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Why "yes it matters"?
First, if a company is targeting "retaining walls" and those keywords are not in its domain name, Yahoo listing title or Yahoo listing description, it won't be found in a search within Yahoo's directory for those words - unless these keywords are in the category name.
Second, in Yahoo's older algorithm (and maybe to a certain extent also in the new one? Not sure.) keywords also in the category name had a bit more weight than just those in the description.
Third, "retaining walls" will probably be the category that first comes up when someone searches in Yahoo for retaining walls - another reason to chose that one over "building materials" (assuming retaining walls is your primary key phrase).
So where's the "but", you may ask? There are several buts. :-)
First - suppose the "building materials" category is more popular and (more important) more relevant to your company than the retaining walls category? Look at both categories. Where are your competitors? Which category has more listings (assuming your name is not "AAA Retaining Walls" but "MMM Materials" and you can't change that)? Which would more likely to be frequented by potential customers?
Second, it's always possible that what you think is your top key phrase will produce less relevant visitors than a good category - I've seen it happen with clients who had a Yahoo listing before I got to them.
Third, if there are not many "retaining walls" listings in Yahoo, you may get a good position by aiming for that phrase in Google, while concentrating on a better/more fitting category in Yahoo.
Does this help, or have I only confused things for you? :-)
Thanks. I get decent rankings in yahoo and ODP, but am trying to find ways to scrape any advantage that I can since you are limited on your ability to adjust your descriptions and titles. Now this brings another question. Does the depth have a play on ranking. Does a site a category closer to the root rank get an advantage over one further down (other than the obvious one that people will have to dig deeper via a drill down).
Boaz, following along with this logic, would it be reasonable to check search terms used by site visitors over a period of time, to see which key phrases are actually more relevant, prior to choosing the directory category to submit to?
Also, in your above comparison, am I correct that you're saying that a highly competitive category, where the person is an M not an A, is not to be chosen over another, seemingly not as good, that they might get a better placement in from a competitive standpoint?
"am I correct that you're saying that a highly competitive category, where the person is an M not an A, is not to be chosen over another, seemingly not as good, that they might get a better placement in from a competitive standpoint?" - no, I'm not saying that. :) . What I'm saying is that this is another factor when trying to decide between two categories that are both good choices...