ADVERTISING agencies don’t like our revenue model because it threatens their existence,â€? says Pinstorm Technologies Pvt Ltd founder and CEO Mahesh Murthy.

Pinstorm, a Mumbai-based search engine marketing (SEM) firm, works on a pay-per-performance model rather than the commission or fee system generally used by the ad industry.

Clients pay it based on actual results, that is sales leads Pinstorm generates for them.

Agencies say: Whether our campaign works or not, pay us. Pinstorm is a far more responsible marketer, far more results-focused. One day, all advertising will be like this – accountable,� he tells BizWeek in Petaling Jaya.

Murthy is familiar with the workings of ad firms, having worked in several multinational agencies, including Ogilvy Hong Kong where he was the creative director.

Pinstorm, which opened a KL office four months ago, is believed to be South Asia’s largest agency specialising in search engine-driven marketing, and one of the world’s top five. (These are Murthy’s estimates, as SEM companies prefer not to disclose financial figures.)

Search engine marketing, a relatively new subset of Internet marketing, is growing by leaps and bounds. Basically, it involves driving the target audience to a marketer’s website when these consumers use certain keywords or phrases to find products or services on search engines such as Google and Yahoo.

For example, an airline flying to Kuching may want its web link to be featured high on a search engine’s rankings – preferably on the first results page – when a potential customer performs a search for “flight to Kuching.â€?

For the widely used Google, most pay-per-click ads that link to the advertisers’ websites appear on the box to the right of the search results, under the heading “sponsored links�, and on the websites listed on the editorial content side.

Marketers bid for keywords/phrases, and then pay Google based on how many times someone clicks on the sponsored links or display ads under the search results (no payment needed if there is no click).

Pinstorm, through its BroadWords software, guesses the keywords that the consumers would use and then place the clients’ ads based on the possible searches.

“We buy about 260 million search impressions every month on behalf of our clients by predicting consumer behaviour in terms of what they’re searching for,â€? Murthy says.

The pay-per-click SEM is big business, worth US$10bil annually. This media area, dominated by Google, is growing by 40% a year.

A marketer typically picks between 50 and 500 keywords. However, Pinstorm buys between 10,000 to 1 million keywords per client! Furthermore, it buys words in 16 languages, including Chinese, Hindi, Tamil, Japanese and French.

Murthy claims Pinstorm, which started operations two years ago, was the world’s first “long tailâ€? SEM agency. This refers to an agency that buys a huge number of search words to reduce drastically the average cost per word.

“It’s a huge cost advantage,â€? he says, noting that there is no upfront cost to “buyâ€? a word; a marketer pays only when someone clicks on that word and actually responds to its ad.

When advertisers bid for words, the “obvious� words can cost up to US$45 per click although the bidding starts at just 5 cents.

“We use our technology to bring the price down by finding not just the commonly used words but also undiscovered gems – words that work but which nobody else has discovered,� says Murthy.

Sometimes the best keywords – those giving the best conversion rate from clicks to sales – do not come to mind easily. Pinstorm, for instance, discovered that the best search term for client Taj Hotels’ resort in Seychelles is “whale expeditions,â€? not the more expensive term “Seychelles resorts.â€?

After selecting the words, Pinstorm uses its BidWise technology to bid appropriately for each word.

Pinstorm creates the ads at no cost to the clients, and it also buys the ad space itself. Clients need only pay based on sales leads, enquiries or, in rare cases, number of unique visitors.

The agency charges clients differently, depending on factors such as how expensive the clients’ products are. Thus the costs per action can vary as wide as between US$2.50 and US$250.

Pinstorm is taking a risk by paying for the clicks itself; after all, not all clicks lead to a sales lead or enquiry.

But the company has managed to be profitable. In fact, Murthy says its margins are “significantly higher� than those of ad agencies.

“We would lose money on 15% to 20% of our clients but make money on the others,� he explains. As Murthy advises would-be entrepreneurs, “You do not get greater rewards without taking great risks.�

Pinstorm was rated as one of Asia’s hottest technology companies by Red Herring Magazine last year and again this year.

The interactive marketing outfit expects revenue of US$5mil this year, up from US$1mil last year.

On this big jump, Murthy says: “Clients love our business model. If I don’t give the results, they don’t have to pay.â€?

Pinstorm’s clients include well-known names such as HP, Dell, National Geographic Channel, Kodak, American Express and eBay.

Pinstorm keeps changing its ads to determine which ones work best. “For one large client, we do 225 new ads every month!� notes Murthy.

He says the kind of technology needed to handle search engine marketing automatically is not within the reach of most ad agencies. “Most agencies don’t invest in technology,� he adds.

Pinstorm already has four offices and over 60 employees. Besides the one in Mumbai, it has three business development and client management offices in Malaysia, Singapore and New Delhi.

The firm is now looking at China, the US and Western Europe. By the end of this year, it wants to have at least two more offices.

Murthy says Pinstorm may seek a listing in a year or two to get funding.

“By 2008 we should be the top two in the world in terms of revenue or billings,� he says