Amazon beats VCs to the punch

Large tech companies are claiming prime investment candidates even before they launch. Robot Co-op is such an example.

Corporations aren't the only clear choice now for venture capitalists seeking to sell their portfolio companies. Big high-tech companies are also beginning to claim venture capitalists' prime investment candidates even before they launch. Here's one example.

Robot Co-Op is a Seattle-based start-up responsible for 43Things.com, a Web site launched last year that enables people to share their life desires with other online users. Think of it as a personal recommendation engine for life. In June, the company applied this model to the online travel industry with the launch of 43Places.com, where users can list destinations they'd like to visit or have already visited.

The pedigree of the founding team is impressive. Six of the seven founding members of Robot Co-Op were on the core team that developed Amazon.com's recommendation and personalization engine, which suggests books or music a user might enjoy based on the user's previous purchases. That's the function on Amazon that says you'll enjoy Zero 7's "When It Falls" album because you've already bought and rated positively albums by artists Royksopp and Air.

"Personalization looks at statistical models to look at past behavior and predict what you can do in the future," says Robot Co-Op co-founder and CEO Joshua Peterson. "We wanted to use that and then think what you would do with your life or where you want to go. It just made sense to apply the Amazon model (at 43Places.com) in an environment away from products."

This is the type of engineering experience that most venture capitalists would kill for--especially in an environment where investments in next-generation Internet technologies are the hottest venture trend. But when it came time for Robot Co-Op to raise money to launch its prototype in the market, it didn't go to the Seattle venture establishment.

Instead, the start-up received an undisclosed amount of capital from Amazon. "They know us from our past, and we know them, and we're building stuff we're both excited about," Peterson says.

The partnership began last September after Robot Co-Op showed Amazon a prototype of 43Things. Amazon, which made a number of acquisitions and investments from 1998 to 2000 but has largely shied away from deals since then, quickly invested in Robot Co-Op. Amazon maintains a seat on the company's board and owns the rights to any technology developed at the company.

An Amazon press official declined to comment.

Peterson is now betting that customer service will make Robot Co-Op's Web sites a success. He looks to Craig Newmark, founder of Craigslist, as a model. Craigslist offers a free bulletin board where users can post listings for free, except for job listings, which cost $75 in some areas. But on the multicity network of sites, the only area that charges for listings that that employment section, of which eBay purchased 35 percent last year for an undisclosed amount.

Peterson didn't provide details about 43Places' strategy, but the only evidence of revenue are unobtrusive Google ads on its site. "This is the area, the overall travel space, where there are any number of good ideas that have been killed off by overmonetization," Peterson says. "We're big fans of Craigslist, where you listen to your customers and give them features that are useful and then monetize as lightly as you can."

Peterson's high-minded attitude toward not over-charging his site's users could be influenced by his not having to indulge venture capitalists who may view revenue growth as proof of concept. Instead, the arrangement with Amazon.com furnishes Robot Co-Op with a greater degree of latitude than a typical start-up.

"There are a lot of ways to start a company," Peterson says. "It's a nice setup because you can follow the Craigslist model where you can listen to your customers rather than to the whims of the market."

And for Amazon, if it can apply the technology and market insights it gleans from Robot Co-Op to its own e-commerce Web empire, this could become a very profitable setup.

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