Confused by the new ad ranking algorithm in Yahoo's Panama platform? Kevin Lee provides a good illustration in his ClickZ column today, "Panama's Relevance Score Causes Pain and Gain."
As Lee explains, the ranking algorithm is similar to Google's AdRank, in that it comes up with a score by multiplying predicted CTR with bid price. A change in one or the other, measured as a percentage change, will affect the ad's position.
In a case where two ads have equal current bid prices, if one ad's predicted clickthrough rate is 23 percent higher than the second ad's predicted CTR, it would require the second ad to pay a 23 percent higher bid to outperform the first. If that is above the second ad's max bid price, it will drop in the rankings below other ads with higher bid prices or better predicted CTR.
To better align your Yahoo ad campaigns to the new algorithm, Lee suggests taking steps to enhance relevance, such as reorganizing ad groups, reviewing landing pages and bids, and testing new ad creative.