Yahoo CEO praises new ad system, says "very happy"

NEW YORK (Reuters) - Yahoo Inc. (YHOO.O: Quote, Profile, Research, Stock Buzz) Chairman and Chief Executive Terry Semel said on Wednesday he was pleased with the progress of a new Web search advertising system, launched to better compete with Google Inc. (GOOG.O: Quote, Profile, Research, Stock Buzz)

Semel, speaking at a media conference sponsored by Ad Age, said the new system, known as Project Panama, would show "some very exciting numbers" when Yahoo releases its first quarter earnings report.

Panama, launched on February 5, is based on technology that, like Google's, allows advertisers to pay for search terms based on their popularity. It is key to Yahoo's strategy to compete with faster-growing rival Google.

"We have said from the beginning and we say it clearly right now, again, that our intention is to close the gap and Panama is doing a great job," Semel said.

Web search advertising generates revenue for Internet companies like Yahoo by placing ads in a user's search results. Each time a user clicks on one of the sponsored links, Yahoo collects a small fee, so improving the relevancy or increasing the number of ads can help boost revenue.

Last month, a comScore Networks report showed Panama had increased the number of people who click on links that pay Yahoo.

The report showed that the number of Yahoo search users who clicked on ads -- known as the click-through rate -- rose 5 percent in the first week after the new system's debut and 9 percent in the second week.

"I'm totally all smiles," Semel said. "We are very excited and very happy and I'm smiling broadly."

Yahoo executives have previously said Panama's ability to draw more ad dollars from clients should accelerate growth in the second half of the year.