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In a largely unexpected move, Yahoo! Search has reduced its minimum cost per click from 10p to 5p in the UK, in a bold attempt to regain share in the search advertising market from Microsoft’s recently launched adCenter and Google’s AdWords.

Saying the move “reflects the dynamics of the market”, Yahoo! is hoping to start a fight back from its PPC ad service prior to the European launch of its much delayed new advertising platform Panama.

Generally, it’s good news that it has knocked the minimum bids back down to the level they used to be in the days of Overture.

It makes sense; as for many low competition keywords, Google’s pricing on AdWords was proving far more cost effective.

With Yahoo!'s low search volume in the UK, it was madness to keep its prohibitively expensive opening cost per click; especially given that Microsoft’s adCenter has been stealing a bigger and bigger share of companies’ ad budgets with its low keyword competition and surprisingly high level of conversions.

I imagine the move might cost Yahoo! some revenue in the short term, but its strategy must be to attract back some of the advertisers with small budgets frustrated by the rising costs of running a comprehensive campaign on Google’s search advertising network.

This all comes before the release of Yahoo! Search Marketing’s Panama, which is expected to help provide more relevant advertising based on the searcher's query.

It’s been rolled out in the States but isn’t expected in Europe anytime soon. Though the reports from over the Atlantic haven’t been hugely complimentary, it should hopefully help Yahoo! bridge the software gap between it and its competitors.

However, the new pricing structure gives companies who were forced to pay 10p for uncontested keywords a few options if they want to get good value from Yahoo!’s minimum spend of £30 a month.

Either they can keep deep-mining the long-tail, finding more specific and niche keywords to direct traffic to their sites. Or conversely, the cheaper costs of their current keyword list might give them the chance to bid on more generic, high-volume terms that in the past might have been out of reach.

Personally, I think it’s a good move - it lowers the barrier to new customers and might help pinch a few customers that are worried about putting all their eggs in one Google-branded basket. Either way, there’s going to be a lot of tinkering in the Yahoo! PPC accounts over the next few weeks.

Damon Lightley

Published 19 January, 2007 by Damon Lightley

Damon Lightley is Owner at Lightley.com and a contributor to Econsultancy. 

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