Dec. 12 (Bloomberg) -- Yahoo! Inc., the second most-used Internet search engine, released new advertising software to all U.S. customers in a push to close the gap with Google Inc.

Clients can sign up for a new account and use the upgraded software today, said Steve Mitgang, a Yahoo senior vice president. Customers who already have accounts are being switched over to the software, called Project Panama, he said.

Yahoo, whose shares have fallen by almost a third this year, upgraded the software to generate more money from each Internet search and make it easier for advertisers to manage spending. Project Panama, two years in the making and delayed by one quarter, will change the way ads are displayed to make them more likely to be clicked on and generate more sales.

``You can basically be up and running and have your ads online in a matter of minutes'' Mitgang said in an interview. ``It streamlines getting up and online.''

Shares of Sunnyvale, California-based Yahoo rose 26 cents to $26.75 at 4 p.m. in Nasdaq Stock Market composite trading. Google, owner of the most-used search engine, fell $2.15 to $481.78 and has gained 16 percent this year.

Yahoo has already transferred ``many many thousands'' of advertisers to the new software, Mitgang said, including all of those who requested an early upgrade.

The software being offered today lets advertisers target ads to specific areas of the country and more easily manage campaigns with numerous keywords.

Revenue Booster

Changes in how Yahoo displays ads will occur in the first quarter, Mitgang said. Those changes may help Yahoo generate an additional $115 million of sales in the second half of next year, Merrill Lynch & Co. analyst Justin Post said in a Nov. 30 note to investors.

The gains may come from the factors Yahoo takes into account when determining the position of ads on a page. Today, advertisers bid on keywords, and ads for the winning bids appear beside results when consumers search for terms such as ``mortgage.'' Yahoo's system sells the highest placement to the highest bidder.

Under Yahoo's new system, ads that are more likely to be clicked will appear nearer the top of the page, similar to Google's approach, and potentially generating more sales.

Goldman, Sachs & Co. analyst Anthony Noto said in a note to clients last week that the benefits of Panama may be delayed as clients learn how to use the new system. The potential of generating more revenue from the software is also limited by the popularity of Yahoo's search engine.

Search Share

Mountain View, California-based Google handled 50 percent of U.S. searches in October, up from 48 percent a year earlier, said Nielsen//NetRatings, a New York-based market researcher. Yahoo's share rose to 24 percent from 22 percent.

Mitgang said his team worked in double shifts in the month before the software was first released to some advertisers in October. Groups of employees worked from 8 a.m. to 8 p.m. and another shift would continue through the night, he said.

``You are talking about sustained, nearly 100-hour weeks for a very very long period,'' he said.

To contact the reporter on this story: Jonathan Thaw in San Francisco at jthaw@bloomberg.net.

Last Updated: December 12, 2006 16:08 EST