Yahoo Search Marketing, formerly known as Overture, which was originally GoTo.com - the first pay-per-click advertiser, launched a new pay-per-click model February 5th.

http://www.nytimes.com/2006/05/08/technology/08yahoo.html?ex=1304740800&en=658529acc1fc013a&ei=5090&partner=rssuserland&emc=rss

Yahoo’s new advertising platform, codenamed Panama, takes both quality and bid-price into account when determining ad ranks. This is nothing new - Google is already doing it. Google’s AdWords program uses a sophisticated algorithm with a grid of supercomputers to determine which ads should be placed on top of a particular search instead of choosing purely on price. Yahoo’s new platform will attempt to do just this, hoping to catch up to Google. Why bother taking page relevance into account, when you could just charge the top advertiser the most?

http://www.clickz.com/showPage.html?page=3625248

Say you have 3 advertisers with the following the following bids and CTRs (Click-Through-Rates):

• TaxACT bids $1.00 and has a 3.0% CTR
• TurboTax bids $0.99 and has a 3.6% CTR
• ExpressTaxRefund bids $1.02 and has a 2.9% CTR

Using Yahoo’s original platform, ExpressTaxRefund would rank first. However, using the new system, TurboTax would be much more likely to take the top bid. Even though Yahoo may not make as much per click with the new system, it is designed to increase the average CTR which will in turn increase Yahoo’s total revenue from the system.

http://www.ecommerce-guide.com/news/article.php/3664101

After only a few weeks, Yahoo’s system has worked out well - click rates have gone up 5% and 9% in the first and second weeks respectively. It will be interesting to watch future developments with Google, Yahoo, and MSN as they borrow search engine concepts for use in their auction-based advertising systems.