With the launch of Panama early this year, there has been a lot of industry buzz around Panama improving Yahoo’s advertising fortunes. Early reviews have been positive. Because people ask us a lot how Panama is working for our customers, I thought it would make a good post.
In 2006, our clients’ Yahoo spend as a percentage of Google spend steadily decreased. The decrease was due to a number of factors including lower search volume, lower clickthrough rates (CTR), and most importantly for our clients, lower return on investment (ROI) on Yahoo relative to Google.
However, in the first two months of 2007, spend on Yahoo as a percentage of spend on Google began to increase. During this time, most of our clients were migrating to the new Panama platform (because our client base is primarily retail, many had declined to do so during Q4). With the official launch of Panama in February, our clients saw this as an opportunity to re-launch campaigns and, given the promise of Panama, retry a more robust keyword set (keywords that have been deleted or taken off-line over time due to poor performance on Yahoo).
In March 2007, though, spend on Yahoo as a percentage of spend on Google decreased substantially. Why did this happen? In February, the increase in Yahoo spend did not result in the corresponding increase in sales required to hit our clients’ ROI goals. Because the conversion percentage and ROI declined on Yahoo in February, our clients’ spend on Yahoo necessarily decreased in March to ensure that they were hitting their ROI goals. Based on aggregate ROI on Yahoo relative to Google in March, I don’t anticipate a further decrease in this ratio and I suspect that Yahoo spend as a percentage of Google spend will level off or slightly increase moving forward in 2007.

From Yahoo’s perspective, Panama seems to be having some benefits. In 2007 to date, we have seen Yahoo’s CTR increase (even as keyword volume has increased), suggesting that Panama may be having a positive impact on CTR. But, if ROI is not sufficient for our clients on Yahoo, our clients (working in collaboration with our full-service paid search team or using our self-service tool) will cut spend on the lower ROI keywords and exercise a bit more caution experimenting with new keywords. This is one reason, but certainly not the only one (search volume!) that spend on Yahoo trails spend on Google.
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