The site first launched in July with basic functionality and integration with Facebook. This last week they relaunched a new site with more tools, direct access to your desktop/laptop webcam, and they also now integrate with Flickr, Picasa and MySpace.

Upload a photo, or grab one from a supported service, and edit it by changing colors, adding effects, bulging or pinching areas (to make body parts look larger or smaller), etc. You can also turn any image into a sketch or cartoon. I spent about 10 minutes creating the different versions of the picture to the right (original is top left). The most fun is changing hair color, although the image third down on the left is my personal favorite.

Fotoflexer says they incorporate their own artificial intelligence algorithm to figure out the right way to alter images. And whatever it is they’re doing, it works. You simply point out a few areas of the site you want to remove or alter and it figures out the rest of the pixels pretty quickly. You can do all of this in Photoshop, but it takes a lot longer. And unlike most (but not all) of the online photo editing tools we’ve previously covered, FotoFlexer also supports layering for more complicated image editing.

FotoFlexer also now integrates directly to your webcam and to take a quick snapshot and edit it. Many of the effects are similar to the Photo Booth application that comes installed on all Macs.

The integration with third party services is a great feature as well. Pull down photos from Facebook or another service, alter them and re-upload in a few minutes.

The service runs in Flash and was built on the Flex platform with mostly custom tools. The company has not raised any capital and has 15 employees, all in the Silicon Valley/Bay area. About 50,000 people use their Facebook application and/or the website directly. I expect that number to grow as social networkers discover the joy of turning their pictures into cartoons, or turning their hair color to Fuchsia.

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Paul Graham started off the event briskly after an initial mixer, encouraging investors to close deals fast on the 11 week old companies.

Here’s a look at the presenters (note, some of the 19 companies declined mention in this roundup):

Anywhere.FM

We announced Anywhere.FM’s launch earlier last week. They compete in the online music locker space. However, I find a lot of these sites are more a niche segment of the storage market than a full application.

Anywhere.fm is a more consumer friendly music storage solution and has set dead aim at being an online version of iTunes. Anywhere.FM’s site lets you upload your music collection onto their site, create playlists, and play them back anywhere from the web. You can even listen to your friend’s music on a “Buddy radio station”. You can easily start your library with an iTunes uploader.

Over the past two weeks, they have received over 125,000 visits and had over a million songs uploaded to the site.

Today they expanded on their monetization plans, which include advertising, affiliate sales, and premium accounts. They plan on inserting audio ads into your music stream and are in talks with TargetSpot to supply local audio ads. The player’s Buddy radio feature will serve as a discovery engine, which they can sell music through and generate affiliate fees. Finally, a paid premium account will provide higher quality bit rates and other TBA features.

ClickPass

ClickPass is making OpenID one-click consumer friendly. They declined to state greater details for now.

DropBox

DropBox is another entrant into the online storage market. They are creating a transparent file management system (Mac/Win) that aims to: sync your desktop files on the web, back up files, provide access anywhere, and make files easy to share.

Although they are still in private beta, they showed an example of their product for the Mac. For the demo they showed how files stored in their desktop Dropbox folder were accessible and synced online. Your Dropbox files are backed up online, with a version history to provide easy rollback, and recovery in case you delete them from your desktop system. The files can also be shared via a permalink.

The demo looked slick although they were not able to disclose any details about the scalability of their backend in the short 7 minute presentation. See our previous coverage of the online storage gang.

Versionate

Versionate is taking on Microsoft Sharepoint, online offices, and the wiki market with their new collaborative document editing application. We covered their launch earlier.

Once you upload your documents to Versionate, you can search your content, control access rights, and edit them in the browser. Currently only Word documents are editable online. Every version of your changes is saved in wiki style. They support viewing for Word, Excel, PDF, OpenOffice, Powerpoint.

Versionate will also be offering a self-hosted version for customers concerned about data security and are pursuing desktop/web integration.

Adpinion

Adpinion is looking to fix banner advertising. To do this, they are helping ad networks target advertising by allowing visitors vote on the advertising preferences. Through the voting, Adpinion can determine what groups of ads go with what groups of users and sites. Since launch, they have been approached by over 180 businesses considering integrating Adpinion into their networks, including CBS.

Reble Music Sharing

File sharing is very popular (13 million users connected to eDonkey at any time). However, it’s also very illegal. Reble music is looking to make file sharing legal by avoiding a lot of the legal issues that got a lot of other startups sued into oblivion (unless you’re in Russia). To ensure this, they’ve been talking with the music industry from the very beginning.

The biggest legal complication Reble will avoid on their P2P network is downloading. Instead, users will use their desktop application to stream music to their computers from their friends. Streaming from friends computers also avoids the internet radio limitations imposed on other legal streaming solutions. Yet it still leaves recording artists open to piracy because stream capturing software is available for people who know what they’re doing.

