VentureBeat

updated

Here’s the latest action:
1. Alibaba launches its own ad platform
2. SpiralFrog losing money rapidly
3. Viddler launches way to advertise at “tagged’ points within video
4. Amazon.com’s Kindle e-reader receives mixed reviews
5. Advertising technology startup Clickable raising $3 million more
6. Hope you can afford a helicopter — Flying cars don’t work
7. Automattic’s founders, getting ready for cash out?
8. Google buying switches for network?
9. SuccessFactors has SuccessfulIPO

Alibaba launches its own ad platform — The third-biggest ad platform may soon turn out to be Alimama, which was launched today by Alibaba.com. Alibaba, you may recall, is 39 percent owned by Yahoo, and recently went public at a high valuation. Its ad network will try to dig into the spaces that Google Adsense and Baidu Union haven’t yet reached; according to the company, it already has 150,000 small websites and 135,000 bloggers ready to use it. TI is splitting revenue 50-50.

SpiralFrog losing money rapidly — SpiralFrog is a startup begun by a small group of large music companies. Despite the “free” music downloads it offers, it’s bleeding cash, according to Read/WriteWeb, with Q3 revenue of $20,400 and losses of $3.4 million. There may be a cautionary tale therein for other music startups, or just an indictment of the site’s model, which involves barraging users with ads and surveys at every turn.

Viddler launches way to advertise at “tagged’ points within video — It lets you overlay ads at certain points within a video. For example, a guitar ad can be displayed when someone on the video is playing a guitar. The advertiser knows the video clip is related to a guitar because the producer “tags’ that video clip as being about guitars. More here

Amazon.com’s Kindle e-reader receives mixed reviews — The Financial Times has a good roundup of media reactions to the Kindle e-book, which we mentioned last week. Most comment on its less-than-pleasing appearance, but a few analysts are optimistic about its chances in the market.

Advertising technology startup Clickable raises $3 million more — Previous backers Union Square Ventures and Pequot Ventures have reportedly reinvested, after investing $3 million previously. [Update: The company says it hasn't finished raising the funding yet.]

Hope you can afford a helicopter — Because you’re not getting a flying car anytime soon. Moller, the maker of the M400 flying car, is out of money and has “substantial doubt” that it can go on. [via Jalopnik]

Automattic’s founders, getting ready for cash out? – Rumors are that Automattic, the parent company of the popular blog software Wordpress, is about to raise a round of capital from its backer, Polaris, that could cash out some of its executive team, i.e., give them substantial cash (as opposed to providing the company with the cash) in return for some of their personal shares. We’re told by a good source that the deal hasn’t gone through yet. Polaris confirms, saying: “We have stay a little mum on this for a few more weeks.” CEO Toni Schneider isn’t commenting.

Google buying switches for network? — We asked Google over the weekend about reports that they’re buying switches for some sort of telecom network. Turns the networking is for their own data centers. Check out the jobs on their site, which Google pointed us to, which suggest what it is doing: Lots of job openings for hardware and software engineers with networking backgrounds, for example here and here. Andrew Schmitt seems to have the details on Google’s plans.

Plaxo shows explosive growth after OpenSocial integration — Plaxo, once spurned because it was considered to spam you with update requests for its contact management service, is growing once again. “I’ve never seen a growth chart with such a sharply pronounced inflection point,” Plaxo marketing executive John McCrea tells CNET. “Within hours of the Google OpenSocial social network service unfolding, it was surge conditions here. Our service almost buckled.” See the full story here.

SuccessFactors has Successful IPO — Despite mounting losses, San Mateo, Calif. based SuccessFactors held its initial public offering. The online management tool provider’s market cap is now at about $650 million. The big venture capital winners are Greylock Partners, who owned almost a third of the firm, and TPG Ventures, with just under 20 percent. Cardinal Ventures, Canaan Partners, Emergence Capital Partners and Granite Global Ventures also held stakes.

Alibaba has raised US$1.5 billion in the biggest ever initial public offering by a Chinese Internet company, the Wall Street Journal reports.

It’s the biggest offering in Hong Kong’s IPO history, and drew capital from more capital from Asian investors than from those in Europe and the U.S., according to the report. It continues a remarkable trend of growth in Chinese comapnies. A few days ago, the New York Times’ Floyd Norris pointed out that China now has eight companies among the 20 most highly valued ones in world stock markets, more than the United States’ seven. (Image here courtesy of the NYT, based on Bloomberg data).
In Alibaba’s IPO, U.S. investors will get handsomely rewarded. Yahoo owns a 39 percent stake in the company. Alibaba.com also raised about $104 million from investors including Granite Global Ventures, Fidelity Investments and others.

