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Wednesday, February 15, 2006 - Page updated at 12:00 AM

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Seadragon, Microsoft close acquisition deal

Seattle Times technology reporter

Microsoft closed its acquisition of Seattle-based Seadragon Software on Monday — a rare example of the software giant buying a company in its own backyard.

Two people involved in the deal confirmed the acquisition, but Microsoft would not comment. Financial terms were not disclosed.

Seadragon was founded in 2003 and has developed technology that can quickly display large images on computers and handheld devices. The company has 10 employees, but as early as last summer it began attracting interest from Samsung and other tech giants.

Seadragon initially talked to Microsoft about licensing its technology, but Microsoft decided that a marriage was in order, according to Tom Alberg, a managing director at Madrona Venture Group. Seattle-based Madrona invested $2 million in Seadragon's Series B round last summer and was deeply involved with the company.

"Much to our surprise and not our plan, Microsoft not only decided they were interested in licensing, but they wanted to buy it," Alberg said. "That was unexpected. We really didn't invest with that in mind."

But Alberg said he was happy Madrona's investors were able to make a profit in a short period.

All of Seadragon's employees, including founder Blaise AgŁera y Arcas, will work for Microsoft, according to R. Michael Crill, a consultant who worked as Seadragon's chief financial officer. In the near term, Seadragon will remain in the Ballard loft that AgŁera y Arcas chose for his company in January 2004, when he moved here from Princeton, N.J.

AgŁera y Arcas initially named his company Sand Codex, but changed the name to Seadragon Software last summer. He couldn't be reached for comment Tuesday.

Crill said that Seadragon's technology has broad potential for Microsoft and could be used in a variety of ways.

"This is a success story and we're happy to be part of it," he said. His company, Atlas Consulting, provides startups with a part-time CFO.

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A demo on Seadragon's Web site shows how a user can quickly zoom in and out within a collection of 800 high-resolution images. The company says its technology can be applied to digital maps, online newspapers, videos, virtual photo albums and even shopping.

Microsoft is trying to improve ways cellphone users can access images and other information. At the same time, it's stepping up efforts in online mapping, blogging and digital-photo management.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2006 The Seattle Times Company

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