Macromedia Funds Local Collaborative Filtering Company

Yo will use Macromedia's LikeMinds collaborative filtering software as the backend for its collaborative filtering, sales and marketing network.

The idea behind Yo is to offer merchants a way to expand their sales and marketing efforts through collaborative filtering without having to build or administer their own technology networks. Merchants can insert a "Yo Box" into their Websites by plugging in a line of HTML code. Yo then delivers personalized sales pitches and product recommendations to cookied visitors at any Yo-enabled Website. In addition, merchants can offer their affiliate sellers a Yo-enabled personalized sales display instead of just a static "buy here" link.

Collaborative filtering, like one-to-one direct marketing, is one of the great, unfulfilled promises of the Internet. Although recent reports suggest that personalized recommendations ("Other people who bought Deep Blue Sea bought Jaws") do drive higher purchase rates than generalized promotions. Collaborative filtering in the past has required consumers to spend a lot of time rating products or otherwise generating data and still found that the recommended products returned were hit or miss.

"I think where collaborative filtering has fallen short in that ideally it should be networked," said Yo founder and CEO Charles Jones. Instead, what has happened has been that large e-commerce players have built expensive, unique enterprise systems collecting only a small sampling of data from consumers at their own sites principally based on sale patterns.

Yo instead will collect data across a network of sites hopefully from millions of visitors, and deliver personalized marketing pitches based on a large sampling of data, keyed to consumers' cookies but not to their names or other identifiable information. The company will also start with a leg up in terms of data, building a movie information system based on the data already collected by LikeMinds at the Macromedia's own MovieCritic.Com site.

The 10-person company has an ASP-like service model. Merchants who use Yo only pay based on the amount of incremental sales driven by Yo's personalized information. For example, when an affiliate replaces its static "click to buy" link with a Yo Box, Yo serves a number of impressions. Some of them are control impressions -- generalized sales pitches. Some of them are personalized messages. Yo gets paid by merchants based on the difference in conversion rates between the control impression and those generated by collaborative filtering.

The company has already inked an arrangement with CDUniverse. And according to Jones, it doesn't need vast scale to be profitable because the costs of implementation are low. Jones would not specify the mass the company needs but he did say "if we signed CDnow and they used it for all their affiliates, we would make a living." The trick now for the company will be getting Yo implemented on dozens of merchant sites. To that end the company will put to use this first round of financing doubling its employee base, hiring a top management team, and building out some new technology for new service offerings. Then it's on to close a second round of financing in July, according to Jones.