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Posted on Mon, May. 24, 2004

Plaxo, Yahoo make deal on search


START-UP SECURES MORE VC FUNDING



Mercury News

Venture capitalists have shied away from backing twentysomething entrepreneurs lately, but not in the case of fast-growing Mountain View start-up Plaxo.

Plaxo, run by recent Stanford graduates Todd Masonis, 24, and Cameron Ring, 25, allows computer users to tap into a network that holds up-to-date address information for their friends, family and business associates. Integrated into Microsoft Outlook and Outlook Express, the software allows people to change their information and have those changes automatically updated in the address books of their contacts.

Today Plaxo integrates Yahoo's search engine directly into the Outlook e-mail program. Under the deal with Yahoo, Plaxo will get paid for channeling people to Yahoo's search engine. The search box will be placed beside a Plaxo icon that sits atop Outlook.

Plaxo will eventually make Web searching possible from individual e-mails, according to Masonis. Ultimately, he wants Plaxo to search individual words within the e-mails. You would click on the word and Plaxo would do a Web search through Yahoo.

``We're in Outlook, so we're effectively within the operating system. We can scan words,'' he said. ''

The deal is significant because it puts Yahoo search directly into one of the most popular e-mail programs. That helps Yahoo leapfrog rival Google, which earlier put its search engine on the bottom of the computer desktop with its Google task bar.

More money

Plaxo's moves have caught the attention of investors. Today, Plaxo will announce $7 million more in venture capital backing. The round is being led by Cisco Systems and includes, among others, existing investor Michael Moritz, a venture capitalist at Sequoia Capital. Plaxo has now raised nearly $20 million.

The interesting twist is Plaxo's move to team up with Yahoo. Plaxo investors and board members Moritz and Ram Shriram are also backers of Google and sit on that company's board of directors. Plaxo's move to give Yahoo more exposure to Web users at a time when Google is locked in a full-fledged search engine battle against that company is something neither Moritz nor Shriram would comment on.

Plaxo spoke to both Google and Yahoo, among others, about a deal, but Yahoo was the best fit, according to Scott Epstein, Plaxo's head of marketing.

He noted that Plaxo has strong personal connections to Yahoo as well. Tim Koogle, a Plaxo board member and investor, formerly served as Yahoo's CEO. Moritz also was an investor in Yahoo and previously sat on the company's board. But with Yahoo already public, Moritz has realized most of the return on his early investment at Yahoo. With Google about to go public, Moritz has a much greater financial interest in seeing Google perform well.

In the beginning

Plaxo started in 2001, after Masonis and Ring graduated from Stanford with computer engineering degrees. ``I had no money,'' said Masonis, recalling the first six months after graduation when he was writing code for the company. ``I was living completely off my girlfriend.''

Both Masonis and Ring had tinkered with other start-up ideas, including netElement, which let people communicate with each other at different Web sites in a text box at the bottom of their browsers. The idea didn't have an obvious way of making money and they abandoned it.

Then the pair talked with Ring's high-school buddy, Sean Parker, co-founder of Napster. Parker told them about his hassles with keeping an up-to-date contact list. He wanted updates to happen automatically -- via a network where people entered their address or e-mail changes and those changes appeared simultaneously in the address books of all their contacts.

Bingo. Masonis and Ring liked the idea, and together with Parker they formed Plaxo. The challenge, they agreed, was to build a network from scratch when people wouldn't have an incentive to join. Masonis and Ring started banging out the code while Parker took the lead as chief executive and searched for funding. ``Sean was living on my couch,'' Masonis said.

They built software that can be downloaded from www.plaxo.com, using a single click and installed by following a few simple instructions.

Three years later, the company has reached 2 million registered users. Once you download the software, you can change your address and all your contacts will have it updated automatically -- as long as they also use the software. If they haven't, you can send out an e-mail called an ``update request'' telling them about the change. And if they change their address, your address book is updated automatically -- again, only if they have the software.

The trick now is to make money. Plaxo intends to do that by adding features to its network.

Masonis and Ring have taken over temporary leadership roles while they look for a new CEO -- Parker departed from the company last month, after a disagreement with the board. Adult supervision exists: Rikk Carey, vice president of engineering, who held senior management positions at Napster and Yahoo; and Scott Epstein, Plaxo's head of marketing, who once worked for Google.


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