VentureBeat

Updated

With just-announced improvements to its mobile service, Yahoo oneSearch gives customers the ability to search the web by simply speaking into their phones. To make this happen, Yahoo is partnering with startup Vlingo and has led Vlingo’s $20 million second round of funding.

Yahoo isn’t the only big tech company to set its sights on the voice market. Google, for example, may be in talks to acquire internet phone company Skype. (Ebay acquired Skype at the end of 2005 but hasn’t been happy with its financial performance.) A year ago, Microsoft acquired voice technology company TellMe, whose services include voice search. And a number of other startups offer voice search, including Promptu and V-Enable. (Read our coverage of Promptu.)

[Update: V-Enable also had a big announcement today: It's partnering with mobile nightlife directory buzzd, which plans to use V-Enable's Mobile411 search tool to help users search its site. ]

Voice search technology is still improving, but we were pretty impressed when we covered Vlingo last year. The Cambridge, Mass.-based startup uses each query to refine its service — as more people use it, the technology should become better and better at interpreting accents and phrases.

Yahoo will be adding other oneSearch features too, said Yahoo Vice President Marco Boerries at this week’s CTIA Wireless trade show in Las Vegas. The focus will be on “instant answers to any query,” not just links to different sites, he said.

I’m hoping to speak to Vlingo chief executive Dave Grannan later today to find out more about how Yahoo’s voice search compares to the competition. Vlingo previously raised $6.5 million from Charles River Ventures and Sigma Partners, who also participated in the new round.

[Update: I just got off the phone with Grannan, and he told me Vlingo won the deal with Yahoo in "a bake off with other speech tech players" last fall.

Vlingo stands out because it has the most unconstrained speech recognition technology around, he said. For example, using TellMe is similar to most customer-service voice systems: Rather than making a general query, you have to navigate through several menus to find what you want. ("What city did you want to search?", then "What business are you looking for?", etc.)

On Vlingo, however, you can say anything you want: You can say a flight number to learn its status, or you can ask, "Where's the best place to play craps in Las Vegas?"

Grannan said he plans to use the new funding to expand into international markets, which means offering Vlingo in foreign languages (including "UK English"), as well as hiring more sales and marketing staff. Vlingo's expansion may be a little limited, because the deal forbids the startup from providing its voice technology to Yahoo's mobile search competitors. But Grannan noted that Yahoo agreed to a similar exclusivity: It won't use anyone else's voice technology, either.

"In the balance of power, that worked in our favor," Grannan said.]

Taylor Nelson Sofres, the world’s third largest market research company according to one measure, has acquired Compete, a company that tries to measure the traffic and types of people that visit certain web sites, for $75m (£37.8m).

TNS, based in London, apparently made the statement as it announced revenue growth today.

What’s eye-opening is the relatively low purchase price, considering how important traffic analysis technology has become these days and because venture capitalists had pumped $43 million into the company over the past eight years. For money to be tied up that long, investors typically expect to get a better return. Charles River Ventures, Idealab, Split Rock Partners and William Blair Capital Partners were backers of the company. However, if Compete meets certain revenue targets, it could bring up to an additional $75 million between 2008 and 2010, according to the deal.

Compete analyzes the internet clickstream data of almost two million people, weighted to match the US online population. That information is used to measure how visitors click on a company’s Web site, and for paying customers, Compete would also measure more details about how people engaged with the client’s web site.

However, Compete has never really been a reliable source of information, and has been overshadowed by stronger players such as Comscore, or newcomers like Quantcast, which have placed a tracker directly on Web sites to measure traffic — something that Compete always shied away from, inexplicably citing the fact that Netratings hold the patent for such technology (it hasn’t slowed down Quantcast).

Compete lost $4.5 million on about $15 million in revenue last year.

TNS said it will integrate Compete’s information into its own offering, beginning in the U.S., where TNS has its own research panel of of more than one million people.

Update: Tech Confidential says the sales price isn’t bad, based on a number of comparable deals.

It’s been over a year since we covered Skyrider, and for good reason: We hadn’t heard anything more since the company revealed its business plan, based around monetizing peer-to-peer networks with ads, in late 2006.

