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Yahoo refining search-ad bidding process

Trying to improve the quality of the ads it attaches to search results, Yahoo will refine the bidding process advertisers use as soon as next week.

In an attempt to improve the relevance of ads attached to search results, Yahoo plans to adjust the process advertisers use to bid for placement as soon as next week.

Today, there's a minimum bid of 10 cents per keyword. Soon, though, Yahoo will move to a variable minimum price, the company said Friday. The new minimum price could be higher or lower, depending on the keyword and the quality of the individual advertiser who's bidding for it, the company said.

Yahoo graphic

For example, with the new system, a minimum bid--called a reserve price--could be lower for a high-quality advertiser whose ads have proven to be relevant to what searchers are looking for. Or it could be higher for a keyword that's in high demand, requiring advertisers to think more carefully about which keywords they truly want to sponsor.

Overall, the goal is improved relevance--the likelihood that an ad will appeal to somebody searching for information on the Web and that that person is who the advertiser wants to reach.

The changes are part of Yahoo's overhauled search ad system, called Panama, which has enabled a series of changes over the last year and a half. One change was the ability for Yahoo to assign a quality ranking to each advertiser based on factors such as how often users click on their ads. Another was discounts to the price advertisers pay when users click on ads hosted on non-premier sites that use Yahoo for serving up ads.

Yahoo has been trying to improve its search-ad results to boost its business, attract more advertising, and better compete against leader Google. Meanwhile, Google has been adding refinements of its own, changes that yielded fewer clicks on ads but more revenue per click. The competition has been going on for years, but it's under more intense scrutiny with Microsoft's attempt to acquire Yahoo.

The seriousness of the situation for Yahoo was spotlighted earlier this week when Yahoo announced a limited test of Google's search-ad delivery system alongside Panama. Google makes more money per click on its search ads than Yahoo, so using Google's ads could theoretically increase Yahoo revenue depending on how the proceeds were divided.

Don't expect variable pricing to be switched on completely in one fell swoop. The change is launching in the United States and will arrive internationally later, spokeswoman Kristen Wareham said. Also, it will begin with some keywords and eventually spread to all of them, she said.

Yahoo alerted advertisers of the minimum-price change in February on its search marketing blog, and offered some answers to frequently asked questions page.