How we got here
At its peak, Overture maintained partnerships with AOL Search, Microsoft, and several other prominent search engines. Today, they're wholly owned by Yahoo and have lost the Microsoft partnership. They were ousted from the AOL partnership by Google in 2002.
Under Overture, highest ad placement went to the highest bidder, and in the early days, bids were published right on the page. Today, that model is a thing of the past.
What has remained intact is that you only paid Overture when a user clicked on an ad (hence the term pay-per-click). Although Google and Yahoo are now experimenting with a variety of pricing models in their ad platforms, on the paid search side, pay-per-click remains dominant.
The Overture model was keyword or key phrase-centric. Advertisers would associate a separate bid and an associated ad with every single keyword in the account, even if they had 10,000 keywords. This and other quirks spawned the rise of third-party bid management software.
In 2001, Google quietly rolled out a relatively unsuccessful experiment in monetizing Google Search results pages. Called AdWords (I'll call it AdWords 1.0), it was initially based on fixed CPM rates, and only three ad slots were available on a page. The pricing wasn't favorable and advertisers didn't take to it.
A year later, Google rolled out a more sophisticated offering. In some ways, it mimicked Overture's auction (Google later paid Yahoo a hefty settlement for patent infringement). It was pay-per-click, and bids were one facet of how visibility on the page was determined. But this version - I'll call it AdWords 2.0 - incorporated relevancy in the formula for determining placement on the page. The higher your clickthrough rate on a given keyword, the better as far as ad positioning went.
Google also introduced some new ways of interacting with the system. Instead of one keyword, one bid, one ad, you had ad "groups" - multiple keywords in a group associated with a single ad and bid. You could also specify individual keyword bids. A level above the ad group was the campaign level, which offered a number of settings such as daily budgets, language, country or region and more. The platform was far more flexible and intuitive than Overture's, so Yahoo was continually playing catch up by patching features on top of an old, clunky interface.
In addition, Google built fantastic testing capabilities into the new product. For one, you could test ad copy by rotating multiple ads evenly in association with any given ad group. Fast feedback cycles that even an amateur could use to apply direct marketing principles in real time? For a marketer, it was heaven on earth.
In 2003, Google launched AdSense, a program for web publishers to place the same text ads next to their content, based on bids from AdWords advertisers who had "content targeting" enabled. The ads would be triggered on the fly using a semantic matching technology that tried to match groups of advertiser keywords with content on a publisher's page. Yahoo, too, has a content-targeting program. The company has experimented with a number of approaches to matching advertiser keywords with ad placement near content.
In 2005, Google introduced a new wrinkle in its Quality-Based Bidding initiative (we'll call this AdWords 2.5), adding other relevancy factors including keyword relevancy and later, landing page quality (AdWords 2.6, anyone?) into the formula for determining keyword status and ad rank.
In late 2006, Yahoo finally completed development of the replacement for its outdated Overture platform, calling it Panama. While Google's platform is global, Yahoo's Panama is only live in the U.S. and Canada, with an imminent launch expected in the U.K., and an indeterminate schedule for global rollout.
In many ways, Panama closed the gap in terms of functionality differences between Yahoo and Google's paid search programs. Although there are still significant differences between the two, they aren't as great as they once were.
Andrew E. Goodman is the founder and principal of Page Zero Media and the author of "Winning Results with Google AdWords" (McGraw-Hill, October 2007). Read full bio.
Mona Elesseily is director, marketing strategy, Page Zero Media and the author of the "Yahoo Search Marketing Handbook" (second edition forthcoming). Read full bio.