In the space of about three months, we’d reported that Skyrider raised first $8 million, then $12 million more from Sequoia Capital, Charles River Ventures and ComVentures. Hopes appeared to be high, but some recent digging suggests that the company may have run into trouble.

The basic idea behind Skyrider is that P2P sharing networks like eDonkey and Gnutella (also known by the programs that use their protocols, including Morpheus and Limewire) receive massive amounts of search traffic from people looking for files to download. But unlike Internet search, which is monetized by giants like Google, ads don’t automatically pop up on P2P searches.

Skyrider, which began life as anti-piracy firm CRight, stumbled upon a clever way to force ads into search results by posing as users with highly relevant files to share. The idea must have seemed like a good one — it’s rare that two venture fundings come as close together as they did for the company in late 2006.

But then came the silence. No news or appearances came from the company, and, tellingly, Skyrider vanished at some point from Sequoia’s list of portfolio companies. (Update: Looks like I’m incorrect, it actually is on there at this point.)

However, there’s reason to believe Skyrider hasn’t gone to the scrap-heap. Finance documents recently sent by a source to VentureBeat reveal that the company has raised $5 million more. The funding is listed as a series A-1 round, which may mean the company has gone through a restructuring of some sort.

Although contacts at the company either didn’t respond or let us know that they had moved on, we did manage to get in touch with a current investor. He asked to remain unnamed, but did tell us that the technology behind Skyrider is “incredible” and “totally wicked.”

And the idea still sounds valid, as well. Despite an apparent gradual decline in users (excluding Bittorrent), P2P networks still have millions of users. So what went wrong? Perhaps search software adapted to block the ads, or the idea was just too early. But hey, if you’ve got a better idea, let us know — could Skyrider still succeed?

A new portal for trading virtual goods called Live Gamer announced its first funding today, promising to add some structure and protections to online transactions.

As massively multi-player online games (MMORPGS) like World of Warcraft have gained popularity, real-world markets have sprung up for everything from online currency and items, to favors, to entire player accounts. For the most part, players buy and sell with no oversight or regulation, a situation Live Gamer promises to change.

Live Gamer will stay on the good side of game publishers by only allowing trades according to the rules of the game, and spending time preventing strategies like “gold farming,” in which some players use the game only to accumulate gold or items in the virtual world then sell them for real-world currency.

Several entrenched competitors to the company already exist, part of the unapproved “gray zone” of trading that publishers find undesirable. Two of the largest are GamePal and IGE, which appear to make much of their income from gold farmers based in the developing world.

If gamers decide to follow the rules and trade through Live Gamer, they’ll receive the bulk of the sales price. Some 10 percent of each sale will be split between Live Gamer and the publisher, with the remainder going to the seller — making it roughly as profitable as using Amazon or eBay to sell goods.

The company already has some clients on board, including Funcom and Sony. However, Vivendi, the publisher of the current most-popular online game World of Warcraft, has said it will not work with Live Gamer.

Charles River Ventures, Kodiak Venture Partners, and Pequot Ventures provided the $24 million funding, the company’s first.

Jim Scheinman, one of three founders of Bebo, is leaving the company he helped start to become an Entrepreneur in Residence at the VC firm, Charles River Ventures. We talked with him to discuss that decision, his days at Friendster, his plans for the future and, of course, Facebook.

VB: What was it about this opportunity that made you decide to leave Bebo?

JS: I’m an early-stage entrepreneur at heart and the time was right for me to look to the next opportunity in the start-up world. It’s always hard leaving something that you’ve started, especially when the business is doing as great as Bebo is, but sometimes when a special opportunity presents itself, you’ve got to go for it. I suppose it’s the risk-taker in me helping make this decision.

VB: Why Charles River Ventures?

JS: Out of the many opportunities I had to evaluate, I am delighted to have chosen CRV because it’s one of the top firms in the Valley and nationwide, especially in the consumer Internet and social networking space. The CRV team is a group of very smart, successful and great people and they’re definitely seeing the top deals in the consumer internet and social networking space.

VB: What do you see yourself doing there?
JS: I’ll be helping uncover new investments in the consumer Internet, social networking and social media sectors, while working with the firm’s existing portfolio companies and evaluating opportunities for my own next start-up venture.

