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Zemanta, for Snazzier Blogs

Slovenia is a long way from Silicon Valley. But a two-year-old tech startup called Zemanta is bringing a little California magic to Ljubljana, the country's capital, with a cutting-edge software tool that helps authors worldwide easily add related content and multimedia to their blog posts and e-mails.

"People ask: 'Why Slovenia?' I say: 'Why not?'" says Alex Spetic, Zemanta's 36-year-old chief executive, who got his MBA at California State University at Hayward. "We're in the blogging business. It doesn't matter where you're based, it matters what you produce."

What Zemanta has created is a one-stop shop for bloggers looking to dress up their postings with related content links, images, audio, and video. Once a blog entry has been written, Zemanta's Web-based program—which is compatible with tools including Blogger from Google (GOOG), Movable Type from Six Apart, and the open source WordPress—scans the content using search technology. Then it suggests free and public-domain material that bloggers can add, ranging from YouTube videos and Amazon (AMZN) merchandise to Wikipedia entries and news articles from 10,000 Web sites. Inserting the suggested material is as easy as point and click.

Enhanced Content Is a Win-Win

"The biggest usage will be professional authors who are looking for other forms of content to add to their blogs," says Saul Klein, a partner at London venture capital firm Accelerator Group, which provided first-round funding to Zemanta. "If the content is enhanced, both the author and reader win."

Zemanta's premise may be simple, but bringing the product to life was far from it. For one thing, the initial prototype was written in Slovenian—not exactly a mainstream choice for reaching a wide Web audience. But after the company won a €50,000 ($67,200) prize in 2007 from Seedcamp, a European competition to foster entrepreneurship, Spetic and a team of five developers set about converting the software to English and raising more money.

"We only had 10 weeks to get it up and running," Spetic says. "All we could pay [the developers] was food and accommodation."

Despite the short development window, venture capitalists saw the potential. In January 2008, Accelerator, Britain's Eden Ventures, and New York's Union Square Ventures (which also backed Twitter), stumped up a combined £750,000 ($1.1 million) for an undisclosed stake in the startup. That was followed by a further $650,000 investment in September 2008, and now Zemanta is raising further capital (amount undisclosed) in a funding round expected to be complete by May.

What's in a Word?

One thing that caught the attention of its investors from the beginning was Zemanta's use of so-called semantic search technology. Unlike conventional Web searches, which rather crudely classify content based on the occurrence and location of certain words, semantic search uses more sophisticated linguistic analysis to determine the actual meaning of words. Thus, when Zemanta scans a blog entry, it can tell the difference between Apple (AAPL) the company and apple the fruit when it suggests links and content to be added to the posting.

Zemanta's founders hope this added edge will attract bloggers worldwide to use the free service. As of February 2009, Spetic says, some 27,000 bloggers around the world (roughly 85% from the U.S.) had used the tool to "Zemify" upwards of 440,000 blog postings, which in turn have generated 26.5 million page views. The number of its users has almost doubled in the past three months, the company says.

The tougher test will be turning a profit. Zemanta has mapped out two ways to make money, but neither is yet proven. The first involves sponsored links, similar to the ones that have made billions of dollars for Google. Within a few months, when bloggers use Zemanta to spiff up their postings with related content, the tool also will suggest paid links pertinent to the subject matter.

Zemanta will get a referral fee from the advertiser every time authors places one of these links on their blogs. Unfortunately, there's no financial upside for the blogger—for instance, getting a small cut from the advertiser if a reader clicks a paid link. But Spetic argues that related links can make blog postings more useful and pertinent to readers, even if they're sponsored.

Commercial Links?

The second planned source of revenue, on the other hand, does afford bloggers a way to make some money through so-called associate referrals. If bloggers include links in their postings to products or services offered by online retailers—and if readers follow the links and buy something—the merchant will pay a finder's fee to Zemanta and the blogger.

The company already has inked one such deal with Amazon, whose "associates" program pays between 4% and 15% of a product's purchase price for referrals. In February, Zemanta opened a two-person New York sales office to persuade more such merchants to sign up.

Spetic is conscious that some bloggers won't want to add any commercial links at all to their sites. And he wants to ensure that authors aren't flooded with suggestions for links that aren't appropriate. But he's confident enough of Zemanta's business model that he predicts the company will break even by the end of 2010. Current revenues and losses aren't disclosed.

One danger facing Zemanta is that by putting search technology at the heart of its business model, the company could end up competing with deep-pocketed Internet giants like Google and Yahoo! (YHOO). Nick Thomas, a London analyst at Forrester Research (FORR), says the link suggestions also have to be extremely accurate, or bloggers may look elsewhere for multimedia content. "Semantics is the next step of the Web, but you don't want to directly compete with Google," he says.

On the other hand, getting onto Google's radar could end up benefiting the Slovenian startup if it leads to a juicy buyout. For now, Spetic says he's not looking to sell the company. But "I'm here for the money at the end of the day," he admits. Whether a Web giant will come knocking remains to be seen—but until then, Zemanta has high ambitions to make money from the blogosphere. "We want to be everywhere user-generated content is found," Spetic says.

Scott is a reporter in BusinessWeek's London bureau .

Scott is a correspondent in Bloomberg Businessweek's London bureau.

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