David,
PPC marketing can always be dominated if enough capital can be thrown into the mix. With a high enough spending limit and cost per click if you really want to compete with your competitor in the PPC area you can do so. It may involve you spending a little more on clicks than you have done before but this may be a practical idea for your business to undertake while increasing your effectiveness in the natural channels, which by the way will take considerably longer.
So what I think I'm trying to say is, short term wise, if you have the budget throw it into the PPC scheme while you improve your natural SE positions and then when those positions improve you should be able to drop the PPC budget back a little and let the natural scheme take over. (Remember to keep what keywords you advertise tight, don't be too broad.)
Regarding starting over at Yahoo. If the market is untapped, especially by your competitor then I would definitely steal the advantage and cover that hole with your own campaign. After all, with little competition over there you can indulge in lower costs per clicks and more than likely still the same click through percentage.
There are many different methods, and a lot of these methods only 'trying' them will tell you whether they work for YOUR business.
Last edited by Anthony; 17-12-2006 at 10:28 AM.