VentureBeat

OpenCandy is a new company that serves recommendations to you when you are downloading software. It offers up suggestions of other software you may be interested in, based on your tastes.

For example, if you’re downloading Miro, a popular open source Internet TV and video player, OpenCandy has created an install process that also shows you an advertisement for Audacity, a free open source sound recorder and editor. See screenshots below.

The model is one of those ideas that seems so obvious when you see it, and it’s surprising that no one has thought of it before. OpenCandy believes developers will offer to pay anywhere between $1 and $2 every time someone actually installs their software through such a recommendation process. OpenCandy splits the payment with the publisher allowing the advertising in their download.

OpenCandy, based in San Diego, launched a closed test of its product two weeks ago, and tomorrow (Tuesday) is announcing it has raised $3.5 million in a first round of capital from Bessemer Venture Partners and O’Reilly Alpha Tech Ventures, and angels including Reid Hoffman (founder and chairman of LinkedIn) and. Jordan Greenhall (former co-founder/CEO of DivX).

The team is the same group that built Stage6, the popular video site owned by DivX, where they learned how to make money from bundling other software into their product to help those other developers get distribution. For example, to view a video on Stage6, you had to first download the DivX player. Bundled into that download was the option to download the Yahoo Toolbar — and Yahoo paid good money for the privilege. In all, DivX was making an annual $20 million ($15.7 million for the first nine months of this year) from Yahoo and other software developers. They had 250 million downloads.

The Stage6 team explored a spinoff earlier this year, and almost got a $20 million investment from Crosslink Capital, Sofinnova France and Mission Ventures at a $90 million post valuation. Tragically, the deal foundered in February upon disagreement between the Stage6 team and the DivX board about ownership rights — all graphically chronicled by TechCrunch. The next day, DivX co-founder Darrius Thompson, one of the Stage6 team, resigned. He was joined by several others.

Significantly, the departing team realized that even if they had managed to spin out Stage6, they’d have incurred significant bandwidth costs from hosting the video on their increasingly popular site.

So with OpenCandy, they pledged to find a viable business model from the beginning. The team of eight has been building for six months. They’ve created what is essentially a plugin for a download installer. And the software recommendations are made within the installer.

In deciding what software to recommend, OpenCandy first consults the developers themselves. So in the Miro case, OpenCandy asks Miro’s developers what other software they’d like to recommend to their users. OpenCandy will also take other factors into consideration, such as what operating system a user has, the user’s geographical location, and what recommendations are converting the best. The recommendations are inserted dynamically. All of this makes it easy for developers to target specific users. OpenCandy is also offering analytics to its customers, tracking downloads according to operating system and geographical location (which it knows because it can see the user’s IP address).

Thompson is CEO; Chester Ng, a former DivX business development director, is chief business officer; Mark Chweh, former DivX engineering director, is CTO.

Kongregate, a gaming Web site that targets young men and woos game developers with incentives, has raised over $5 million to support its growth.

It lets developers compete to create games, and rewards the best of them.

The San Francisco-based company launched publicly in March (our coverage), and has grown since then to include nearly 1,500 games from 750 independent game developers. It is nearing a million unique visitors per month, 85 percent of whom are male, and mostly in their early twenties or younger.

Kongregate allows any game developer to submit a Flash or Shockwave-based game to the site, then chat with and receive ratings from users as they play the game. It makes money from both advertising and from games with virtual goods for purchase. It licenses games from developers, and gives them a cut of any earnings.

With the additional funds, Chief Executive Jim Greer says the company will expand its developer platform to allow for more complex multi-player shooting and strategy games. It will fund promising game developers to build games, and allow other companies to fund games on the platform too. Developers of the most popular games will get up to 70 percent of earnings. Right now, developers get between 25 and 50 percent based on how popular the game is, and how closely the company works with Kongregate.

Other, much larger online gaming sites also target young men, such as Microsoft’s Xbox Live Arcade. These sites don’t allow people to develop and launch their own games and make money, says Greer.

The most popular online gaming sites, such as King.com or EA’s Club Pogo (where Greer used to work), have user bases that skew towards older women — these sites count their users in the tens of millions, but have also been around for years, not a few months. Club Pogo makes over $100 million a year, according to Greer, largely from people paying subscriptions to access certain games.

This round was led by Greylock Partners but the company has already received funding from angel investors including Reid Hoffman, Joe Kraus, Jeff Clavier (who blogged about the company here), Richard Wolpert, and others.