StartupSD

In February of 2008, six guys in San Diego decided to fundamentally change the software community for the better.

You need only read the first sentence of OpenCandy‘s About us page to learn a telling amount about the new company: one, they carry a grand vision for the impact their product will have on the software business, and two, there are a lot of dudes at this place.

Let’s tackle the latter characteristic first.

Who are all these guys?

Well, they’re ex-DivX employees, particular those who were building Stage6, a high-quality internet video sharing service that never escaped the gravitational pull of beta, despite its popularity.

What’s their grand vision?

Simply put, their goal is to improve the distribution and monetization of downloaded consumer software. They aim to do this by helping increase software distribution volumes, by monetizing this distribution through referrals, by providing marketing data to software creators, and by helping consumers find relevant applications. To fund their pursuit of this goal, they’ve raised $3.5 million in Series A funding from Bessemer Venture Partners, O’Reilly AlphaTech Ventures (OATV) and angel investors including Reid Hoffman (Chairman of LinkedIn, Board of Mozilla), and Jordan Greenhall (Former CEO and Co-Founder of DivX).

How’s this work?

The OpenCandy plug-in is bundled with an existing software installer. Let’s call this software Orange. While Orange is being installed, OpenCandy recommends to the user another application that is, in theory, relevant to the user. Let’s call this recommended software Banana.

Banana is picked from a fruit basket pool of applications chosen by the publishers of Orange. Orange Co. can hand-pick free recommendations (no charge to Banana for being recommended), can allow OpenCandy to select paid referrals (a “bounty” is paid to Orange if the user installs Banana), or a mix of the two.

The user can then choose to opt-in and install Banana. I emphasize opt-in because the recommended software will not be installed by default, an important distinction from annoying installers like RealPlayer that try to stick the user with 20 extra programs.

Another important note is that the Banana software is not included with the Orange installer, so the size of the installer is not noticeably increased (only by the negligible size the OpenCandy).

In fact, it is not determined what software will be recommended until the Orange installer runs. When it does run, OpenCandy analyzes the user’s registry for installed programs, operating system details, and chosen language. Conclusions from this analysis are sent to OpenCandy servers where some magic happens (including consideration of which recommendations are converting best), and a personalized recommendation is returned to the installer in response.

It is important to note that privacy is considered at every step of the process. OpenCandy takes user privacy seriously, designing to application to reflect this at every opportunity. In fact, one of their employees took the time to explain some of the finer points of their privacy model in detail.

Although OpenCandy does query the user’s registry, it does not transmit a list of all installed applications, but instead sends a “yes/no” verdict for specific applications. For example, OpenCandy will check to see if a user has Outlook installed. Knowing whether Outlook is installed determines whether OpenCandy might recommend an Outlook plug-in to the user. Personally identifiable information, including an IP address, is not transferred to or stored at OpenCandy’s servers.

(The details of these privacy protections have not always been easily accessible, and several blog comments on early posts reflected this misunderstanding. OpenCandy’s CEO, Darrius Thompson, answered some of the frequently asked privacy questions here, and OpenCandy says it is in the process of adding additional clarifying details of its privacy policies to its website.)

What other software suggestions might OpenCandy make? If a user has several already developer tools installed, OpenCandy might recommend Notepad++, a popular text editor. If a user is installing Miro, an open source video player, OpenCandy might recommend Audacity, an open source audio editor.

If the user opts to install Banana, or whatever juicy personalized software is recommended that day, OpenCandy will download the necessary installer and handle the installation process. Opting in will not interrupt the in-progress Orange installation.

You can see screenshots of the process here.

Let’s talk money

OpenCandy is aiming to charge between $1 and $2 each time an application is installed through a recommendation. It then splits these revenues with the publishers of the original software.

OpenCandy’s key advantage in making recommendations is its unprecedented ability to tailor the suggestion to an individual user. Although pay-per-click search ads reflect a searcher’s intent, they lack the ability to customize a recommendation beyond the details shared in the search terms. A search for “free open source sound recorder editor software Windows Vista” might return a valuable advertisement to the user and drive qualified targets to the advertiser.

However, a search for “audio software” is challengingly vague. Is the user running Windows, Mac, or Linux? Interested in open- or closed-source? Using professional tools or entry-level software? A diverse spectrum of users will be interested in “audio software” and they may all need a different application.

The top-placed search ad for this query will be chosen based on overall profitability for the search engine, essentially a combination of click-through rate and pay-per-click amount. While this works for the search engine, it doesn’t provide the best match for the user or the software publisher, who will often be paired with inappropriate leads.

The OpenCandy team learned a lot about sponsored recommendations at DivX, where the company was reportedly raking in for bundling software like the Yahoo! Toolbar with the DivX player.

Trick or treat

So, what’s it going to take for OpenCandy to find success and change the software world?

Fundamentally, there needs to exist a strong, profitable market for downloadable consumer software, because OpenCandy’s business is built upon that ecosystem. Downloaded software hasn’t disappeared with the rise of internet applications, but the growth rate of downloads has undoubtedly been impacted. On the other hand, OpenCandy could stand to benefit as more internet-based content and applications escape the web browser and run separately on the desktop. For example, will OpenCandy integrate with Adobe Air installers in the future? (OpenCandy currently runs only on Windows in Inno Setup and NSIS installers, with InstallShield support coming soon.)

As discussed earlier, OpenCandy will need to continue its education efforts, assuring developers and consumers that adequate privacy policies are in place and showing transparency in the use of customer data.

OpenCandy brings innovation to the staid field of downloaded software. Will software publishers and consumers get a taste of their sweet offering and not be able to resist another bite?

[Updated 3/19/09 with additional details on privacy model.]