Web surfers are clicking on Yahoo Inc. search-related advertisements with increasing frequency following the introduction of a new ad-ranking system, a boost to the Internet company's hopes of improving its lagging revenue growth.
According to a report from research firm comScore Networks Inc., Yahoo's Feb. 5 launch of a new method for ranking search ads -- a system like that used by rival Google Inc. that rewards ad quality in addition to the ad's price -- has drawn a quick and positive response from consumers.
ComScore said the rate at which consumers clicked on Yahoo search ads rose 5% in the week ended Feb. 11 and 9% the next week, compared with the week ended Feb. 4. The improvement is important because Yahoo only collects money on ads, the price of which are set in online keyword auctions, when a consumer clicks on the ad and visits the advertiser's Web site.
"They promised an increase, and we're definitely seeing it in the data," said James Lamberti, a senior vice president at comScore. "We're talking about a volume of click activity that's massive... . To move that needle even 5% or 10% is significant."
A spokeswoman for Yahoo, of Sunnyvale, Calif., said in an email that the company believes its new system, called Panama, is "creating a more relevant search experience for our users and more value for our advertisers and publishers. We're very pleased with the positive results and advertiser response we've experienced to date.
"However, we're still in the early stages and continue to learn and fine-tune our system and ranking model."
Because the average cost of Yahoo's clicks could have changed with the new system, the increased number of clicks might not mean more revenue for Yahoo immediately, Mr. Lamberti cautioned. Yahoo has predicted Panama won't help its financial performance until the second quarter, when advertisers will have had time to get comfortable with the new system and adjust their strategies.
Yahoo's new system determines ad placement based on an assessment of quality that includes the ad's click-through rates and other factors as well as its bid price, rather than bid price alone. Therefore, cheaper ads may move higher and attract more clicks and more expensive ads may drop and get fewer clicks, hurting Yahoo's average cost per click. Eventually, higher quality and click-through rates should attract higher bids and more advertiser spending, lifting Yahoo's revenue.
ComScore also said consumers are more often clicking on Yahoo ads instead of the "natural" results of their search, which are the standard, free results engines provide based on an assessment of relevancy alone. Ads accounted for 10.6% of total clicks in the week ended Feb. 11, up a half point from the period before the ranking-method change, and rose another half point in the week ended Feb. 18 to 11.1%, comScore said.
The figures suggest Yahoo is on the road to improved revenue per search, a metric that has been a focus for investors concerned about a widening gap with Google in the ability to harvest revenue and profit from Web search.
Panama involved first moving marketers onto a new and more sophisticated platform for managing their ad campaigns and then implementing the new ad-ranking algorithm.
Google has the search industry's highest click-through rates, both for ads and for standard search results, said Mr. Lamberti, but "Yahoo has definitely narrowed the gap." He declined to provide comparative click-through data for Yahoo and Google.
Google is consumers' favorite search engine and has been stretching its lead. It handled 47.5% of all queries in January, compared with 28.1% for Yahoo and 10.6% for Microsoft Corp.'s MSN, according to comScore.
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