Plenty of moves by big companies in today’s action:

1) Yahoo expands stake in Chinese search portal
2) AT&T buys up $2.5 billion worth of 700mhz spectrum
3) Facebooks FBfund chucks initial applications
4) Twitter’s first attempts to monetize
5) More details on Google’s plans for Orkut
6) E.ON blows another $1.4 billion into wind power
7) Vlaze may be today’s MTV

Yahoo expands stake in Chinese search portal Alibaba – As China’s Alibaba.com prepares to go public next week, Yahoo has invested another $100 million into the company, raising its overall ownership stake to about half. The latest investment represents about 10 percent of the company; Yahoo already owned about 39 percent. The move reflects a growing realization by both Google and Yahoo that the Chinese search market is culturally different enough to make competition against entrenched local sites difficult.

Yahoo has also bet on Baidu.com, which went public in August 2005. Baidu is the largest search portal in China. It has captured enough market share to rank third overall in the world market, according to a comScore study. Alibaba, which folded Yahoo China into its site under the original deal, is China’s second largest search engine.

AT&T picks up spectrum from Aloha Partners — A $2.5 billion deal by AT&T will deliver 12 megahertz of spectrum in the lower end of the 700 mhz range to the telecom giant. The seller was Aloha Partners LP, parent of mobile TV company HiWire. The 700 mhz spectrum is important to AT&T’s plans for mobile video offerings: The 700 mhz spectrum is particularly effective for long range transmission, and penetrates walls and other obstacles more easily than other wavelengths. The acquisition also helps hedge AT&T’s bets, in case a rival like Google wins the FCC auctions for other parts of the spectrum. However, the news may not be the best for entrepreneurs: AT&T is not known for being open to innovation, and its dominance over mobile TV might spell slow growth for the market.

Facebook’s FBfund asks developers to resubmit applications – Last month, the company announced a $10 million fund that will award seed grants to third-party developers (our coverage). The company now says all interested developers need to resubmit their applications. It says it needs to make sure applicants understand the requirements of the application, as the company had been receiving applications with “similar or even identical ideas.” In the company’s own legalese:

As a result, and in order to protect other developers and us from claims that we or anyone else copied material without the creator’s permission, unless we agree otherwise in writing, we can’t promise that any materials or information you submit here will be kept confidential, or specifically that we or others might not develop similar or identical products or services.

You can apply here.

Twitter appears to be gearing up mobile ad unit — Some users, including CNET’s Caroline McCarthy, have noticed text ads slipping into Twitter’s mobile notifications. The text “tips” take the form of small, single-line advertisements slipped in between posts by users. The news of the new ads comes just as Jaiku announces its acquisition by Google (our coverage). it appears that Twitter may intend to remain independent, gearing up to protect its position and begin monetizing the service.

More on Google’s plans for Orkut, social networking – Google has been rumbling for months with secret plans to introduce more interesting social networking features across its web properties. Now, more specifics are leaking out. A Businessweek article yesterday confirms an earlier report that Google will be introducing a number of new features on November 5th. The article suggests, for example, that Google may let third party developers run applications for Orkut from their own servers — applications that also let developers provide Orkut data within other social networks.

E.ON lays down big bucks for wind power — Despite criticisms of wind turbines, including problems with their low output and unattractive appearance, it appears that investments in wind are paying off. Two big European players who both have operations in the United States made a $1.4 billion swap, with Ireland-based Airtricity trading off its US subsidiary to Germany’s E.ON. The acquisition adds 210 megawatts to E.ON’s total wind production, which will now be about 850 MW, with another 4.6 gigawatts still in production. Government subsidies have made the US market one of the world’s most attractive for wind power, with an expected growth of about 10 percent per year, and the field is wide open for entrepreneurs: Growth would be even higher, but production of the actual turbines used to generate wind power has not yet scaled to meet market demand.

Vlaze, an internet TV site and social network, shows impressive growth – If you combine social networking features with live shows that broadcast 14 hours every weekday, you might go from 10,000 unique visitors a year ago to more than 8 million last month. Well, at least if you’re Vlaze, the site formerly known as MusicPlusTV. The Los Angeles company is no longer just focusing on music-related content, but it compares itself to “MTV back in the old days,” back when MTV had more music and less lame reality TV shows. Vlaze shoots its videos in a huge studio in LA, but lets users contribute their own footage as well.

Qihoo, a fast-growing but controversial Chinese search engine for Web 2.0 content, has raised $25 million more in a second round of venture capital from credible U.S investors.

This is significant because Qihoo has launched a new kind of search engine, dedicated to Web 2.0 content — focused on blogs and forums, for example — that has seen its traffic spike in China. Page views have grown from tens of millions of page views a day, to a hundred million page views by the end of this year, the company says. If true, after a mere year’s operation, Qihoo is about a third the size of Chinese industry leader Baidu. The funding brings Qihoo’s total to a whopping $45 million, a significant amount of capital for a Chinese company.

This is a victory for Qihoo’s chief executive and founder, Hongyi Zhou (pictured left), who has come under fierce personal attack from Jack Ma (pictured below), chief executive of rival, Alibaba. We reported on the controversy here, and many people told us Zhou’s fight with the Ma would tarnish his reputation — because of Ma’s clout. Alibaba operates its own search property, Yahoo China, which has sued Qihoo, and has been readying a suit against Zhou directly.

However, U.S. venture capital firm Highland Capital Partners has braced itself and taken the lead to invest in the company. Also investing are Redpoint Ventures and existing investors Sequoia Capital China, CDH, Matrix Partners and IDG Ventures. Sequoia and Matrix have historically been among the best performing venture capital firms. As reported, Alibaba and Yahoo exerted pressure on investors, including Sequoia, to avoid backing Qihoo. VentureBeat reported that Yahoo’s co-founder Jerry Yang and Sequoia’s Michael Moritz were even forced to a meeting over the dispute.

VentureBeat just spoke with Dan Nova (below) of Highland, who will be joining Qihoo’s board. Nova is experienced in search, having co-founded Lycos and invested in Ask Jeeves. His firm has traveled frequently to China and met with more than a hundred companies there, Nova said.

He said ironically, the media attention generated by the Ma-Zhou fight has not hurt Qihoo, rather helped it.

“This is a classic David versus Goliath story,” he said. “The more press we continue to get, the more traffic we get — the traffic is through the roof.”

He hopes the legal disputes can be resolved, he said. “They didn’t serve the purpose they’d intended, which was to make investors nervous about investing in Qihoo,” he said of Alibaba’s legal moves and other threats.

Nova said he is not concerned about potential lawsuits. Zhou is not a liability, he said, noting that Zhou has demonstrated his prowess and integrity by founding search company 3721 (later bought by Yahoo), and by the fact that his backers at 3721 (IDG, for example) are backing him again at Qihoo. “He’s a rock-star among Chinese entrepreneurs,” Nova said.

He said Qihoo is pioneering a new kind of search, focused on unstructured, user-generated content of the type found on blogs and Chinese online bulletin boards, which is more dynamic, and something Google’s Blog Search has been patchy at, he said. He said Qihoo’s architecture is its secret sauce, but that it takes the best of Digg, Google and Technorati and rolls them up into one. He said Qihoo is not trying to duplicate Google’s main engine search, but that the Chinese users are interested in lighter subjects, such as lifestyle and entertainment — a strength of Qihoo, he said. (Politics is avoided for obvious reasons).

Zhou Hongyi, chairman of Chinese search engine start-up Qihoo, defended himself Sunday against allegations that he may have embezzled from or defrauded Yahoo China before leaving that company last year.

In a phone interview, Zhou (pictured here) responded to VentureBeat’s article on Friday that reported Yahoo China is about to file a lawsuit against him. That article was based on an interview with a source close to Yahoo China familiar with the suit preparations.

Zhou dismissed news about the suit, saying it was yet another behind-the-scenes effort by Jack Ma, the chief executive of Yahoo China’s parent company Alibaba, to tarnish Zhou’s reputation. Ma’s motivation, Zhou said, is to make Zhou a scapegoat for Ma’s own failures. Ma has made several missteps since taking over Yahoo China last year, Zhou said, which have resulted in declining market share.

The skirmish is significant because the stakes are high in China’s fast growing Internet economy. The red-hot search engine market is still wide open, by most accounts, even if Baidu enjoys a significant lead — because millions of new Chinese are coming online each year.

Jack Ma is one of the most respected figures in China, because he embodies the successful Chinese entrepreneur — able to hold his own against US competitors such as eBay. He is revered in China like Bill Gates and Steve Jobs are here in the U.S. Some say pissing him off is like committing political suicide.

Zhou formed Qihoo, a competitor to Yahoo China, last year after he was ousted from Yahoo China by Ma (pictured left). The ouster came after Yahoo paid $1 billion to Alibaba to take over its China operations last year. Yahoo, in turn, negotiated a 40 percent stake in Alibaba.

