What Yahoo’s Panama Update Means For Searchers

Yesterday’s rollout of Yahoo’s new Panama search advertising ranking system has been both praised and criticized by advertisers (see Panama is LIVE! - for some and Yahoo’s Panama: The Switch Is Flipped on The New Ad System). Praised, because the new system is streamlined, easier to use and offers more campaign management tools. Criticized, because the previously relatively simple system of higher bid equals higher placement has been replaced with a more complex formula that includes factors such as ad “quality,” brand recognition and other variables that have reduced the transparency of the system for many advertisers.

Yahoo expects most advertisers will eventually embrace the new system once they’ve worked through the changes and reaped the benefits from creating higher quality advertising, according to Tim Mayer, senior director, global web search at Yahoo. “The system is going to cause advertisers to work harder to make their listing more relevant, just as SEO’s have been doing in the algorithmic section for a long time,” he said.

But what about Panama’s impact on searchers? What is Panama’s impact on the overall user experience at Yahoo? I spoke with Mayer to find out.

The most notable impact on search results, of course, will be on the advertisements that appear at the top and right of a search result page. Mayer said that no major changes are being made to organic results, although he added that Yahoo introduces changes to its organic search algorithms two or sometimes three times per week as a matter of course.

Although bids are still a factor in the new ad ranking algorithm, Yahoo is also following Google and Microsoft’s lead in analyzing other factors to determine placement of ads in sponsor results. For example, the algorithm analyzes both advertisement and landing page copy, in much the same way web pages are analyzed to determine their ranking in non-paid search results.

At this point, more emphasis is being placed on ad copy than landing page copy, but landing page quality will become more important in the algorithm over time. Yahoo is also encouraging advertisers to use the “excluded keyword” feature to more precisely target ads.

As a searcher, this means that using precise, specific queries will give you much better sponsor results than in the past. Use words with narrow, non-ambiguous meanings in your queries rather than broad, general search terms for best results.

Yahoo is also looking at “advertiser information” and “advertiser industry segment,” but is saying little about what this really means. Mayer said that brand is an important factor here—when your search terms include a brand you’ll more often see an advertisement from the brand owner get top rankings (you can see this with a search for volvo, disney world and coach.

One of Yahoo’s primary goals with Panama is to increase the amount of money it makes on every search by showing more relevant ads that compel searchers to click. According to a New York Times article, Citigroup Investment Research Director Mark Mahaney estimated that in 2006, Google made 4.5 cents to 5 cents on every search, while Yahoo generated only 2.5 cents to 3 cents a search.

But Mayer said that another major goal is to change the perception of users that ads and organic search results are totally separate. With the new ad ranking system in place, “people will start looking at the results more as a whole, we hope,” he said.

Yahoo has done eye tracking studies that show some users automatically look to either the paid listings or organic search results. With the new system, Mayer believes users will begin to consider both sets of results as an integrated whole. “As user behavior changes we’re going to be watching this very closely. Users may change the way they interact with our page,” he said.

As a side benefit, Mayer says this also will reduce the perception of clutter that many people associate with Yahoo without actually changing the user interface.

Going forward, the ranking system for Panama will use a lot more of the technology and learnings that Yahoo has gleaned from developing its organic web search engine, requiring advertising to become even more relevant to searcher queries. “When you move toward quality, you’re doing something that’s more similar to algorithmic listings,” said Mayer.