Most people think of a country in Central America when they hear the name Panama. For those of us who rely on Pay Per Click advertising to drive traffic to our websites, it is the name of the latest version of Yahoo Search Marketing.

After a couple of years of planning and millions of dollars of investment, Yahoo Search Marketing (YSM) launched the newest version of its software in January, 2007. The company has been shifting customers to Panama throughout the month.

The changes implemented in Panama are much more than an interface facelift. Here’s what you need to know to survive the transition.

No more guaranteed placement. In the old YSM days, you could see what your competitors were bidding and place a bid that would put your ad in a specific position. Not any more. Now, Yahoo takes into consideration your bid as well as your click through rate (just like Google).

This is both good and bad news. On the one hand, advertisers who place irrelevant ads no longer can hog top positions. Since quality matters, all the work diligent companies have done to improve their ads will be rewarded and this can lead to significant savings. In some cases, my clients average cost per click is now less than it was before the Panama implementation for the same positioning.

You no longer know what your competitors are bidding. This update will make power user feel like they have lost control. In the past, you could see the entire list of bidders for particular keywords as well what they were bidding. Now, YSM just reports the top bid and the lowest bid of ads in the “premier zone” – the ads that appear above the organic search results in the left column. However, the definition of the premier zone is not precise. Yahoo displays a variable number of ads in the premier zone – I’ve seen as many as 5 but as few as 2 for keyword phrases with multiple advertisers, so sometimes the lower number will be what it takes to be ranked 2, and other times 5. It will take some time, and some work, for you get a feel where you’ll be placed for your bids.

Your keywords have been reorganized, and you’re not going to like it. When your account transitions from the old to the new YSM system, you’ll notice your keywords have been reorganized. In the old version, you set up Categories and placed one or more keywords into each of these categories. Each keyword could have a unique ad. In the new version, you still have Categories, but there is a new layer called AdGroup. Just like Google, you can display only one ad for all the keywords in that group. (Actually, to be specific, since you can test multiple ads, you get one set of ads that rotate for the AdGroup). In the case of the accounts I manage, this transformation created a gigantic mess which includes missing categories, seemingly arbitrarily created AdGroups, misplaced keywords and rewritten ads. One person I know used to have 2000 keywords in 10 categories. Now, he has 400 AdGroups and his ads have changed! It’s going to take weeks us to sort this out.

Adjusting bids has become a nightmare. Another change (for the worse) is how bidding is handled. It used to be that you could display 200 keywords and edit the bids one by one on the same screen. You could then submit all your changes changes at once. This made YSM the easiest of the major search engines to update. Now, it’s the hardest. In order to change individual keyword bids, you have to click on each, type in the new bid and then save. You can “batch process” bid changes for multiple keywords where the new bid is the same. However, if you are trying to carefully fine tune your bids, this isn’t much help.

In summary, the new YSM interface sucks. For sophisticated advertisers bidding on relevant keywords and with great ads, the new YSM will allow them to lower their costs. However, for the average user, losing access to competitor bid information and being reduced to a snails pace when changing keyword bids makes the new YSM feel like a serious downgrade.

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