VB: Can you tell me a bit about what you learned in your time at Friendster?

JS: For me, it basically came down to failed execution on the technology side — we had millions of Friendster members begging us to get the site working faster so they could log in and spend hours social networking with their friends. I remember coming in to the office for months reading thousands of customer service emails telling us that if we didn’t get our site working better soon, they’d be ‘forced to join’ a new social networking site that had just launched called MySpace…the rest is history. To be fair to Friendster’s technology team at the time, they were on the forefront of many new scaling and database issues that web sites simply hadn’t had to deal with prior to Friendster. As is often the case, the early pioneer made critical mistakes that enabled later entrants to the market, MySpace, Facebook & Bebo to learn and excel. As a postscript to the story, it’s interesting to note that Kent Lindstrom (CEO of Friendster) and the rest of the team have done an outstanding job righting that ship.

VB: What did you learn at Bebo?

JS: I learned many great things at Bebo that I unfortunately can’t share in detail. I learned from some of the best viral marketing experts. I learned a great deal more on the technology side and also was very involved with many critical product decisions. I was excited to take the notion of “engagement marketing” within social networking sites — something that I thought up at Friendster — to the next level at Bebo. In a nutshell, engagement marketing seeks to turn users into brand advocates. It’s clearly becoming the de facto standard of monetizing social networking. Facebook’s recent announcements about their new social ads is a great endorsement of all the work I’ve done in this space over the past five years and I’m excited to see where Facebook, MySpace and Bebo will continue to take engagement marketing over the coming years.

VB What’s your take on the moves that Facebook has been taking lately?

JS: As far as the valuation goes, Microsoft couldn’t afford to lose another deal to Google and they could afford that price. Whether or not you can say a 1.6 percent stake in the company is enough to extrapolate a true valuation from, they didn’t buy Facebook. They put a relatively much smaller investment in Facebook so they could stay close to them. With that said, I think valuations are still probably below what they should be for what these companies are eventually going to do. As a side note, a little known fact is that when I was at Friendster, I found a small company out of Harvard that we came very close to acquiring, a startup no one had heard of that time, a company named The Facebook. I’ve been an admirer of Zuck and the facebook team for a long time now.

VB: Where do you see social networking going in the next years?

JS: When it comes to social networking, we’re in the third inning: There’s a long way to go. What’s at the core of social networking is a new communication platform. It’s also a huge entertainment platform that’s just beginning to evolve. My belief is that the uber-social networking is over. There are three winners: MySpace, Facebook, and Bebo. But there are new opportunities to have very successful niche social networking sites. I worked at NBCi for many years and saw the same dynamics. Ultimately, there were three portal winners, Yahoo, AOL & MSN and the rest are gone (Excite, Lycos, Go, NBCi…) But there was room for successful niche portals, like iVillage. I also think there are many opportunities around engagement marketing. I go back to what I invented in Friendster, where I created the engagement marketing business model. If you have a very large, engaged audience, you can do things with that audience in a natural, word of mouth way that you can’t do anywhere else on the web. It’s the Holy Grail for online advertising.

VB: Did you develop the engagement marketing concept?

JS: That was me. The first one ever done was with Disney. We did it for Bill Murray’s movie, The Life Aquatic. Bill Murray’s character had his own Friendster profile. We developed it lot more with Bebo and Facebook has now developed it further with their social advertising platform.

VB: So in that sense, is Facebook late to the game?
JS: Sure, you can say they were late to the game, but they weren’t around when Friendster started doing it in 2003. I think they’ve smartly gotten on the right path with social advertising and I’m not surprised that they’re doing it.

VB: What is it about start-ups that get you riled up?

JS: I love the creation process. I love the notion of thinking of an idea and helping spec a product and working with an engineer to build it over a weekend and go live on the site. And then watching millions of customers engage with that idea and turn it into something of their own. It’s been so exciting to see all the growth at Bebo over the years to become the largest social networking site in the UK, Ireland and New Zealand and the 3^rd largest in the US behind MySpace and Facebook. For my next venture, I would love to meld my desire to create with something that I’m passionate about. That, to me, would be the ultimate start-up…where I could wake up every day and be excited about creating a new venture that will create jobs and hopefully wealth for many employees and at the same time build something that will further society in a very big and positive way.

