Yahoo!'s (NASDAQ: YHOO) Project Panama is the web giant's attempt to re-thread its entire text-based advertising system to emulate Google's AdWords system. Google's system lets advertisers compete on customer relevancy and click-through rather than on advertised keyword bid price. Obviously, Google's relevancy model is the clear winner here, after Yahoo!, which spent over a billion smackers to buy Overture years ago, has admitted that keyword bidding just doesn't work as as well -- the customers (not the advertisers) have to be in charge.

Yahoo!'s new text advertising system went live in the U.S. during the last calendar quarter of 2006 and is looming on the horizon to be launched in the UK (and other markets) soon. Yahoo! still receives quite a bit of traffic to its network (search not so much) and wants to monetize more of that with advertising methods that actually work well. Hence, Project Panama. Should Google be scared that it may now have heightened competition in the web search space? Not unless Yahoo! can grab market share away from Google in web search, which I do not see happening. But, Yahoo! will glow a little brighter, which is the injection of life the company needs right now.

Yahoo! recently told its UK advertising partners to get ready for Panama: "Our new Sponsored Search system will be rolled out in the UK soon, beginning with advertiser migration later this quarter. We will be contacting you with more specific information as the rollout date approaches." Will this be enough to get Yahoo! into some kind of spotlight again with customers? Yahoo! CEO Terry Semel has said many times recently that Project Panama is "doing very well" in the U.S., but he has not given much on specifics, yet. At some near-future time, YHOO shareholders are going to want to know all about this. It won't be Yahoo!'s curtain call if it does not perform that well, but the added pressure may give even more employees a reason to flee.