Yahoo!'s Panama: Little Engine That Couldn't

Roger Barnette, president of SearchIgnite, a search marketing technology firm, says there is still plenty of value in Panama and the company's efforts to remake its ad platform were not in vain. Yahoo! needed Panama, because it couldn't afford to fall further behind Google.

"They've developed a platform that gives them levers to pull, and before Panama, they didn't have those levers," Barnette says.

He notes that in the beginning of 2006, Google and Yahoo! were almost neck and neck in terms of market share in advertising spending among his clients. But then Google pulled ahead -- at Yahoo!'s expense. Yahoo! lost even more ground when Microsoft stopped outsourcing its ads to the company and developed its own platform called adCenter.

In October 2006, Yahoo! launched the first phase of what it dubbed "Project Panama" -- an effort to create a more relevant search experience for users and provide additional revenue opportunities for Web publishers, not to mention a way for it to catch up with Google.

Last February, Yahoo! introduced a new way to rank search-marketing ads in the U.S. by factoring in the quality of the ads rather than just the amount that people were bidding on keyword. Yahoo! also added a quality index so that advertisers could measure the quality of their ads. And it offered price discounts on cost-per-clicks from partner sites based on an assessment of the quality of traffic from those sites.

This might have been considered revolutionary for Yahoo!, but old news for Google, which through its own AdSense program had been combining quality and keyword bid prices to rank search ads for some time.