Millennial Media, a Baltimore, Md., company that serves ads to mobile phones, has raised a $15 million a second round of funding.

A bunch of companies have launched to grab a portion of the lucrative mobile ad market. The cut-throat competition has pushed companies like Millennial into aggressive marketing tactics that cross the line. Earlier this year, we caught the company running a fake ad counter on its home page, which gave the impression of many more ads being served on its network than were actually being served.

With those sorts of tricks, you’ve got to wonder how investors can trust it, but apparently they do. Charles River Ventures led the round, which included existing backers Bessemer Venture Partners and Columbia Capital.

The mobile ad market is expanding quickly, with some estimates saying it will expand ten-fold within four years, to more than $16 billion — so minor marketing antics may be easy for investors to forgive.

Millennial Media raised a $6.3 million in a first round earlier this year, from Bessemer, Columbia and Acta Wireless. Competitors include AdMob (backed by Sequoia and Accel), Enpocket (acquired by Nokia), Third Screen Media (acquired by AOL), and ScreenTonic (acquired by Microsoft Corp).

In September, Millennial Media said it would serve ads on MySpace’s mobile site and other News Corp. properties, including IGN, FOXSports.com, AskMen.com and RottenTomatoes.com.

Dell just announced the planned acquisition of EqualLogic, a supplier of data storage for large companies, for about $1.4 billion in cash.

The deal is the largest ever cash purchase of a private venture backed technology company, according to data from VentureSource. See table below.

This could be painful for EMC. Dell it the largest distribution partner of Clariion, EMC’s product that competes with EqualLogic’s. “I’m sure [EMC Chief Executive] Joe Tucci woke up with headache,” said Greg Gretsch, managing partner at Sigma, an early investor at EqualLogic.

EqualLogic, based in Nashua, New Hampshire, is hot because it bet early on a new standard for storage systems called ISCSI, which allowed the building of so-called Storage Area Networks (SANs) on Ethernet. The technology, which makes storage Internet based and locally available, makes storage for large companies more efficient and less costly than alternative technologies.

EqualLogic is focused entirely on this market, while larger competitors EMC and Network Appliance have continued to serve older technologies, even if they’ve focused more aggressively on ISCSI of late.

This ends a long ride for EqualLogic, which almost accepted a $35 million offer in 2002, when the market turned downward and the outlook was bleak. Sigma’s Gretsch tells me that Sigma and CRV encouraged the company to slog on.

The company’s momentum developed in recent years, however, and in July it filed for an IPO. It was ready to proceed with the offering as of last week, but the company decided to postpone the IPO until tomorrow to see if Dell would make its offer — and it did.

EqualLogic opted for the purchase because of the risks inherent in being a public company. The investors were willing to take it public, but the management team decided the $1.4 billion in cash wasn’t such a bad thing. The company was profitable for the last year, and had $37 million in revenue for the most recent quarter. It signed up 500 customers last quarter, said Gretsch.

Sigma Partners and Charles River Ventures invested in EqualLogic in 2001, when the company was just a business plan and three people. So those firms did very well. Total invested was $50 million, which included money from Fairhaven Capital and Focus Ventures.

CRV owned 29.9 percent and Sigma owned 29 percent of the company, when it filed its IPO filing in July. Fairhaven had 16.1 percent and Focus Ventures had 9.5 percent.

SocialMedia, a company that lets small Facebook applications get exposure by bidding on ad links within Facebook popular applications, has just raised $3.5 million in financing.

Using the marketplace offered by SocialMedia, a Mill Valley, Calif., company, less popular Facebook applications bid to get ads placed on the pages of more popular Facebook application — thus, increasing their traffic. Advertising one application within another is an increasingly important way of getting Facebook users to try out nascent applications, as more and more applications launch every day.

SocialMedia (see our original coverage) raised the money from Charles River Ventures and angel investors and is poised to enter other social networks. Myspace, for example, announced last night that it would be launching its own platform for developers within the next couple of months. Hi5, Bebo, and other social networks with millions of users, are also planning to launch their own developer platforms.

