Has Yahoo Panama really made a difference? Yahoo’s new paid search ranking algorithm ranks ads based on ad quality and click through rate, as well as bid amount.

I’ve been tracking 10 different ads for two different clients.

Higher Impressions & Clicks

All ads in the test are seeing higher impression counts since the 5th (Panama launch day).

They’re also seeing higher click counts.

Cost Per Click

It gets really interesting, though, when you start comparing cost per click to impressions and clicks.

On one campaign, we boosted our bids slightly the day before Panama launched. We expected to see a higher cost per click, and higher clicks. Instead, we got a dip in cost per click:

Note that clicks spiked, then stayed at a higher level than the week before, even though our cost per click actually dipped slightly. In the old, bid-only rankings, that would only have happened if competitors changed their bids. In this case, we didn’t see any sign of lower bid competition.

Cost For Position

The real test, though, is in the cost per position. If we’re creating higher-quality ads than our competitors (and we’d better be!) then you’d expect that, as time passes, our rankings would improve with little or no increase in cost. That, I’m glad to say, seems to have held true:

We’re consistently getting higher ranking for the same or a lower cost per click. I don’t have a pretty graph for this statistic, but as our clickthru rate improved, so did our ranking.

There might be a chicken-and-egg argument here – did the higher clickthru improve ranking, or did higher ranking improve clickthru? Almost certainly a little bit of both. The most important feature, though, is that we didn’t have to increase our bid amounts to improve ranking and clickthru.

No Miracles

Alas, Panama isn’t the ticket to $.05 clicks and top-3 rankings. In our tests, ads that don’t start in the top 6-7 positions didn’t move up. It may be that, given a longer test period, they will. But for now assume you have to position your ad in the top 5, at least, if you want to really take advantage of Panama’s performance-driven ranking algorithm.

What I’d Change

Overall, I give Yahoo Panama a thumbs-up (not that anyone at Yahoo! was waiting with bated breath to hear that, but someone may care). One major improvement I’d like to see: A future algorithm upgrade that measures landing page quality, too. That would really give smart advertisers a leg up, and drive higher-quality ad creative, more honest offers, and less click arbitrage.

Conclusions

This was an admittedly brief and less-than-perfectly-scientific test. But the results were pretty clear:

1. Under Panama, ads with high clickthru rates get higher ranking, for a lower cost.
2. Compelling ad copy that draws high clickthru rates will save money.
3. But, to take advantage of the new algorithm, you will have to invest in a top-5 position.
4. So split-testing and great ad copy are now as important on Yahoo as they are in Google Adwords. Make sure you test for the best copy!

The first two reports:
Day 2
Day 1