Analysts, SEMs Bullish On Yahoo Search Overhaul

Yahoo's pending search advertising overhaul will make pay-per-click advertising more appealing to big brand marketers, and also will likely improve click-through rates, analysts and search marketers said Monday. The new relevancy-based platform, due out next quarter, is expected to bring Yahoo's click-through margins more in line with Google's.

"We see this closing the gap between Yahoo and Google," said Kelsey Group analyst Matt Booth of the initiative, dubbed Project Panama. "This is a monumental structural change."

Booth estimated that, despite an expected spate of complaints from displaced advertisers and other minor gaffes, Yahoo's new system will result in an immediate 15-to-20 percent increase in revenue. "When you have a system that processes that large a query volume, there are bound to be issues."

The platform's upgraded features include a new ad control panel, more streamlined content review, and better means to monitor and forecast campaign results. And while such developments are likely to improve the placement process for marketers, search marketers remain concerned that Yahoo's query volume lags way behind Google's. Currently, Yahoo accounts for 28 percent of searches, compared to Google's 43 percent, according to comScore Media Metrix.

"Advertisers want a high number of profitable conversions," explained Bryan Wiener, president and chief operating officer of 360i, a performance marketing firm. "This will help make them more profitable, but volume depends on efforts like promoting search on its vertical properties."

Weiner added the new system will benefit big name advertisers most. "This is good for our big brand advertisers," he said. "When relevancy is involved, they can leverage their brand equity for higher click rates, and they won't need to bid as high."

A Merrill Lynch report released Monday applauded Yahoo's efforts. "We continue to be positive on new technologies to expand the Internet advertising opportunity," wrote analyst Justin Post in the report concerning Panama. Despite the nod, Merrill Lynch maintained its neutral rating on Yahoo. "While we think there is opportunity for Yahoo to build a compelling search platform, we expect continued share gains for Google in 2006."

According to Yahoo, future versions of the platform will include additional distribution options, and audience targeting based on demographic information and online behavior, plus original ad formats using graphics and rich media.

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