28 February 2007

Project Panama raises click-through rates for Yahoo!

Only a fortnight ago, Yahoo! rolled out a new sponsored search system, dubbed Project Panama. Panama was touted as a massive change to Yahoo's PPC system, but the Chief Executive of the search engine, Terry Semel, warned that changes wouldn't generally be noticed until later on in the year.

Mr Semel may well have underestimated the change that Panama was about to bring. Reports from comScore, a marketing research company, point to a big change in click-through rates (CTRs), the percentage of times an advert is clicked on in relation to how many times it is shown, on advertisers' links since the roll-out of Panama. Since the introduction of Panama on February 5th 2007, CTRs rose by 5% in the first week and increased again by 9% in the second week. comScore also added that clicks on advertisers' links as a whole against search results saw a 1% rise from 10.1% to 11.1%.

This is not only good news for advertisers, who see more return on their investment, but also for Yahoo! themselves. Yahoo! takes a payment for every advertiser click, and even a 1% rise in overall clicks can mean a huge pay-off for Yahoo!. For example, if each click costs an advertiser 10p, and there are one million clicks made throughout the search engine system, this would mean that advertisers are now paying for 10,000 extra clicks and Yahoo! are therefore generating £1000 more revenue. Of course, the number of clicks recorded in Yahoo!'s system each day is considerably more than this figure and cost-per-click (CPC) may cost much more than 10p. Therefore, Yahoo! stand to make much more money from the change to Panama than many people may have expected.

In a forecast released on February 23rd, the 9% increase in CTR could create a surge of up to 45% on Yahoo!'s search revenues for 2007 and the figure up to $1.39 Billion. This might bode well for Yahoo!'s fight against market leader and search giant Google, but it has not curbed the growth of their biggest rival. In January, Google searches increased by 0.2% and their search-share now sits at a massive 47.5%, whereas Yahoo!'s searches decreased by 0.4% to a search-share of just 28.1%, according to comScore. It still looks like Yahoo! and the other major players in the search engine market are playing catch-up. This is also reflected in CTRs between the companies, with Google still some way ahead of Yahoo! at this stage, despite this reported rise.

In a research note, an analyst for Bank of America, Brian Pitz, said that he expects CTRs to continue to rise and end up between 15% and 25% in the tail end of the year, pointing to an even rosier future for Panama and advertisers on the system. Only time will tell what the future of Panama will be, but Yahoo!'s new system looks to be on a strong footing.

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