That Google feeling, but on the cheap

By Michael Kanellos
Staff Writer, CNET News.com

Published: December 2, 2005, 4:00 AM PST

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Why do some search terms on Google or Yahoo cost advertisers $12.47 while similar ones sell for 18 cents? Sometimes, it's a lack of imagination, says Pinstorm CEO Mahesh Murthy.

The Mumbai, India-based start-up devised a software program and set of services that attempt to circumvent the auction fever surrounding the buying and selling of advertising keywords on the big search engines.

Pinstorm's BroadWords software identifies thousands of cheap, but not so obvious, search terms that the company says can get an advertisement in front of a potential consumer just as well--or almost as well--as more popular and expensive search terms.

For instance, instead of placing a bid for "cheap hotel New York" for $6 or $7, Pinstorm might bid on "NY subway map" or "Statute of Liberty, where," which attract a few buyers and sell for a few cents. Those alternative terms might not be directly related to booking a hotel room, but the person doing the searching could be a tourist or business executive trying to determine which part of town to stay in for an upcoming visit.

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By placing bids on thousands of search terms, then paying for the occasional click-through, spending on advertising would decline while advertising placement would rise.

"There are huge inefficiencies in the bidding process," Murthy said. "The cost per (customer) acquisition goes down with the more keywords we have."

The search industry, in some ways, operates on the loss-leader theory: Offer something to entice customers through the door and then sell them something else. Search results are complimentary--Google does not charge companies when its servers display a search results link for, say, digital cameras. They only sell the tiny sponsored links on the right side of the search results Web page.

Google's "cost per click" system on sponsored links, introduced in 2002, relies on selling keyword ads to the highest bidder and making marketers pay only when Web surfers click on the sidebar text links.

By also syndicating those ads to third-party Web sites and publishers, Google struck gold: It has made 99 percent of its revenue--last year more than $3 billion--from ads.

Pinstorm is trying to capitalize on the idea that most people have a somewhat limited vocabulary when it comes to search terms. A substantial number of advertisers concentrate on buying a narrow 50 to 500 keywords, which naturally then get bid up in auctions.

In the hotel category, for instance, Murthy has found keywords selling for $45 per click.

Search-marketing terms have sought cheaper words for years, said Barry Schwartz of RustyBrick, an analyst firm that studies the search industry.

"Alternative (less popular) search terms work because they are more specific. However, the chances that you find someone who types it into the engine, is much less likely," Schwartz said in an e-mail interview.

Murthy, however, said Pinstorm differs in the reach of its alternative terms and how it studies advertiser behavior in auctions. Pinstorm has about 7 million "cheap" search terms in its portfolio. Placing an ad for a client might involve having a position on 10,000 to 1 million search terms.

Advertiser conduct varies by geography and search engine. In South Korea, getting placement on Yahoo is often more expensive than it is on Google. In China, domestic search engines are generally the premium spots.

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"You will find sets of words highly bid up on Google that are virtually free on Overture," Murthy said.

Founded in 2004, the company has landed contracts with Monster.com, Sun Microsystems, British Airways, Dell and eBay, among others, he said. Most contracts so far are targeted at Indian consumers. Revenue will rise from $1.1 million this year to $4.5 million next year, Murthy predicted, adding that the company is turning a profit.

The company expects to open offices soon in Singapore and Kuala Lumpur, Malaysia. It also has kicked off efforts to optimize its tools at the Indian Institute of Science, the country's leading graduate school.