Startup Browster Causes Brouhaha In Venture Community

Controversy is swirling around a startup called Browster, which early last week closed on $1 million in seed money from individuals and has aspirations of garnering another $4 million to $5 million in institutional financing by the end of the second quarter.

The San Francisco-based company has developed a downloadable plug-in for the Internet Explorer browser. Some in the VC community are backing the company, while others are claiming that it unfairly makes money from content it doesn’t own.

In one corner sits Browster’s investors, who already include a number of individual venture investors, such as venture partner John Zeisler of Gabriel Venture Partners; Robert Simon, a partner at Alta Partners; Rick Magnuson, formerly a general partner at Menlo Ventures; and Ken Sawyer, managing director of Saints Ventures.

The opposing side, which questions the legality of Browster’s technology, includes Jason Calacanis, co-founder of the blogging network Weblogs; and Jeff Nolan, investment director at SAP Ventures in Palo Alto, Calif.

“The legal ambiguity alone [of Browster] would dissuade me from investing in it,” says Nolan, who concedes that he invests almost exclusively in enterprise technology and applications infrastructure. He also authors a blog entitled Venture Chronicles.

Browster provides a preview window to visitors of search engines, such as Google, and other websites, like Ebay. After downloading Browster’s plug-in, users of these websites can move their mouse pointer over links to instantly see miniature displays of the page. The technology currently only works on PCs, but a Mac version is in the works. The idea behind the technology, explains Browster founder and CEO Scott Milener, is to make surfing the Web faster and easier by avoiding the sometimes onerous process that users endure from clicking on links and then discovering that the pages that they clicked on weren’t helpful. As every user knows, when sub-standard links are clicked on in search engines, the next step is to close the window or hit the back button and once again scan the search list for something more desirable.

Calacanis, who maintains a blog at http://calacanis.weblogsinc.com, has posted a blistering attack against Browster on his blog. Calacanis is a content producer who has ads like Monster.com on his blog.

He argues that Web surfing is fast enough already. Another of his criticisms, which he outlines on his blog, is that the use of Browster hurts websites’ relationships with advertisers.

Browster has drawn some adulatory buzz in Silicon Valley circles and plans to make money via pay-for-performance advertising. When a user downloads Browster’s plug-in – a free tool – the company asks that person to accept relevant sponsored links that appear in an inch-long frame atop the preview page of the website being viewed.

“You can still see everything on the Web page [that you would if you clicked on it directly],” Milener says. “We just reserve that additional browsing window to provide comparative content,” clicks on which earn Browster an undisclosed fee that it shares with its advertising content providers.

Nolan says he’s concerned that Browster is “piggybacking” off content provided in part by RSS feeds, which sometimes strips out the ads that a reader would see if he or she visited the site directly (rather than a syndicated version of it).

“It may be the case that it’s a gray area,” Nolan says.

A number of startups in the online advertising sector have found themselves sued for similar behavior. In 1997, for example, a company called Total News was sued by a number of publishers, including The Washington Post, for pulling the publishers’ content into its own Web screens and “framing” that content with its ad-sponsored links. In some cases, the Total News links cut off the content and the advertising of the publishers’ Web sites. The case was settled. Total News agreed to link to the plaintiffs’ websites only via hyperlinks. Total News had to stop using the publishers’ logos, and the company agreed not to imply any affiliation with or endorsement by the publishers.

Milener says, of his 10-person startup, “We did a lot of research before we went into this. We have been very careful and conscientious about the product.”

As for his part, Calacanis says he has already spoken directly to Milener. “I said to him, You are breaking the terms of service at our sites by essentially stealing [content and, potentially, ad dollars.] It’s not just you and the reader. It’s you, the reader, advertisers, publishers, and tool designers, and you have to make [your product] work for everyone.'”

Indeed, if Browster continues on its current path, it can expect a lawsuit, says Calacanis. “When a group of very esteemed, big-name publishers who have already discussed this sue him, he will spend six months of his life fighting it, and his company will go away.

“He needs to understand how to behave in the sandbox,” Calacanis says.

“I think Jason [Calacanis], who has been loud and emotional about this, is doing a disservice by [disseminating] false information and claims that [Browster] isn’t good for blogging or any other form of publishing,” Milener responds. “We aren’t doing anything illegal. The idea of having ads on the client side of things isn’t new. We’re just doing it in a new way.”

Email Constance.Loizos@thomson.com