Can Merlin conquer a corner of Googles market?

Israels Merlin Communications is operating in Googles core market - keyword advertising, except that Merlin operates an ad engine, not a search engine.

At a time when Google Inc. (Nasdaq:GOOG) is carryin gall before it on the Internet, and it seems that it is already impossible to find a free corner available for companies rather less large, a small company from Israel thinks otherwise. Merlin Communications Ltd. is not looking for a small niche where it can live in peace with Google; it is working in Googles core business - Internet keyword advertising.

In a world dominated by the Google Adwords Internet advertising s engine, Merlin has found a way to create a unique product, which it claims is better in many ways than Googles product or those of other international competitors. Merlin is currently only active in Israel, but there is nothing to prevent its advertising engine from working on the basis of the same criteria in other countries.

Merlin began as a venture in 2003, and became an actual company in March 2004. Merlin co-founder and CEO Yoni Sapir says the company has raised the modest sum of $300,000 from a number of private investors. He adds that the system was designed over 18 months before its commercial launch.

A study by Radar Research LLC on the keyword advertising market, published in January 2006, indicates that advertisers in the US and Canada spent $5.75 billion on keyword advertising marketing in 2005, 44% more than in 2004. 83% of this amount was spent on pay-per-click campaigns (Google Adwords, Yahoo Search, and so on). 11% was spent on optimizing the search results on search engines, and the rest was spent on supplementary activities. Merlin says the figures indicate the markets maturity, the rising competition in it, and the striving to increase return on investment (ROI) from marketing and advertising activities.

Merlin has developed a concept that is basically a textual advertising system. Each advertisement is associated with a basket of search words and search expressions. Advertisers pay per click, says Sapir.

So far, there is nothing new; Google uses a similar approach. The difference is that Merlin, unlike Google, is not a search engine, but only an advertising engine. As such, it hooks up to content sites and search engines, focusing on those with high visibility. Each time one of these sites search engines is used, the results of the search appear, while next to them appear the sites marked by Merlin that meet the textual criteria of the keywords. The customer only pays if the surfers who click on the advertisers website.

Merlin currently collaborates with websites such as MSN, Morfix, and Ynet, as well as dozens of others, ranging from mid-sized to the very small.

Merlins idea is to increase as much as possible the target audience that uses this kind of advertising. The company concluded that the best way to achieve this was to simplify advertising as much as possible in order to attract small advertisers.

As a small advertiser, you can easily define an ad based on search categories, with very few steps. The system is semi-automated. After an ad is placed, the editor only checks to see that everything was done correctly, with suitable keywords, to ensure that an advertiser wont appear in irrelevant categories, says Sapir.

In general, Merlins system is built on the principle of simplicity, so that advertisers will not encounter technological barriers, or what is perceived as a need for an in-depth understanding of the advertising world. Were also fully transparent about advertising primacy, in other words, who appears at the top of the search list. In this world, advertisers normally pay more for position, and its the same with us. In addition, if the rankings change, advertisers are immediately notified, so that they can increase payment to be returned to a prominent place on the list, says Sapir.

Merlins revenue model is built on revenue sharing with websites. Small sites get 30% of revenue, and larger sites get much more. Today, our business is almost at break-even point. Although we cant advertise on Google, we have enough traffic at other sites. Were also in advanced negotiations to introduce our tool in Russia and the UK, and we plan to launch the service in other European countries.

Published by Globes [online], Israel business news - - on May 17, 2006

Copyright of Globes Publisher Itonut (1983) Ltd. 2006

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