SocialMedia already owns Trakzor, a popular Myspace application that lets users see who else has viewed their profile pages. Four million Myspace users have installed the Trakzor widget and one million use it per month, giving the company a natural starting point to advertise new Myspace applications — especially as developers without a presence on Myspace look to move in.

SocialMedia’s marketplace on Facebook lets an application owner with many active users — valuable ad space — sell space on its pages to other applications. See screenshot for example: The gray box featuring “Mobile Radar” is the ad.

The company also offers an analytics application on Facebook called Appsaholic, that provides data for app developers on how their ads are performing.

Interestingly, Marc Andreessen is one of the angel investors participating in the round. He also is the co-founder of Ning, the do-it-yourself social network.

Other investors include Jeff Clavier.

When Raph Koster spoke to us in December about his startup Areae, he implied that independent games had a greater earning potential than traditional studio-produced games.

Now he’s putting his money where his mouth is, launching the website Metaplace and launching today at the TechCrunch40 conference.

Metaplace, launched by San Diego-based Areae, is a site on which amateur designers can create their own games. The concept may sound familar; similar ideas are in operation at Kongregate and the Casual Collective.

The difference is that both of those sites rely on flash coders who, although they are called amateurs, have a level of specialized knowledge an ordinary person does not. Metaplace aims to enable anyone to create their own game.

The other difference is the amount of detail. When Koster showed me one of the virtual worlds his site can create, I immediately thought of the Sims; the appearance was quite similar. Games on Kongregate, by contrast, rely on extremely simplistic graphics.

Metaplace has a two-pronged strategy: Coders and designers develop gaming platforms, and users build atop the platforms to invent their own environments. They can pull in games, images and videos from other places.
Metaplace’s approach, helping star developers show off and sell their wares independently, is similar to another private venture that was just bought by IAC, Garagegames.

Although quite a few individual games have allowed users to build atop their worlds, Koster hopes that his startup will be able to grow into something exponentially larger. However, big questions remain for this company. Do people really want to mashup their worlds? Other, bigger virtual worlds like Second Life have APIs that give developers and users more options.

As of its launch today, Metaplace only has about four different templates for game creation, created by the Metaplace team. The number could someday grow to thousands. With that many designs available, users would have a nearly infinite array of tools at their disposal to create their own games.

Metaplace will open today, following the end of the TechCrunch40 conference.

Areae is backed by Charles River Ventures (previous coverage) and Crescendo Ventures.

Music services have been slow to let mobile users pay to download music from the Internet, but that just changed, with Apple announcing that iPhone users can now do so.

They’ll be able to buy music from iTunes directly, no longer having to download to their home computers and then sync to the device.

At 99 cents, that’s attractive. Especially with Apple’s accompanying announcement that it has slashed the price of its popular 8 gigabye iPhone to $399, down from $599.

Meanwhile, Groove Networks, a company that has already been offering music downloads to mobile users, announced that it would fight on against Apple’s initiative by taking $6 million more in funding from venture capitalists.

Groove says its users have downloaded 35 million songs since 2004, striking distribution deals with Vodafone, MTS Allstream and Sony BMG to allow their subscribers to access Groove.

But its mission may be uphill going forward. It cost $2.50 to download a song on Groove, way more than iTunes’ 99-cent price. Groove does let you play your song on your cell phone and save a version to your PC for playing as well, however. The company sells songs from EMI, Warner Music International and some smaller labels.

Groove took the funding from ORIX Venture Finance. It has now raised a total of $32 million.

Former backers in include Egan Capital, Charles River Ventures, Kodiak Venture Partners, and Star Ventures.

Conduit Labs is a secretive new company, not launched yet, but which says it wants to build a new social network: One built around virtual world gaming, but with networking components that reflect real life, just like Facebook does for students on college campuses.

It has just received $5.5. million from Charles River Ventures and Prism Ventureworks.

Conduit Lab founder Nabeel Hyatt and Susan Wu, a virtual world games expert who led the investment for Charles River, are coy on specifics. However, they says there’s something missing in the experience of today’s most popular games, such as World of Warcraft: Interactions designed around real-life relationships.

Friends playing on WoW, but who live far away from each other, can only hang out online. They can also meet at Second Life or other online worlds and gaming sites, but they can’t go out and play a casual game of basketball on a Saturday afternoon.

