Yahoo hopes new tool clicks with advertisers

Yahoo Inc. will activate a long-awaited new ad system on Monday thatthey hope will allow them to compete with rival Google for search advertising dollars.

The system, dubbed Project Panama, is a much-anticipated upgrade designed to deliver more targeted ads to accompany search results, an area where Google holds about two-thirds of the market.

Panama will be activated at 6 p.m. ET on Monday and replaces a system that previously gave top billing to the advertiser who paid the most to link their ad to a particular search result. Panama will more closely emulate Google's more successful method, which mixes bid priceswith relevancy to the user.

Yahoo has been working on Panama for 18 months, and delays to the launch date had made investors nervous and caused the share price of the company to drop in 2006.

Mark Mahaney, an analyst at Citigroup, told the New York Times thatthe new ad system will have an enormous impact on Yahoo's financial future.

"You are talking about something that could potentially affect the single largest and most profitable business segment that Yahoo has," said Mahaney.

Annual spending on keyword ads is expected to top $10 billion in 2010, up from $6.8 billion last year, based on estimates from industry tracker eMarketer.

While Google's market value climbed 17 per cent in 2006 to $149 billion US, Yahoo'sdeclined by 30 per cent to $37 billion US.

Yahoo and Google also face competition from independent platforms that allow websites to run their own advertising.

On Monday Norway-based Fast Search and Transfer also launchedAdMomentum, its ownplatform for companies that want to become less dependent on the big companies to stream their ads.

"It's like a digital marketplace in a box," said Sue Feldman, an IDC Research vice-president who reviewed early versions of AdMomentum. "This gives websites an opportunity to become more independent and take more control over their revenue stream."

Yahoo had already suffered a setback in September when Walt Disney Co.'s ESPN.com dropped Yahoo as its advertising partner to sell commercial links on its own, using a platform called AdSonar offered by New York-based Quigo Technologies Inc.