Their end goal is to use the service as a music discovery engine and drive affiliate sales.

Disqus

One of the most championed features of blogs is the conversation. However, commenting systems on a lot of blogs are still somewhat lacking. Disqus is another startup looking to fix this by enhancing the comments. Disqus supports full moderation, spam and troll filtering, voting, threading, and more importantly a forum. For each post made on your blog, Disqus will generate a forum on their server, where users can continue the conversation in depth. They plan on monetizing through a business class version of the product.

As more blogs add the feature, Disqus will also be able to connect the conversation across blogs. Their plugin is currently live on Fred Wilson’s blog. We expect to see more when they officially launch.

Fauxto

Fauxto is an online version of Photoshop made in flash. The functionality is pretty amazing and includes layering, all sorts of tools, and effects. For the demo they live edited a photo of Steve Ballmer from the web by adding a Google logo to his forehead and changing his eyes to a nice baby blue. You can save the edited photos to your desktop or the web.

Over the past three months they’ve been live the site has grown to 56,000 registered users without any promotion. Their initial plans for monetization include licensing their technology.

Fuzzwich

Fuzzwich is one of my latest internet addictions. It’s a a dead simple way creating and publishing animated shorts out of a pre-generated cast of characters and backgrounds. They add more and more each day. Since launch users have viewed over 50,000 animations and added a new cast of animated characters.

Today they’ve previewed a new advertising engine through customizing their characters through branded goods. For instance, you can dress your character up in Gap, or pimp your ride with the latest web bling. Because they control all the content that goes into the videos, it seems like a more effective way of incorporating advertising into user generated content than with social video. New creatives can easily be added and hyperlinked to connect to purchase points. Lately indie music labels have contacted also them about possible music promotions.

Cloudant

The Slapvid guys have changed their startup and come back as a hardware startup, Cloudant. Their router promises to take full advantage of your bandwidth by simultaneously downloading multiple parts of a file. They say this is possible for a large number of the files you download online because of the range request abilities built into the HTTP spec. This means that your router can open multiple connections to a site and download multiple chunks of a file in parallel.

The router will also have other advanced features, such as network security out of the box, creating a peer to peer content distribution network amongst the routers, and embedded applications pre-installed on the box. For the demo, they showed their router download a large high-quality image file in about 16 minutes, compared to the Y Combinators old router taking an hour.

They plan on releasing a beta in May of 2008 and are seeking a 500K investment to get the production going.

Mark Hendrickson took some photos of the event with the help of Babak Nivi’s (Venture Hacks) iPhone. Click the image below for more.

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Since all computers come with basic software that rotates, resizes and crops photos, there needs to be a compelling reason to use an online service. Uploading a photo to such a service, editing it and then downloading it back to your hard drive too high of a cost. To compensate for this, most services allow you to transfer the edited photos directly to Flickr, Webshots or other online photo services, saving users the trouble of making round trips uploading and downloading.

Most of these online services also offer editing tools that go beyond simple rotation, resizing and cropping and start to creep into Photoshop territory. Here’s a few of the better ones, along with our most recent testing notes:

Fauxto

Fauxto is a Flash-based Photoshop look-alike. It is the only layer-based online tool that we know of, and is by far the best of the bunch. But if all you are looking for is photo editing, and you aren’t familiar with Photoshop, Fauxto will frustrate you with its complexity. And if you are already familiar with Photoshop, chances are you have a copy already. Fauxto is lovely to look at and it is a really nice example of Flash in action, but I’m not sure who their target market is.

Picnik

Picnik is the new kid on the block, and they’re the best so far. It is also Flash based, it is the fastest of the bunch and the user interface is the most intuitive. Once you are done editing, you can transfer your photos directly to Flickr. Picnik has replaced Ajax-based PXN8 as our favorite online photo editing tool.

Picture2Life

Picture2life is an Ajax based photo editor. It’s focused on grabbing and editing images that are already online. The tool selection is average, and the user interface is poor. There are some bugs on the site. Photos can be transferred to Flickr, 23 and Imageshack after editing.

Preloadr

Preloadr is a Flickr-specific tool that uses the Flickr API, even for account sign-in. The service includes basic cropping, sharpening, color correction and other tools to enhance images. The fact that Preloadr is designed specifically to work with Flickr may not be an advantage – some of the other services are just as good or better and also offer Flickr integration.

PXN8

PXN8 is the best of the Ajax based editors (and the best overall until Picnik launched) and has a great user interface with the main features highlighted on large icons. The basic “enhance” feature does a very good job of fixing the obvious problems with pictures. Edited photos can be transferred to Flickr or Webshots’ AllYouCanUpload service.

Snipshot

Snipshot, previously called Pixoh, is another very-good Ajax-based editing tool that stands out because of its above average design and the fact that they have an API into their service. We prefer the features and UI of PXN8, but just barely.

Read FranticIndustries for their take as well.

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