Conduit Labs, based in Cambridge, Mass., wants to combine the social web of real life, as embodied in social networks, within a meaningful virtual environment that could include virtual pick-up games of basketball, or any number of other activities that friends might want to do together — karaoke, dancing, etc. It would still be online, only much more realistic.

Wu was an early skeptic about Second Life, because it didn’t offer these things.

Conduit wants, in part, to improve upon Facebook’s carefully plans meaningful social interactions on its site. Facebook features such as news feeds and mini feeds show people what their friends are up to and what their common interests are. Email notifications and pokes create an experience for Facebook users similar to a real-life community bulletin board, or pen-pal correspondences between friends, Wu says. However, most of these communications aren’t in real-time. There’s little instant messaging and no instant gratification of real communication.

The promise of the gaming angle, as proven by World of Warcraft and other online gaming worlds is that friends can interact in real-time, Hyatt explains.

Carefully designed social interactions have the potential to create the next generation of online relationships, they say. Hyatt and the other Conduit founders have a strong background in building online games and worlds, having worked on such diverse mainstream hits as Guitar Hero, Lord of the Rings Online and Asheron’s Call.

The market opportunity, Wu and Hyatt stress, has been recently highlighted by Disney’s purchase of kid virtual world Club Penguin. That site developed a paid-subscription service and virtual goods that allowed the company to grow without taking on VC funding.

In short, it’s all a little vague. We’re not entirely sure how the company can improve on instant messaging and real-time video interactions that are already possible. We do know, however, that Wu has given a lot of thought to gaming. So we look forward to following this company as it emerges.

Mobile phone interfaces are notoriously difficult to use — hence, the hype around Apple’s iPhone and its unique two-fingered method of navigating its mobile web browser.

Vlingo has a different answer to clumsy mobile interfaces: speech recognition technology so sophisticated that you can speak what you want into your phone.

This helps avoid having to tap your way through mobile web menus or speak your way through audio menus.

Let’s say you want to do a search for a nearby restaurant using your phone’s web browser. Instead of trying to hammer out “Mexican restaurants in Palo Alto, California” on your phone’s keypad, you can speak those words into your phone while on a mobile search page, and Vlingo will deliver search results.

[Update: We've tested the service and it worked great for Palo Alto, correctly picking up the sample sentence above.]

Note: At least that is the promise — we were excited to test it out for ourselves, but to our dismay the company’s servers were down when we tried. We’ll keep you posted on your progress.

You can try it yourself at www.vlingomobile.com if you have a Motorola Razr or other currently compatible models (list). Or, watch the demo video below.]

The Cambridge, Mass.-based company figures out what you’re looking for based on the meaning and pronunciation of each word you say, and understands your accent and the meaning of your phrase. It compares the information you provide with a corpus of what every past user has ever told it, automatically refining its understanding as more and more people use the service.

The downside to this approach in the short term is that regional accents or foreign words may not get understood the first time, says chief executive Dave Grannan.

Because the technology detects details of vocabulary and speech patterns, internationalization to other accents and languages is a complex task, and a ways down the road, Grannan says.

The company is focusing on working with wireless carriers and mobile applications and is working on deals with more than one carrier, it claims.

It also offers a simple application programming interface, or API, that works on most 3G and multimedia phones so that mobile application developers can integrate its service into their own offerings.

The company has received $6.5 million in funding from Charles River Ventures and Sigma Partners.

[Update 12/11: Twitter filed regulatory papers saying it had raised $4.8 million in a second round of funding, and that it possibly raise a total of $5.4 million]

Confirming what we first reported earlier this week, the fast-growing Twitter messaging service has raised a new round of funding.

The San Francisco company, which has become popular among people wanting to update online what they are doing at any given point of time, has announced the lead investor on the deal, which we hadn’t known earlier: Union Square Ventures, of New York.

The amount was undisclosed. Other investors include CRV, Marc Andreessen, Dick Costolo, Ron Conway, and Naval Ravikant, among others.

Union Square’s Fred Wilson blogs about it here.

This is an well-timed present for Evan Williams, owner of Obvious, the original parent of Twitter and now large stakeholder, who is getting married tomorrow.