For years there was a significant difference in the way that Google and Yahoo handled it’s paid advertisement rankings. Here in the US, there is now no significant difference.

It used to be that in Yahoo the highest bidder got top ranking. It was simple and clean. You pay $2/click you’ll rank higher than my $1/click bid. Google didn’t like this approach. Google not only factors in how much you’re willing to pay, but how effective that ad was in conversions (percentage of people who ultimately did what you wanted them to do after clicking on the ad).

The Yahoo! Search Marketing Blog graphically explains their old model compared to their new one like this:

They say to determine an ad’s effectiveness (or quality), they will look at the ad’s:

• historical performance — the ad’s click-through rate relative to its position in search results; and it’s
• expected performance — determined by various relevance factors considered by Yahoo!’s ranking algorithms, relative to other ads displayed at the same time

Yahoo believes this change in model called Panama will significantly help searchers and advertisers have a more relevant search experience.

Yahoo is now looking for effectiveness in your ads, not just the highest bidder. It levels the playing field.