Yahoo today revealed plans to roll out an entirely revamped online search advertising system this autumn, in the hope of catching global leader Google.

Developed over the last two years under the codename "Project Panama", Yahoo's technology is designed to help it close the gap with Google in the paid-search market - where advertisers pay to have their site appear at the head of a list of results when certain keywords are typed in to a search engine.

The redesign, believed to have cost tens of millions of dollars, is the first major overhaul of Yahoo's advertising system since it acquired Overture, which pioneered the paid-search concept, for $1.6 billion in 2003.

Wall Street analysts regard Project Panama as the most important venture Yahoo will embark on this year. The company has already admitted that its current Yahoo! Search Marketing offering has "run its course".

That conclusion has been bolstered by recent results. Like-for-like growth at Google's online advertising business ran at around 80 per cent over the most recently reported quarter, compared with 36 per cent at Yahoo.

Meanwhile, Google accounts for around half of the online search-advertising market, way ahead of Yahoo's 22 per cent share, according to recent industry research.

In a bid to match Google's dominant AdWords system, Yahoo will change the way it displays adverts by accounting for "click through" rates and other variable factors.

That should mean that the most popular paid-for links will appear at the head of a page of search results. These will also be the most lucrative for Yahoo, which is paid each time an advertisers' site is clicked on.

At present advertisers can dictate where their ads appear on Yahoo's pages through the amount they pay, a system that has led to unpopular ads appearing in the most valuable positions.

Under the revamped system, advertisers will be given access to the factors "that influence the likely placement of their ads", Yahoo said.

"We will help advertisers understand how their bidding strategy positions them competitively by displaying their 'Estimated Share of Available Clicks', an estimate of the clicks they might receive for all of the keywords in their ad group, based on their bids and the prior seven days' worth of data for their keywords," the company told Times Online.

"We understand that advertisers like to know where their ads appear, and this functionality is more open than that offered by the competition."

Yahoo! hopes the new system will eventually also carry its keyword ads to mobile phones and television sets. It will also allow the addition of graphics, video content and "click-to-call" over internet telephony systems to online ads.

"The new interface is slick as can be, and very clearly targets what Yahoo! believes are weaknesses in Google's platform," John Battelle, the search engine expert, said on his blog.

Internet companies have recently renewed their focus on search advertising as marketing budgets continue to migrate to the web.

Microsoft last week increased the pressure in the battle for the multi-billion-dollar internet advertising market by switching to a propriety platform it said would target audiences more accurately than its rivals.

Steve Ballmer, the Microsoft chief executive, told advertising executives gathered at the Annual MSN Strategic Account Summit that the plans were integral to Microsoft’s "evolution from a software company into the world’s largest, most attractive provider of online media".

According to the Internet Advertising Bureau, UK internet advertising reached £1,366 million in 2005, a 66 per cent increase on 2005. Paid-for search accounted for 56.2 per cent of the money spent online – an increase of 78.8 per cent year-on-year.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive