VentureBeat

Angie’s List, the site that lets users rate and review local service providers from doctors to dog walkers, just nabbed $6 million in subordinated debt financing and $1 million in equity. The investment comes less than a month after it took $18 million in venture debt, and less than a year since its $35 million round from Battery Ventures in April. The Indianapolis-based company, fairly unique in its ability to combine local search and user-generated reviews, has yet to disclose plans for the new money, but has mentioned a possible expansion overseas.

Around since 1995, Angie’s List maintains fairly traditional practices for a Web 2.0 service, with a live customer service center and actual human review of the content submitted by members. There’s even a section on the site called the “Penalty Box,” where it posts the names of companies that fail to respond to consumer complaints (right now, Redwood City, Calif.-based Water Quality Plumbing is taking the heat for lateness and incompetent drain-snaking). One step further, Angie’s List offers to contact companies on behalf of members to help resolve disputes. Apparently, it’s actually succeeded in getting some members refunds and repairs — kind of an odd personal touch in this day and age.

The site also prides itself on having no anonymous reviewers and not allowing companies to add themselves to the site, giving it an added dose of credibility. But these services and standards come at a price: a subscription fee of about $15 a month or $50 a year, which includes regular issues of Angie’s List’s quirky little magazine, highlighting different businesses and trends. The fee might be one reason the site isn’t growing very fast, adding only 150,000 users in the last eight months (now totaling 750,000).

With free online services like Yelp gaining momentum and trendy cred, Angie’s List — which seems to be targeted at the older crowd — will need to build member loyalty and maybe consider an image update to remain competitive. In the past, it has received funds from Aquent, BV Capital and Lighthouse Capital Partners in addition to Battery. The most recent round was provided by new investor Prism Mezzanine Fund. The company has raised $73 million to date.

Peanut Labs is a great example of how an inexperienced yet scrappy team can scramble toward a new strategy to save themselves. The company, formerly called Xuqa, has just raised a $3.2 million round of capital to bolster it in its new mission.

Xuqa, you’ll recall, was a fast-growing social network when it started in 2005. It got big in Turkey and Iran, but rivals like MySpace and Facebook quickly took over the US and started targeting large swaths of rest of the world.

Xuqa’s 20-something founders initially raised a small amount of funding, but then realized they were running out of money because they didn’t have a way to monetize their site.

After much experimentation, they discovered that social networks were a great place for doing market research — and making money (see our coverage here). They’d get paid by researching companies to run simple surveys for users, then collect that data and send it back to the researching companies.

This strategy worked so well that San Francisco-based Xuqa completely changed direction nearly a year ago, renaming itself Peanut Labs, and began running surveys across widgets on other social networks. I covered the company’s evolution in some detail last July.

Today, Peanut Labs says it will have “seven-figure revenues” for the 2007 fiscal year, along with 20 percent month-to-month revenue growth. It expects “eight figures” this year.

The company has some promising internal numbers. Its surveys reach some 27 million users, across 70 widgets on social networks like Facebook and MySpace. It has had more than half a million people respond to surveys in the last two months, with a response rate of 29 percent. It is gaining 100,000 new social network users to sample, per month.

The average widget publisher who uses Peanut Labs is making $20,000, the company says.

It has taken on the additional round of $3.2 million in funding from return investor BV Capital and new investor Leapfrog Ventures. It plans to use this money to expand its services for its market research clients, and improve the survey-taking user interface.

With all the video content online, the video advertising market is booming. Investors are still placing bets on new companies, and existing companies are getting more aggressive with ad techniques.

The latest company to raise money is YuMe, a Silicon Valley company offering a video-centric ad network. It has just raised $9 million more from prominent firms DAG Ventures, Khosla Ventures, Accel Partners, and BV Capital.

A second company, Blinkx, is already public, but its latest video ad product is controversial: It lets anyone with embedded video on their blogs place contextually relevant text ads inside them even if the videos aren’t ours. To test it, we pulled a YouTube video about Halloween made by One True Media, for example, and inserted ads on to it. We could make money on it by showing it VentureBeat, if we wanted. See image below. Note it gives you the option of showing the ads inside or outside of the video. Details here.

A company named Revlayer had done something similar a few months ago, but disappeared a day after launching. However, it was more obtrusive, placing an entire banner over a video before it started, and wasn’t necessarily contextually related. It’s site is still down, as of this writing.
While the market is expected to become quite large, rising from around $775 million this year to $3.11 billion by 2010, there is no shortage of competition for new companies like YuMe.

Last month, ad network Videoegg raised $15 million. There’s also Adap.tv and, of course, Google. Meanwhile, the big ad serving companies like ValueClick and Ad.com are making forays into video, as well.

Redwood City, Calif.’s YuMe is interesting because its technology works across multiple platforms: It can serve ads into downloaded video and video streamed on websites and mobile phones. This is in contrast to companies like Kiptronic, which focuses on downloaded video, or AdMob, which does only mobile.

YuMe’s chief executive and founder, Jayant Kadambi, says his company aims to place ads in videos from the “mid-tail” of online video, which he defines as “anyone that is not an NBC or CBS.” These include customers like Somagirls.tv, JoeCartoon.com, RedOrbit, Vuze and Pando — medium-size, professional producers and distributors whose content is safe for brand-conscious advertisers. In this mid-tail, the company currently serves between 150-250 million ads a month.

Jayant says that he raised the round mostly to scale YuMe’s infrastructure, recruit top notch executives, and build a sales force. The company previously raised $7 million.

Fotolog, a popular photo-sharing service, has been bought by France’s Hi-Media for $90 million, GigaOm reports.

New York-based Fotolog is a photo blog that encourages users to post daily photos of themselves; a user’s profile page is centered around a main picture with a date underneath and a place for friends to leave comments. It wants to be more than simply an online collection of photos, for example a Flickr, where users are encouraged to upload photos in batches rather than a single new profile picture every day.

The startup, which is especially popular in Latin America, was rumored by Valleywag last week to have been bought for more than $100 million by a “large Latin American company.”

Hi-Media claims to be Europe’s third-ranked interactive advertising agency, and is the leading provider of small online payment services in France.

It’s not clear if there was a bidding war, although Fotolog and its investors — BV Capital and 3i Venture Capital — will get a significant amount of stock in Hi-Media, according to the companies. Those and other investors owned 75 percent of the company after investing more than $12 million in three rounds. BV Capital owned 40 percent of the company. Through this purchase, Hi-Media is positioning itself to go beyond advertising and commerce services by owning a popular content site.

Fotolog’s fastest growing markets have been in Italy, Portugal and Spain, which may reflect the strong ties many in those countries have to family and friends in Latin America (sample below).

Xuqa began as a social network two years ago and distinguished itself by finding clever ways to make money — most notably getting paid by market researchers to administer surveys to its users. While the site is profitable, the company decided five months ago to change direction: Build out its survey technology to integrate with any social network or online community site.

The new focus fits in with a broader trend: Companies trying to gather more accurate information so they can better target products and marketing campaigns towards desired consumers. They are also relying on other methods for finding granular information about users, such online behavior tracking software and ad networks that reach niche communities around the web

The company renamed itself Peanut Labs. It now embeds surveys into other sites and shares revenue with them that it receives from market researchers — including large corporations doing internal research, and data-analysis firms that sell market data. Users take a preliminary questionnaire about their interests to help Peanut Labs target them with the most relevant surveys. They’re motivated to fill out survey by the promise of points, gifts, etc. Users can choose how often they want to be notified of new survey available to them. About ten percent of users on partner sites take the initial questionnaire, and 25 percent of those take the surveys.

The company counts Live Journal, several successful Facebook applications, and around 60 other companies as partners. Peanut Labs says it reaches over 20 million users, mostly within the sought-after under-24 demographic. Four months after launching, Peanut Labs is turning a profit from its new strategy.

Co-founder and chief executive Murtaza Hussain, who so far has kept the company’s transformation quiet, agreed to have coffee with me this morning.

He’s a story, himself: A 21 year old dropout from Williams College, who started his first web company while growing up in Pakistan. At age 14, he and his friends were the middle men getting paid by multinational companies that wanted to develop strong online presences in the country — Murtaza and Co. outsourced the actual development work.

VB: What led you to your new direction?

MH: To start out with, I dropped out of college after launching Xuqa and seeing it get some traction — alongside my older brother and his friend, who are now 23 and 24. We raised an angel round from BV Capital and rode the wave for awhile, going from 0 to 1.6 million users around the world, and raising an additional $1 million from BV. This is back when social networks were new and cool so we got a good valuation for the investment. Life was good.

Then, there was a turning point: We saw that we’d burned through half our funding and had about six months’ worth left, as we weren’t making any money. We started trying to monetize. We tried literally anything and everything. We started off with CPM ads, premium SMS services, video ads, lalalala. The CPMs were horrendous. We were getting $0.10 per impression from the ad networks we were using.

By complete accident, we stumbled upon market research. An entire vertical of online services. A problem waiting to be solved, because so much market research was still happening offline — especially for the under-24 user demographic that we had using our site.

