A tech advertising behemoth in-the-making

November 16, 2012: 11:43 AM ET

Marin Software helps companies manage their online advertising campaigns.

By Kurt Wagner, reporter

FORTUNE -- Playing the stock market can be nerve-wracking. Bidding for online advertising space can be just as dicey.

San Francisco-based startup Marin Software wants to do something about that. Search engines like Google (GOOG) and its competitors have created a marketplace that allows advertisers to bid on keywords to match an ad with a particular search term. The higher companies bid for a term, the more exposure their ad will get every time someone searches for that keyword. Bidding on such ads is a kind of rapidly evolving science, and Marin has built a business helping clients – including Netflix (NFLX), Macy's (M) and the University of Phoenix – play this vast market. The company also helps manage companies' online advertising campaigns, not just on Google but Yahoo (YHOO), Facebook (FB) and others.

More than that, co-founder and CTO Joseph Chang says the company can figure out which ads actually boost profits. By pairing up Google's click data with Macy's revenues, for example, Marin can calculate which keywords actually bring in the most money. This data affects bids, which change in real-time much like the stock market. Every day, Marin monitors more than 3 billion keywords for its 1,800 clients, determining when to bid higher or when to back off in order to maximize revenue.

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Since its founding in 2006, Marin has reaped the benefits of the growing online advertising industry. In 2012, advertisers spent $90 billion on online ads, a number expected to hit triple digits next year. With the industry growing at a rate of 15% to 20% annually, the pressure is on for advertisers to expand their reach in social media and on mobile devices. As Marin's clients continue to spend more on online ads – they already represent more than $4 billion in annual online ad spending – the startup's take has risen. The company reported revenue of $36 million last year and expect that number to be over $50 million this year, according to co-founder and CEO Chris Lien.

There is plenty of competition of course. Google and Adobe (ADBE) already offer competitive search marketing options; other ad management offerings focus on areas complimentary to search advertising. California-based Rocket Fuel, for example, also uses data to maximize the influence of banner ads. Things are only likelier to get tougher as the market heats up.

But with revenue rising and the company over 400 employees strong, Marin has a solid start. Lien came up with the concept for Marin Software following a brief stint working for an online ad firm in 2005. (His first startup, a digital media company called Sugar Media, sold to 2Wire for $40 million earlier that year.) Lien realized that search advertisers had no viable software for managing their online campaigns, especially larger advertisers.

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Lien, 46, shared his idea with Chang and a former high school classmate, Wister Walcott. Chang had built J.Crew's website and was a co-worker with Lien at Bluelight.com, Kmart's ecommerce site, when it launched in 1999. Walcott, who came from software giant Siebel, required a bit more convincing. Alongside Lien, the duo drove up and down California's highway 101 in early 2006, interviewing search marketers in Silicon Valley about their experience managing online ads. What they found was a method centered around bulky Microsoft (MSFT) Excel spreadsheets. "A lot of online marketers are very proud of how good they are at Excel," says Lien. "Which is kind of a sad and scary thing." After a half-dozen interviews, Walcott was convinced that new software was needed.

Fast forward to 2012 and Marin Software is roaring. The company has plans for an IPO next year. In the meantime, Marin will gear up for its biggest advertising weekend of the year: Thanksgiving. Last year, online spending on Black Friday increased 24% from 2010. The attention of consumers is up for grabs to the highest bidder, and Marin Software wants its clients to be ready. You can bet on it.

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