Yahoo has begun shipping its previously delayed upgrade to the Web search advertising system that will help it compete with rival Google and expects to begin selling ads on the system early next year, the company's CEO said on Tuesday.

"Starting today, we've begun inviting advertisers in the U.S. to upgrade to the new campaign management application," Terry Semel told investors on a conference call following the Internet media company's third-quarter results.

Semel said the company plans to work with advertisers through the rest of this quarter and is on track to begin selling advertising on the new search system early next year.

"I also want to reaffirm that the introduction of the marketplace design in the U.S. remains on schedule for the first quarter of next year," he said of the planned introduction of the system, codenamed Project Panama.

Yahoo's top executive said that lower than expected results in the third quarter and a reduced forecast for its fourth quarter reflected a shift in the online ad market as corporate advertisers chase younger customers on new social networking sites such as MySpace, Facebook and YouTube.

"The market is going through a significant transition with new forms of inventory becoming available from a range of new and established competitors," he said.