a bit of technical knowledge should know google is a good company but an overrated one.
yahoo in the long term will be a better investment because they have much better diversity and excelent content to go with it.
next three years yahoo is gone challenge google on the home turf of searching as well. wallstreet folks seem to have forgotten that losts of wisdom can come out of patience.
Posted By Ehsan Austin,tx : 1:26 PM  

Today's launch is highly relevant. With increased monetization, Yahoo can better compete for off-network distribution deals - something that is critical to quality of traffic issue since the loss of the MSFT sponsored search alliance.
Posted By Lee Williams, Los Angeles, CA : 1:31 PM  

There is too much expectations from Yahoo's Panama. From an advertiser's point of view, there is a big difference between Google and Yahoo. We spend 20 times on Google because it brings in businesses and have scaled back from Yahoo because although it brings in clicks, those clicks cannot be quantified. Yahoo doesn't even allow limiting advertising on the Yahoo search engine. You are forced to advertise on their entire network including 3rd party sites. Another peeve is that Yahoo doesn't provide management reports to indicate origin of clicks. They make us rely on our own server logs. Providing something so basic as where my money is being spent is a basic necessity that Yahoo does not address...makes you wonder if they are trying to hide something...
Posted By George, Chicago, Illinois : 1:58 PM  

making search a bigger part of yahoo's overall traffic isn't the answer. Yahoo still has a hefty 28+% share of overall search traffic IN ADDITION to the huge traffic you noted in other verticals like Mail and home page. And with better targeting, massive traffic like that of Mail can reap huge rewards far greater than Google's one-trick search pony.
Posted By Steve, Los Angeles, CA : 2:06 PM  

It seems a littel strange to hear a google fanboy talk about how yahoo is weak because so much of its traffic is mail, while google has been praised for diversitying by getting into gmail (arguably its biggest move outside of search & adsense, only maps might compete, but that's still more potential & not reality for now)
Posted By Dave, Madison WI : 2:31 PM  

Search is search and I used to use yahoo exclusively 5 years ago. Since then I've migrated almost exclusively to Google. Gmail is easier and better, google's calendar is easier and better, the photo album with Picasa is easier and better, the homepage is better and the maps are about the same. The only thing I use Yahoo for anymore is my financial portfolio and research -- and even that I'm actively looking for a replacement for because all of the incredibly irritating jiggly ads. I can't even read the article for the distraction. Poor Yahoo. And they started with such a great product and headstart. Even 2-3 spam emails are leaking through on Yahoo mail nowadays -- something that never happens to me on my gmail account. I used to love this company and the stock, but they seems to have taken their lead (and their customers) for granted and Google kept innovating and paying attention. I wouldn't buy yahoo's stock now even at $25.
Posted By Steve G, Los Angeles, CA : 3:02 PM  

Keep riding the Google wave and you're going to crash right into the beach. Don't forget that Yahoo! has a Search box on their home page as well. It works just like Google's too! It's clear that many people have given up on Yahoo! already, but the fight for the #1 spot on the internet has already been won.
Posted By Nick, Mountain View, CA : 4:11 PM  

apart from search has google beat yahoo at ANYTHING? did anyone notice that yahoo answers completely crushed google answers and that that wasn't launched in 1997 but rather last year? steve g., those annoying ads are there because yahoo makes hands-down the best financial destination (goog's would have been competitive about 5 years ago), its number one in the category and advertisers want in...
Posted By Paul, Venice, Ca : 7:11 PM  

Search is still king, but over the next few years content will begin to reign. The nature of web browsing is changing and I suspect if you consider your own browsing habits you'll realize this. Before you would go Google for everything, whereas now you probably have a handful of 10 websites that account for 90% of your viewing and you go to them directly. Websites like the Times and CNN are linking to other content more frequently meaning that you don't have to go through Google to find it. Websites like Digg provide a far better filter for some kinds of content than a Google search can. I'm not sure where Yahoo will fall in this shifting landscape but the battle for internet supremacy will not be won any time soon.
Posted By Dave, New York, NY : 12:17 PM  

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