Israeli Company Visualead's Buyout Part of Chinese Corporate Movement

Israel China

As late as 2015, Westerners were still just coming around to understanding what QR (Quick Response) codes were—a two-dimensional barcode originally designed in Japan for the automotive industry. It was an ambitious, Israeli startup called Visualead that was already revolutionizing the technology that year.

Backed by Alibaba, Visualead announced a whole new dotless format for QR codes in May. Alibaba had invested a then-undisclosed sum of millions in January 2015, and the new QR codes proved indelible due to its tighter security and 90 percent larger branding and messaging space. Now, Alibaba has bought large chunks of Visualead.

Alibaba was also first to take major advantage of these new dotless QR codes. The company implemented them as part of its “Blue Stars” campaign through its Taobao marketplace. A label is simply printed and attached to every package, and customers have the label scanned for authenticity so that they know they are receiving what they expect or what is for them. This has proven to be a winning model for Alibaba, and their example led Asian markets to embrace Visualead’s service rather quickly.

This marked an exceptionally progressive step in Asia where QR codes were already the law of the land for all intents and purposes. In China, for example, commerce involving both online and offline features or platforms that were both online and offline were almost entirely dependent on QR codes already. Alibaba was essentially investing in market position throughout the region. It was the first time the Chinese conglomerate had ever invested in an Israeli startup at all, and its support saw Visualead quickly accrue some 500,000 customers for its online service.

At the time, Visualead CEO Nevo Alva commented in a 2015 interview with TechCrunch, “People in the West say it is just a code, and it’s been ‘going to die’ every year for last five years. When we talk about [online-to-offline retail], there are several guidelines that we have to have in place: education and penetration. These are two very important things. In China, you can see how big companies are pushing QR codes. [In the West,] it depends on several things, we have to find the right partner.” Finding the right partner, indeed, made all the difference for Visualead’s ability to capitalize on the commercial culture in the East.

Alibaba, however, illustrates just how much Visualead’s contribution is valued in the East now that the conglomerate is essentially buying Visualead out. Last month, Alibaba’s major announcement was about a research project called DAMO Academy, which represented a $15 million investment. Alibaba’s now establishing an office in Tel Aviv to take advantage of the rapid progress in the Israeli tech sector, and it’s doing so by acquisitioning Visualead, whether partly or fully.

Problematic speculation, however, suggests that this deal could end up shutting Visualead down in the event that this is, indeed, as far as the deal goes. Its service may not continue as a result of this transaction according to TechCrunch. Through multiple rounds of funding, Visualead had raised over $2.4 million servicing 500,000 companies in over 200 countries. DAMO Academy, however, is intended to help Alibaba breach the 2-billion-consumer mark internationally and thereby foster more collaborative efforts between global tech sectors.

Alibaba has done similar things to other startups, and some consider this event reminiscent of Quixey, whose thunder Alibaba also stole. It was yet another Israeli group of entrepreneurs who raised over $130 million from Alibaba (among others) for mobile research, supplemented by more than $500 million from others. This mobile research focus was expected to considerably improve in-app searches, which even Google has struggled to handle, yet Alibaba used its position as a heavy bankroller to get Quixey to change its focus. The beginning of the end was first reported when many employees at Quixey were laid off in late February according to an ex-employee.

This is part of a larger movement on the part of the Chinese private sector. In the last few years, China has repeatedly broken its own records for outbound mergers and acquisitions. PricewaterhouseCoopers (PwC), a multinational, London-based professional services network, reported last April according to International Business Times 115 outbound M&A transactions from Chinese corporations in Q1 2016 alone, and more than half were the actions of private companies. That same report says PwC China leader, Andrew Li, commented, “Outbound M&As have become part of the long-term strategy for many Chinese companies, and [are] less likely to be affected by temporary fluctuations in the Chinese economy or yuan depreciation.”

Alva co-founded Visualead in 2013, and the startup began building a team of talented engineers to spearhead research and development. Those engineers put together innovative ideas and created state-of-the-art computer vision technology along the road to revamping QR codes. Alibaba’s DAMO Academy project—“discovery, adventure, momentum and outlook”—has now been revealed to be one that is dependent on Visualead’s comuter vision technology. The conglomerate bought the technology as well as a so-far unknown number of Visualead engineers who were vital to the company.

Alibaba is reportedly targeting specific tech assets from Visualead. The deal is currently an incomplete transaction. According to Israeli media, complete acquisition is on the table for negotiation, but TechCrunch claims that this isn’t the case and that Alibaba is only acquiring technology and engineers. The exact figures for the deal have yet to be reported, but regardless, this marks the first even partial acquisition Alibaba has made in Israel.

DAMO Academy is projected to be of such size that 100 academic researchers are being hired for the work, and more staggeringly, the project is expected to create a total of about 100 million jobs worldwide, albeit mostly for independent e-commerce vendors. The project is headquartered in Hangzhou near Alibaba’s central office, but labs are opening in Moscow, Beijing, Singapore, San Mateo and Bellevue (U.S.), and in Tel Aviv.