Kegonsa Seed Fund

Microsoft Buys

Less than two years after it started, the online comparison shopping site has been acquired by Microsoft Corp., giving the software giant its first operations in the Madison area.

Microsoft paid $50 million for Jellyfish, sources familiar with the sale said.

In a blog where it announced the deal, Redmond, Wash.-based Microsoft said it believes Jellyfish's technology "has some interesting potential applications as we continue to invest heavily in shopping and commerce."

Jellyfish says it is the only social shopping space on the Internet that offers users cash back based on purchases they make.

The company will continue to operate as Jellyfish and its 26 employees will all stay at its Middleton offices. Co-founders Brian Wiegand and Mark McGuire will remain with the company.

"We set out on this journey to be disruptive in the search and advertising space, and one-and-a-half years in, Microsoft just called us and said we want to buy you," said Wiegand, who founded two other successful start-ups before Jellyfish.

"It was very surprising to be this early. I was expecting three to five years." Wiegand attributed the company's early success and speedy exit to being in the right space at the right time.

Search engine technologies and online advertising have been two of the hottest areas in the last 18 months, he said. Many competing companies have been acquired recently. Among them, was acquired by E.W. Scripps Co., was acquired by eBay Inc., and was acquired by Experian.

Wiegand and McGuire launched Jellyfish in July 2006. The company has raised a total of $6.2 million from cash infusions from the founders and two financing rounds led by Fitchburg-based Kegonsa Capital Partners.

Kegonsa invested in Jellyfish for one reason: owners Wiegand and McGuire, said Ken Johnson, Kegonsa Funds Managing Director.

"I didn't even know what a comparative buying service was before Brian Wiegand walked in and said 'we're doing this," Johnson said. But he knew Wiegand's track record and trusted that he and McGuire would leverage their passion and knowledge about how to differentiate their business from the competition, Johnson said.

Microsoft's entry into Madison makes it another in a series of Fortune 500 companies that have put operations in the state recently, said Tom Still, president of the Wisconsin Technology Council. Other such companies include Cardinal Health Inc., Invitrogen Corp., Genzyme Corp., Roche Holding AG, Abbott Laboratories and Eli Lilly & Co., he said.

That influx speaks to the quality of companies being built in the state, helps build better sales channels nationally and globally, means more wealth is being created and signals that the state is increasing the depth of management talent here, Still said.

Having Microsoft behind his company will also help Jellyfish recruit talent, Wiegand said.

"This way I can be competitive pay-wise, and I can have the stability of a Microsoft to help recruit," Wiegand said.

Microsoft chief executive Steve Ballmer said earlier this year the company expects its business model will shift to one where it delivers software as a service for free over the Internet. Its revenue would then come from subscriptions, transactions and advertising, he said.

The Jellyfish acquisition fits into Microsoft's plans to become a leader in online advertising. Microsoft said in its blog Jellyfish has done "some really innovative work" with its comparative shopping engine.

Microsoft also hinted there's more to come: "Stay tuned for more great stuff from our new colleagues in Madison!" its blog said.

© Milwaukee Journal Sentinel