Since leaving, Zhou has hired about 100 employees from Yahoo China.

VentureBeat’s article on Friday outlined the legal complaint being prepared by Yahoo China and Alibaba. The complaint will allege Zhou fostered a poor business culture while at Yahoo China, and that he became defensive as pressure mounted from U.S headquarters, according to the source. It says he built a moat around his China operations and started cutting his own deals on the side • taking kickbacks and making strategic investments for his own good - in preparation for his exit. It says he paid Yahoo China employees to leave the company.

Zhou said that Ma has no proof of any of these allegations. He said Ma is resorting to a desperate media campaign, knowing the charges won’t hold in court. “They’re all lies,” said Zhou, adding he wasn’t surprise to hear about them because Ma had spread other allegations about him for some time. A spokesman for Alibaba declined comment on Zhou’s comments.

Ma has come under increasing pressure from Yahoo, Zhou said, because of flip-flop decision-making. As Zhou explains it, in August 2005, Ma declared a new single focus on search. For example, Ma said Yahoo China would stop operating Yisou, a separate search engine Zhou had built up within Yahoo China’s portal offerings. Ma also said he’d discontinue the brand of 3721, which was the search engine Zhou had built years earlier (Yahoo bought 3721 in 2003.). Ma further said he’d change Yahoo china’s homepage (Yahoo.com.cn) from a portal into a simple search page; he eliminated Yahoo China’s portal staff. He also cut Yahoo’s wireless division, even though it was bringing in sizeable revenue and had cut deals with Chinese providers like China Mobile, Zhou said. (Chinese report on all this is here).

But then in Sept of this year, Yahoo resumed its homepage strategy, and began promoting a separate search engine page, Zhou said. “Now he [Ma] has completely flipped back and wants to rebuild Yahoo China into a portal. As a result, there’s no search strategy,” Zhou said. “He continues to lose market share. There’s brand ambiguity. No one’s sure whether its a search engine or a portal.”

Alibaba has already filed suit against Qihoo in a separate case, claiming Qihoo has inappropriately been labeling Yahoo china’s toolbar as malware and prompts deinstallation • and has hurt Yahoo china’s market share.

Zhou, meanwhile, has sent VentureBeat several documents, translating Chines media and other third-party research reports that say Yahoo China’s toolbar is spyware and deletes applications that try to remove it.

Yahoo China has lost more than 150 employees since Alibaba took over last year, Zhou said. They went to several companies beside Qihoo, including Google, Zhou said. He said such a significant exodus shows the problem is at Yahoo, and the defections to Qihoo testify to Zhou’s credibility and integrity. Many of them have worked with Zhou for years, he said.

Yahoo’s $1 billion investment is the largest in China’s Internet industry, Zhou notes. This had meant “a tremendous amount of pressure placed on Jack Ma’s shoulders to prove he’s doing the right thing,” Zhou said. “He needs to find a scapegoat.” Zhou said he had “huge respect” for Yahoo’s co-founder Jerry Yang, who has helped oversee Yahoo’s China strategy. However, “Jerry backed the wrong person, Jack ma. Willingly or unwillingly, Jerry is being held hostage, he’s being used as a tool.”

Zhou said Yahoo China had even resorted to taking an anonymous report critical of Qihoo from a Chinese online forum, translated it into English, and sent it to Yahoo’s Yang. Yang, in turn, forwarded it on to Michale Moritz, a venture capitalist who is backing Qihoo. These efforts are designed to persuade Moritz and other investors to forsake backing Qihoo, Zhou said. “Ma has truly become irrational abuot this campaign.”

Zhou said Qihoo’s reference to Yahoo China’s toolbar as a malware is justified by third-party reports • such one performed by Russian company Kaspersky — consistently listing Yahoo’s toolbar at the top of the list of about 200 popular malwares. “It’s in the top three, Zhou said. Qihoo is not unfairly targeting Yahoo, he said.

Zhou disputed allegations that he waged an anonymous public relations campaign in an effort to hurt Yahoo China’s contracts with companies like MSN. On the contrary, he helped Yahoo China renew contracts with companies before he left, he says. The contracts were terminated a year later because Yahoo China’s good-will has run out, and because MSN was launching its own search efforts, Zhou said.

Zhou rejected claims he’d taken kickbacks or used Yahoo resources to enrich himself or create a competitor to Yahoo China. He’d helped form partnerships with more than 20,000 Web sites while running Yahoo China, he said. Qihoo was one of those. Only after his exit did he become chairman of that company, he said.

