Last week, San Diego-based OpenCandy (www.opencandy.com) announced it had raised $3.5M in a venture round for the firm's software recommendation startup. We caught up with co-founder and CEO Darrius Thompson--who was also a co-founder at DivX--to learn more about the startup, the saga behind how the company started, and the funding.
What's the idea behind OpenCandy?
Darrius Thompson: We came from a company called DivX, where we had built a business primarily around consumer software. We got really good at figuring out how to get wide distribution for our software, and how to monetize that software in unique ways. After I left DivX, I chose to go forward with a concept that leveraged that experience I had in the past, with a way to help software developers increase their distribution and make money with their software.
What we found, was, analogous to the music industry, there are lots of talented developers and great application software out there, which rivals the software created by developers at large companies. But, due to lack of visibility or lack of resources, or lack of know-how around marketing, they lack distribution and monetization. So, that's where we come in--we fill that gap, and enable both small and large developers out there to better distribute and monetize.
How are you doing that?
Darrius Thompson: The first thing is we're utilizing download and install as a distribution channel. We found that when a consumer is downloading a piece of software--for example, a photo editing application, we could actually make a recommendation to the user via the installer. What we'll do is figure out the best product to recommend during the installation. We've found this is highly effective, because users are already in the mode of downloading software, so the conversion rates are pretty high if you offer something contextual in nature. For example, if they're downloading a photo editing tool, we can recommend a good photo storage service or photo plug-in that works with that software.
When did you decide to pursue this idea?
Darrius Thomspn: We got together at the beginning of the year to talk about concepts. We wanted something we could be passionate about, and also something that we could actually build into a self-sustaining business in a pretty quick timeframe. I guess that's a pretty standard theme today, and is not necessarily the business model of the last couple of years, but we felt we should focus on the business model first, rather than getting big and figuring it out later. We wanted to build something that could become self-sustaining pretty quickly, so we can manage our own destiny. We looked at the problems and what existing in the marketplace, overlaid that with the competencies of what we've build, and figured out the big problem was that there are great applications, but not all consumers know about what applications are out there. We saw that marketing prowess can override the goodness of products. If you can talk about great products out there, you can actually get those products more visibility, which can help build real business models. For example, you can take the open source photo editing software, Gimp, and you can go from developers working on it as a part time job, and give them the capability to fully focus on what they love the most. Thinking about it, there's the potential to change market dynamics, and give really good applications the focus that they deserve. We'd like to build an environment where the greatest applications get rewarded and developers get rewarded.
Talk a little bit about your funding?
Darrius Thompson: We went out early, right before summer, to figure out the question of funding. This summer, we started talking to individuals to get an idea if funding was a path we'd like to go down. We talked with other entrepreneurs, VCs we already knew, and they made introduction left and right, telling our story. A lot of our peers and VCs were pretty excited, and we were lucky enough to narrow down our investors. We were looking for a couple of things, one is someone who could take a step back and figure out how to get to self-sustainability, and a person with the background and framework on building a business model. One of the individuals who really rang out for us was David Cowan at Bessemer. He's very pragmatic and business model focused. The other thing in a good partnership, is where you feel your investors are part of the team. That happened with David. He flew into San Diego, met with the team, and started connecting the dots with us, and started going over the roadmap and what have you. He was already thinking about how to go about doing this, what we were trying to accomplish, what we hadn't thought about. As you know, it's rare to be able to find people that match your business and the vision of what you're going after. Similarly, with Tim O'Reilly, he is well respected within the technology community and product development, and they have that great balance of understanding what developers really need and utilize, and how to do good for the technology community. There are very few people who fit that profile, who can rival O'Reilly in the developer and technology community. At our first meeting, I was blown away by his focus on the balance of building the right business model and having an impact on the world. It's a perfect balance--David is very business savvy, and Tim is very technology and development oriented.
What's the story behind Stage6--we hear you had earlier tried to launch that as a separate business--and how's that related to Open Candy?
Darrius Thopmson: What happened at DivX, where I was co-founder, was toward the end of last year or late summer, the company agreed that the best thing for Stage6 to do was to look at spinning it out. We had grown Stage6 to be a cash generating machine, and it became a top 50 site, helping DivX to distribute content out there. We went through the spin out process, and Chester (Chester Ng, co-founder of Open Candy) raised the money for spinning out Stage 6. We were able to find funding, and one thing led to another, but the DivX decided they didn't want to take the offer we presented to them. That ended my journey at DivX. I was looking for a path that was much more entrepreneurial, and fast moving, and something new--and Stage6 was really that opportunity. When Stage6 couldn't spin out, I needed to move on.
Back to Open Candy--what's the model behind it and is this something where you're talking a cut of sales or taking advertising dollars?
Darrius Thomson: The model we use on our network, is we recommend apps that you love. If you look at why applications get early distribution--Firefox, as an exapmle--developers are really important. They helped Firefox increase their reach, and they recommended it to other users, before even the spread Firefox effort. That volume leads to a lot more potential revenue. So one part of this is helping develops drive distribution of product they love. The next part, is we have a paid model in our network, where any software developer or publisher can offer financial incentives to recommend their product. If you go to any search engine, and type in "recipe software" or "photo editing" you'll see a number of sponsored ads. We realized there are lots of commercial guys out there trying to get visibility through Google Adsense or affiliate programs, or on CNET. That web distribution is pretty inefficient compared to here. Going back to our example, in the recommendations, we might present six products--four of which we know are great for our users, and two which are great but have paid a financial incentive. If we are recommending Shutterfly or Flickr, we know they will pay a bounty to have their product recommended. We'll allow developers to really pick products they recommend, and they'll have full control of that for their applications. It can include both folks offering incentives and those not offering solutions, and they can determine what percentage of that inventory can go to either case. We're also being very conscious that those dollars don't influence the recommendations.
Finally, what's next on your plate for the next few months?
Darrius Thompson: The next few months we are being pretty pragmatic. Number one, is we're trying to bring the right partners on board. We're very conscious about getting the right partners, so that consumers see good software. Two, we're making sure that we collect enough data to make good recommendations. We don't have a lot of data yet to make great recommendations, so we are going to collect data to make good recommendations and target. We're getting the right partnership in place, people on our network, and scaling that network. We want to build the right brand, make good recommendations, and make sure the system is in a position of being scalable. We'll be specifically rolling out a couple of new partners every week, determined by volume, before we make the system available to anyone with software. Eventually, developers can come to the site, submit their products for inclusion, and it will be more like Google Adwords, but we're not there yet.