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

"Google's platform gave advertisers more efficient use of their dollars," Barnette says. "Yahoo! was trying to emulate this when they decided to launch Panama."

Yahoo! wouldn't disclose how much it cost the company to develop Panama, but Jefferies analyst Youssef Squali has estimated it to be somewhere around $150 million.

In the last year, the company has been adding enhancements to the platform, such as a new payment option using PayPal, which is owned by eBay(EBAY Quote), and offering a domain-blocking feature.

It appears Panama has worked, but it's too soon to know how well. In the quarter of its launch last year, it didn't generate the ad dollars that many shareholders had been hoping it would.

In the first quarter of this year, Barnette noted that Yahoo! had made greater gains in market share for advertising spending among his clients than any other Internet provider, including Google. Yahoo! grew 57.6% over last year in the same quarter. But results from last year's first quarter were particularly weak because of a delay in the release of Panama.

Barnette says Panama's technology works perfectly fine and any consideration on Yahoo!'s part to team up with Google to outsource its ads doesn't necessarily mean that its own platform is a failure.

"It is not an admission that Panama has not lived up to expectations but they need more scale in search and advertisers," he says. Scale, however, is hard to come by with a diminished search query share.

Microsoft, which lags significantly behind both Google and Yahoo! in search advertising, recognizes this, which is why it had been so keen on acquiring Yahoo!. Together, the two companies would still lack Google's scale but would have a better chance of narrowing the gap.

Yahoo!, however, might want to tackle Google alone. And perhaps time will tell whether or not Panama was the company's best weapon.