(VentureBeat also spoke with Fan Zhang, a partner at Sequoia’s China operations. Zhang said he was puzzled by Alibaba’s use of the anonymous online forum posting, and was dismayed that Alibaba was also spreading untrue rumors about Sequoia • i.e, that it unfairly coerces entrepreneurs to work for its companies.)

Finally, Zhou said that Jack Ma has used a similar personal strategy against eBay’s Meg Whitman. He cited reports that show Ma has tried to shake the confidence of eBay employees in China. (See reports here and here for example, where Ma is declaring victory, and where rumors are circulating about eBay’s departure, even though Whitman says she’s committed to China). “He spread false rumors about Meg Whitman,” Zhou said. “It’s his strategy. He thinks, if he does this to someone long enough, they’ll self-destruct.”

Updated

Alibaba, the large Chinese company that owns Yahoo China, is preparing to file another hard-hitting suit against competitor Qihoo and its leader, Zhou Hongyi (pictured above).

Yahoo China has already filed one suit against Qihoo, saying the search engine start-up’s software notifies users that Yahoo’s toolbar is malware and prompts deinstallation, and that it’s hurt Yahoo’s market share.

The coming suit, which VentureBeat learned about early this week, will go much further. It will attempt to take out the man at the center of the stand-off: Zhou Hongyi. He is the founder of Qihoo, and is backed by the aggressive venture capital firm, Sequoia Capital. Zhou embittered Yahoo China since he was forced out of that company last year. Yahoo China will claim that Zhou has embezzled from Yahoo China and defrauded it, according to a source familiar with the lawsuit being prepared.

This isn’t helping Qihoo, which is reportedly trying to raise another round of funding at a high valuation of about $80 million. Its main backer, Sequoia Capital, had a few conflicts in China too. Sequoia was a big backer of Google, which is now a competitor to Qihoo. It was also an original backer of Yahoo. However, it’s not clear how much the U.S. Sequoia team is involved in the Qihoo deal. Sequoia’s Chinese office has been the main liaison with Qihoo.

Meanwhle, a separate source says Yahoo’s co-founder Jerry Yang is actively seeking to dissuade investors from backing Qihoo. A Yahoo spokeswoman declined comment. VentureBeat has contacted Qihoo, but was unable to reach Zhou by the time of this writing (Update: See our story here for Zhou’s response). A spokesman for Yahoo China did not respond to a request for comment.

Qihoo’s Zhou is controversial. He was the founder of 3721, China’s first search engine, which Yahoo bought for $120 million in 2003 to help it gain a significant foothold that had eluded it in China since it entered in 1999.

But 3721’s software had become popular by lodging itself in computers as spyware. It introducing pop-windows, bedeviling its users — and some would say it introduced spyware into China.

Things went down hill after Yahoo’s acquisition. Zhou, who took over Yahoo China’s operations came to loggerheads with Yahoo’s US headquarters. Zhou has subsequently blamed Yahoo China’s arrogance for the fallout. But Alibaba’s suit will claim Zhou initiated illegal behavior long before he was pushed out. Yahoo China says it first became upset with his performance: He refused to hire English speaking employees, and had become distant from his U.S. owner. Meanwhile, he was biding his time until he qualified for the earnout under the Yahoo China acquisition contract.

Then, last year, Yahoo invested $1 billion into Alibaba. Alibaba, under that agreement, took over the operations of Yahoo China. Alibaba’s leader Jack Ma forced out Zhou. Zhou then vowed to some his executives that he’d do anything he could to make sure Yahoo China never succeeded, according to the suit to be filed.

Yahoo China will claim Zhou was already using his position before the Alibaba acquistion to steal partnership and investment opportunities away from Yahoo China, preparing the groundwork for his exodus to Qihoo. He also offered money to key Yahoo China staff if they left the company, the suit will allege. He even launched press releases through front PR firms, saying in one case that a Yahoo China deal with MSN had expired when in fact it hadn’t, the suit will claim.

Qihoo is now reportedly raising another round, asking for a $80 million pre-money valuation. Our source said Sequoia’s Michael Moritz planned to meet Yahoo’s Jerry Yang this week to sort things out, something VentureBeat wasn’t able to confirm. Sequoia did not respond to a request for comment. According to the rumor, Qihoo wants to raise $10 to 20 million and is projecting $3 million in revenue for 2006, and $18 million for 2007.

In Qihoo’s first round, Sequoia joined CDH Investment and IDG Ventures to invest $20 million.