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Feb. 5, 2007 at 9:06am Eastern by Mona Elesseily

New Panama Ranking System For Yahoo Ads Launches Today

Today, Yahoo will flip the switch for the new "Marketplace Design" algorithm in the US market, the system commonly known as Panama. Parts of Panama have already gone live in the past few weeks. But throughout today, Yahoo will be rolling out the last piece -- a new ranking algorithm and its associated new pricing mechanism.

With the new ranking algorithm, Yahoo will move from its long-standing and original bid-to-position model (where those who pay the most rank first) to a system that takes bids, ad quality and other factors into consideration in determining how ads are ranked on search results pages (a system similar to that long used by Google).

Yahoo's motivation is to provide more relevant search results and a better overall experience for users, as well as increase monetization -- to earn more from the ads its shows. In a recent Yahoo Search Marketing newsletter, Tim Cadogan, vice president, search marketing, said:

We firmly believe that delivering more relevant ads to users will result in more quality leads to advertisers, invite even more participation in our network and ultimately create a more valuable marketplace for users, advertisers, publishers and Yahoo.

Cadogan's also featured in a New York Times article today looking at the business issues of the Panama rollout for Yahoo. But for Search Engine Land, how does it impact advertisers? In the new algorithm, ad quality scores are crucial. Those with better quality are more likely to rank better (and perhaps pay less) than other ads. So how is ad quality measured, and how can you do better in the new system? Some tips, below.

Historical Clickthrough Rates

Historical clickthrough rates (CTRs) are one part of how ad quality scores are determined. To get this information, Yahoo will pull data (relative to other ads displayed at the same time) from both the old system and the new Panama system. The new ranking algorithm emphasizes data "freshness" and will use the most current information available.

For example, a high volume term may require ten days of historical data while a lower volume term may pull thirty days of data to determine historical CTR. The rolling window will ensure historical CTRs are calculated on current market data.

Expected Clickthrough Rates

Expected CTRs are also used to determine ad quality scores. This is largely machine-based learning and expected CTR is determined by various relevance factors relative to other ads displayed at the same time. Some of the major relevance factors considered in the new algorithm are:

  • Bids
  • CTRs
  • Ad copy (titles & descriptions)
  • URLs
  • Landing pages
  • Advertiser information
  • Advertiser industry segment

Yahoo is obviously not fully disclosing their secret algorithmic sauce. When asked, Yahoo would not provide details on what "advertiser information" and "advertiser industry segment" meant in terms of the CTR calculation.

It's worth noting, as many algorithms work together to determine ad quality, every advertiser and every keyword will have a unique quality score and all relevance factors may not hit every keyword term or phrase.

At first, landing pages will be lightly weighted in the quality index calculation. Yahoo doesn't want to throw too many curveballs at advertisers as they adapt to the new ranking formula, so landing page relevancy won't be a big part of the formula for now. In the future, they expect this will have a bigger impact on quality index and will notify advertisers before implementing the change.

Graphical Display Of Quality Index

Advertisers who've migrated to the new system will be able to see overall the quality index displayed in a graphical format. Yahoo will use a five bar system to represent the quality index. Five bars will be the highest quality index score. Here's an example:

Yahoo Panama's Ad Quality Scores

The quality index will be calculated at the keyword level, but the data will be aggregated and displayed at the ad group level. Yahoo claims this will make it easier for advertisers to visualize the quality index. The quality index will not be available at the keyword level.

Migration & Ranking Tips From Yahoo

Yahoo has recommended that advertisers take the following actions to prepare accounts for the new ranking algorithm. They are:

  1. Include keywords in your ad (use the Insert Keyword feature)
  2. Carefully determine keywords for your ad group
  3. Use ad testing to learn which messages are performing best for you.
  4. Use the Excluded Keyword feature to help optimize your Advanced match type
  5. Review your current bids and set a campaign budget to meet your business goals.

For more tips from Yahoo, see this page about the migration.

Additional Points On Panama Ranking Algorithm

  1. Standard match type, ads will no longer receive priority placement over advanced match type ads
  2. For certain terms, fewer sponsored search results may appear at the top of the page
  3. Marketplace Design will roll out on both the new Panama and old systems

Good luck everyone with the migration, and feel free to add your own tips and experiences in the comments below!

Mona Elesseily is a contributing writer for Search Engine Land and an internet marketing strategist at Page Zero Media, focusing on paid search campaigns and conversion improvement. She's also author of Page Zero's Unauthorized Yahoo! Search Marketing Handbook.

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By Mona Elesseily Permalink Jump To Comments See Related Stories In: Yahoo: Search Ads

Reader Comments

Nice summary of a complex topic Mona! A burning question for me on all this is how much of the total advertising spend is from PPC arbitrage (ie bidders on tens of thousands of terms who hope to get somewhat higher bids on their own ads) vs affiliate website PPC vs PPC for a product provided by the advertiser. Have you seen any studies of this?

Even before yesterday's quality-based bidding rollout, we noticed that Yahoo regained a small bit of ad spend share from Google in December and January, possibly due to how clicks were allocated between the old and the new platform during the Panama migration.

Graphs here:

and here:


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