Yahoo’s new advertising model (in beta and code named “Project Panama") emulates Google… but that’s not even interesting when you consider what the future holds for BOTH Web advertising Goliaths.  A quick study of behind-the-scenes activities and whispers reveals the real story—how ad position preference will soon dominate the scene, revolutionize the way ads are sold on search engines and allow both companies to wow Wall Street with, for the first time, pre-booked revenue.

Position preference is just what it sounds like.  It’s an option giving advertisers the ability to buy paid search positioning—by bypassing the “relevance + click through frequency” (Google’s) scoring algorithm that is used to present ads currently. 

Already this year, Google has announced more changes to its AdWords program.  Specifically, Google’s AdWords ad serving system will designate every single search as “commercial” and “non-commercial” and serve ads accordingly… and that, they say, means LESS ads overall.  The company is REDUCING inventory.  Sound crazy?  Not when you consider position preference it’s not; rather, it’s genius.

Why will Google and Yahoo continue to send their ad billings and, hence, valuations upward using position preference? 

1) Position preference will not be auctioned in the open market.  It will be auctioned only among “preferred” status advertisers. 

2) My sources indicate that most “affiliates” and “aggregators” (of traffic/users) will be downgraded and not given access to position preference inventory.  Interestingly, major shopping comparison engines will be grouped with branded retailers and given rights to primo inventory.

Financially speaking this takes Google and Yahoo into a situation where it can pre-sell the best ad inventory to either direct-response or brand-and-reach focused advertisers.  On the books (and books are important to companies that issue guidance in volatile markets) that looks mighty fine… it reduces risk significantly and makes for fantastic Q4 revenue projection confidence.