Hotbar.com Hopes Surfers Ride New Software to Partners' Sites
By TIMOTHY HANRAHAN
WSJ.COM
Oren Dobronsky already has changed the way many people look at their Web browsers. Now, he wants to change the way they surf.
His company, Hotbar.com Inc. (www.hotbar.com), makes free software allowing users to decorate the gray area at the top of Web browsers with a selection of thousands of colorful designs, called "skins," which resemble personalized illustrations on a check. The software also adds a toolbar to the browser that features sets of links to paying partners by directing a user, for instance, to CNET Networks Inc.'s software page or DealTime.com Inc.'s selection of car-audio equipment.
Lured by the skins, which range from pictures of exotic desert islands to the rock band Duran Duran, more than 12 million users have downloaded the software since it was first released in December 1999. But since the skins are free and don't carry ads, they serve only as a lure. Hotbar, New York, makes money when surfers use its navigation tools to click to Hotbar partner sites; then it takes in about 10 cents to 40 cents per lead.
Within the next two months, the company hopes to turn the symbiotic relationship between the skins and the bar on its head. A new version of its flagship software will add a slew of new features to the toolbar -- and new ways to profit from the service's popularity.
Mr. Dobronsky says, "most people who come to the site come for the skins." In the new version, he predicts, "the bar will become the most important part."
Hotbar is the 29-year-old chief executive's second Internet start-up. After six years in the Israeli military where he picked up computer training in the elite Mamram school and served as an air-force officer, he and collaborator Gabriella Karni, now 45, launched an online-classifieds site in Israel. Started in early 1997, the venture lasted about a year. With the local Internet scene still in its infancy, "We saw we couldn't make any money," Ms. Karni says, so they closed the business and started brainstorming about a new one.
Ms. Karni, who has an advanced degree in psychology and as company president focuses on user-experience issues, says Mr. Dobronsky pitched "seven new ideas" every day. They decided to develop new uses for browser skins, which existed in other forms on the Internet. "We took a desert ... and turned the desert into a dynamic fantasyland,'' Ms. Karni says.
The founders worked on the first version of Hotbar in Ms. Karni's attic. They raised seed money in September 1999, with a $3 million first round coming later that year. Since then, the company has grown to about 50 employees. About a dozen work in New York and the rest of the staff -- research and development -- is in Tel Aviv.
Last month, Hotbar closed a $14.5 million second round of funding led by Deutsche Banc Alex. Brown, a unit of Deutsche Bank AG of Germany, and C.E. Unterberg, Towbin Private Equity Partners II, or PEP II.
The company won't reveal specific financial figures, but Mr. Dobronsky says Hotbar is aiming to be profitable by the end of the year. He says the company's revenue totaled "over $1 million" in 2000, even though Hotbar only started getting revenue from its leads in September. By the end of the year, revenue covered about 70% of monthly operating costs. Mr. Dobronsky declines to discuss its current sales, but says he expects the rollout of its new software to triple the rate of revenue in coming months.
The software will overhaul the way Hotbar's navigation tools work. Instead of a bar that stays the same across every site -- akin to browser "bookmarks" -- the software will have a bar that changes buttons as a Web surfer moves around the Web.
Visit an automobile site, for instance, and the Hotbar on a user's browser will serve up topic buttons for auto insurance, used cars, auto finance and more, all of which contain lists of relevant sites. To offer these contextual links, Hotbar cataloged 2.5 million Web sites into 2,000 major categories and 200,000 niche topics. The new software also will place optional news, sports and stock tickers on users' screens, and a later version will include a comparison-shopping feature.
The new software gives the company additional, and more-targeted, space to sell to advertisers. Hotbar will mix in paid-for links with links based solely on relevance, and advertisers pay only when a user actually clicks on their link.
Vered Sharon, managing director at the PEP II fund, and a Hotbar board member, says her firm was impressed by the company's management, its ability to quickly build a broad user base and begin to bring in revenue "at such an early stage for an Internet company."
The trick will be getting Web surfers -- including those who already like the skins -- to become heavy users of the navigation bars.
"People who already know where they're going on the Web may not want the bells and whistles," says Rob Lancaster, an Internet analyst at Yankee Group, Boston. In general, he says, productivity enhancers -- such as the Google search bar -- may be more-attractive browser add-ons than Hotbar for these users.
Still, he says, "there is a large group of newcomers who are more open to change. They are looking for cool ways to surf the Net."
Write to Timothy Hanrahan at <tim.hanrahan@wsj.com>
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