Yahoo and the Panama buzz !!

The latest buzz around Yahoo YHOO is about their new Ad Ranking System called Panama. Currently Yahoo places a paid ad solely based on the amount you are willing to pay for the keyword, whereas Google GOOG uses both price of the keyword and a quality score to rank the ad. Yahoo is looking to rectify this with Panama. Shareholders, employees and advertisers are for obvious reasons, praying that Panama works. Positive comments and publicity are all good, but unless the system helps generate more revenue it means nothing, especially to the investors.

The company began to transition customers to Panama in mid-Q4, any revenue growth will likely come in Q1 at the earliest. The question to ask is whether this transition is going to have a positive or negative impact on their Q4 or Q1 revenue. If it is going to be negative, Google will gain on it.

According to Wall Street Journal, some small Yahoo customers have had to cut back spending significantly during the transition. Some mid-size companies were spending $10,000 to $15,000 a month on search-related advertising through Yahoo. After their account was transition, Yahoo declined to let them continue running some ads linked to specific keywords. In response these companies slashed their spending on Yahoo and increase their spending with Google.

Conclusion: For now, Google seems to gain with their existing system. Yahoo in this transition phase might lose out some revenue, and if they are not too careful might lose out on some loyal customers too.

Recommendation: I love both Google and Yahoo and see brighter future for both of them. The advertising pie is big enough for both. Google investors can enjoy steady rise in their stock prices, where as Yahoo investors might see light at the end of the tunnel after a wait for another qtr or two.