We started giving users “peanuts” to take surveys. Of course, these peanuts cost us peanuts.

[Note: Xuqa uses a virtual-goods system -- "peanuts," instead of money -- to allow people to earn and distribute reputation points in order to earn the respect and admiration of their peers on the site; hence the new name.]

Another vertical was lead generation because we knew about a bunch of stuff about people. We could give people peanuts for signing up for things we knew they’d be interested in. For example, a user who told us they liked movies might get a free promotion from Netflix.

This pushed us to profitability. We’re still making around a dollar per active user per month in the US although a lot of our traffic is outside the US, which is a different beast altogether.

VB: This wasn’t enough to stay focused on being a social network?

MH: The problem after all this was that that we got to over a million users, got to profitability, but the model was to sell to Viacom or CBS.

I think it was around this time that these older media companies realized they didn’t know what they were doing — that it didn’t make sense to buy a smaller social network and then try to figure out how to grow it.

Our opportunity with Xuqa has become pretty limited. We had a whole bunch of Turkish users. We didn’t even try to do anything there, it just happened. We were also the second biggest social network in Iran, but we just blocked them a week ago. There’s no money there — and it was costing us money to run server-intensive things on the site, like poker. The Iranian government actually blocked it at one point, but there were Xuqa users within the government who went and unblocked it. This time, it was a business decision.

VB: What’s working so well for Peanut Labs? Tell me more about this new market.

MH: We’re helping social networks monetize, something they’re bad at doing, just like we were. We have over 60 sites publishing our surveys, including some major ones: LiveJournal, OkCupid and we’re talking with some other growing social networks. We’re also live on Second Life.

On Facebook, the “(fluff)friends” application — which has over a million users — is already making good money on our surveys (screenshot below).

Over $17 billion was spent last year on market research, most of which was for scientific surveyors like what we do. We’ve become the largest provider of online surveys to the under-24 crowd. We currently reach 20 million users. Our closest competitors include Greenfield and Global Market Insite, but they’re full service and not focused on the demographic we are.

Studies from the last couple of years are showing that online research like our surveys are now as statistically valid as offline research — and offline is naturally more expensive. [Other companies are also trying to tap into online mark research through embedded widgets on social networks, including online polling company Vizu.]

[A survey this author was led to:]

[Market data provided by Peanut Labs:]

Note:
Quantitative = methodologically sound surveys, other numerical data
Qualitative = focus groups, other less numerical data

YuMe Networks is new start-up using a machine and human approach to help advertisers decide when to run ads by videos.

YuMe reminds us of Yahoo’s old approach to search engine technology: Helping along machines with a little bit of human intelligence. Let’s face it, machines still aren’t good enough to classify video accurately enough for cautious advertisers. No one wants to repeat the blunders committed by Google a few years back, when its machines inserted ads for suitcases besides gruesome articles about suitcases filled with body parts.

YuMe searches for information supplied by video creators and other data sources and classifies video clips into categories, such as “automotive.” YuMe uses speech-recognition technology to confirm that a video’s audio track is related. But then it also employs people in India to make sure that videos are about what they say they are. (See WSJ story; sub required) The company launched today.

The company has received more than $7 million in funding from Khosla Ventures, Accel Partners, and BV Capital and others.

Azureus, a Palo Alto company that delivers a popular application to distribute video files, launched a new service named Zudeo, which it apparently hopes will become the next YouTube for high-quality video.

It has raised $12 million in a second round of capital, led by Redpoint Ventures, which also included Greycroft Partners and previous investors Jarl Mohn, chairman of CNET Networks, BV Capital, Stanford University, UC Berkeley and Wilson Sonsini Goodrich & Rosati.

At Zudeo, users can upload, download and comment on videos in a manner similar to other video sharing sites like YouTube, Metacafe and Revver. However, we tried it, and it wasn’t as simple as those other sites. We downloading the software, a minor hassle. At Zudeo, you then have to click on a browsing tab to view content, and once we got there, we couldn’t play the content, for whatever reason. The problem may be on our end. (Update: Indeed, Nag suggests in comment that we may have misunderstood the purpose; we’re apparently not supposed to view the content, which is befuddling). YouTube succeeded because it was so simple. Perhaps Azureus will make this easier for regular users in future. The other question is why they are taking $12 million to, among other things, develop an embedded video player. We’re not certain how much Azureus has raised in total, but it is a lot given how many players are out there already. BitTorrent, the largest file-sharing distributor, just raised $20M. We’ll follow Azureus as it develops. Azureus does have a different strategy from some of the others, targeting publishers of high-end video. Meantime, we’d like to hear from readers what they think.

More details about Azureus here.