A new survey of the UK search engine marketplace shows that Yahoo has lost 40% of its market share in the last 12 months.

The report by Efficient Frontier indicates that spending on search marketing in the UK rose by 11% between Q4 2007 and Q4 2008, in contrast to an 8% drop in the USA over the same period.

Yahoo’s UK share plummeted during this period from 13.9% to 8.4%. Google was the beneficiary of this loss, increasing its share from 82.6% to a market dominant 88.2%. Microsoft’s search product remained consistent, with a 3.4% share.

The figures include spending on Google and Yahoo’s content networks. This is likely to have contributed to the majority of Google’s growth in market share, owing to the 300 percent year-on-year increase in spending on its Content Network.

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At this moment it’s hard to imagine 2009 producing growth for Yahoo in the UK. They have reduced their discount to medium and large spending agencies as of the 1st January 2009, earlier this month they announced the closure of their contextual ad service in Europe, and so far they have not followed the example of their US operation in early 2008 and officially approved affiliates buying ads on a direct-to-merchant basis. Hopefully they won’t be importing their controversial ‘campaign optimisation’ scheme from the USA which involved changes being made to advertisers’ accounts without prior permission.

As the originators of PPC advertising, it’s a little sad to see Yahoo! Search Marketing in danger of falling behind both of its behemoth competitors. Both Google and Microsoft add a steady stream of additional features to their PPC services, and both now offer free desktop account management software tools, but Yahoo appears to be standing still.

Here at Azam Marketing we’re hoping that new Yahoo CEO Carol Bartz can start to turn things around.