Google is joining a $5.75 million investment round in Pixazza, a start-up that hopes to profit by overlaying photos on the Web with links that let people buy the products in the images.
The Mountain View, Calif.-based company is now launching the technology for general use by advertisers, Web publishers, and the network of self-appointed but screened specialists who identify the products in the photos, said Chief Executive Bob Lisbonne. The company is starting with the apparel industry but plans to expand to home design and furnishings, travel, electronics, and sports starting later this year, he said.
Pixazza overlays shopping tags on photos; hovering over them with a mouse shows merchants selling those products or ones that are related. (Click to enlarge.)
(Credit: screenshot by Stephen Shankland/CNET)Lisbonne likens Pixazza's technology to a photo-based version of Google's AdSense, which analyzes text on publishers' Web sites and displays what it deems to be relevant ads. AdSense is used widely by publishers to generate income from their Web sites without having to hire an advertising sales force.
Given the similarity to AdSense, perhaps it's not a surprise the search giant responded when Pixazza sought funding. Google employees have been spotted with Google Ventures name tags, but it's not clear whether the Pixazza funding is part of that project. Google is cagey about Google Ventures: "This is a project we're working on, but we're not ready to share any details right now," spokesman Andrew Pederson said.
Other investors in the round include August Capital and CMEA Capital, the company said. Individuals who've funded the company include angel investor Ron Conway, former eBay Chief Operating Officer Maynard Webb, and Facebook Chief Financial Officer Gideon Yu, the company said.
The company will use the funds for research and development and for sales and marketing, Lisbonne said.
Lisbonne and Chief Technology Officer James Everingham have deep Internet roots. Both worked at browser pioneer Netscape Communications, and Everingham recruited more from that background for the company's technology team. Everingham also was CTO of LiveOps, a company that offered call center technology with a network of more than 20,000 independent remote operators handling the phone calls.
Crowdsourcing for profit
Pixazza employs fewer than 20 people right now, but as with LiveOps, its business is designed to expand with the cooperation of many people who aren't actually employees. Pixazza is using a vogue concept called crowdsourcing in which a company benefits from often small amounts of labor contributed by the enormous quantity of people who can be enlisted over the Internet.
In Pixazza's case, people can sign up to tag photos that show on the Web sites of publishers using the Pixazza technology. Initially they can't add tags or take other actions without approval, but those who prove themselves adept gradually gain more privileges.
Why bother trying to figure out which purse, sunglasses, or patent leather high-heel sandals some celebrity is adorned with? Money is one incentive.
When a person views a photo, clicks a tag, goes to an advertising merchant's site that sells a product, and buys it, that advertiser pays a share of the revenue to the person who tagged the photo, to Pixazza, and to the Web publisher.
Thus the appeal to Web publishers, Lisbonne argues.
"This is an effective way to generate incremental income. They can do that without any additional screen real estate," he said. Added Everingham, the necessary JavaScript code publishers must add to their Web sites slows down page-loading speeds only by about a fifth of a second.
Pixazza has been beta testing the technology since this fall. Publishers who've been testing the technology include LaineyGossip.com and I'm Not Obsessed. Participating advertisers include Zappos, Bluefly, Eluxury.com, Shopbot.com, Overstock.com, and Macy's. So far the company has an inventory of more than 2 million items.
The company will expand beyond apparel starting later this year, Lisbonne said. Apparel and fashion is "a category in which there's a large number of e-commerce merchants in place and where there are hundreds of relevant Web site publishers we can approach," he said. "It's a straightforward place to get started."
Pay for play?
As Google has shown through AdSense and AdWords, which shows ads next to search results, there's money to be made in determining exactly whose ads get shown next to products.
Pixazza has its own strategy to let advertisers spend money to make money. They can offer more money or other incentives to the crowds tagging the photos, Everingham said.
"If I'm a crowdsourcer and see 10 different versions of the same product, and I see one (advertiser) pays a higher commission for me to choose, not only the publisher, but the crowdsourcer will make more money," Everingham said. "We want to keep everybody in alignment."
Venture capital investments in IT companies plunged 40 percent to $2.18 billion in the fourth quarter, their worst level in a decade, according to figures released late Friday by VentureSource.
The data further confirms concerns entrepreneurs have already been raising about a funding pullback by VCs over the second half of the year and dire warnings by the VCs themselves, such as Sequoia Capital's infamous R.I.P. PowerPoint presentation.
IT Venture capital dropped to $11.64 billion for all of 2008, down 14.5 percent from the previous year, according to VentureSource. During the past year, IT investments posted growth in the first quarter and a slight decline in the second, but significantly dropped off in the second part of the year, VentureSource said.
Software companies, which continue to capture the largest slice of IT venture investments, dropped 16.4 percent during the year, to $4.73 billion in funding.
Venture investments in communications and networking start-ups fell 32.3 percent to $1.68 billion in 2008, while investments in semiconductors dropped 23.5 percent to $1.25 billion year over year. Electronics and computer companies, meanwhile, saw venture investments fall 15.5 percent over the previous year, reaching $1.31 billion.
Despite the doom and gloom of 2008, the Web-savvy information services sector posted a 16.9 percent year-over-year gain in venture investments last year--to the tune of $2.67 billion. While that sector managed to shine through most of the year, venture investments did fall off 30.5 percent to hit $513.2 million in the fourth quarter.
Google acknowledged late Thursday that it may have made a bad bet on AOL.
The search giant said in a filing with the Securities and Exchange Commission that its $1 billion investment for a 5 percent stake in Time Warner's Web unit "may be impaired" and that it may have to take a charge in the future:
Based on our review, we believe our investment in AOL may be impaired...We will continue to review this investment for impairment in the future. There can be no assurance that impairment charges will not be required in the future, and any such amounts may be material to our Consolidated Statements of Income.
The December 2005 investment secured a renewal of Google's search advertising deal with AOL, preventing its largest ad partner from defecting to Microsoft. The deal gave AOL a valuation of $20 billion at the time.
Google didn't estimate in its filing what AOL might be worth today, but observers have suggested a figure closer to $10 billion.
Google's deal allows it to demand that Time Warner spin off AOL in an initial public offering of stock or buy back its stake, which would result in a $500 million loss for Google.
Time Warner, perhaps signaling its intention to dispose of AOL to focus on its media business, announced Wednesday that it will split AOL's dial-up unit from its advertising business by early 2009.
Google headquarters in Mountain View, Calif.
(Credit: Stephen Shankland/CNET News.com)Google, which has a 5 percent stake in Time Warner's AOL division, has the option to sell it beginning Tuesday.
Google got the stake in AOL through a 2005 deal with Time Warner under which Google invested $1 billion.
According to a Time Warner regulatory filing, Google can sell that stake if it wants, with Time Warner, which owns the remaining 95 percent of AOL, getting first crack at buying the shares.
"Beginning on July 1, 2008, Google will have the right to require AOL to register Google's 5 percent equity interest for sale in an initial public offering," the filing said.
"If Google exercises this right, Time Warner will have the right to purchase Google's equity interest for cash or shares of Time Warner common stock based on the appraised fair market value of the equity interest in lieu of conducting an initial public offering."
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