The 15-person company, which specializes in making QR codes more beautiful, is the Chinese giant’s first Israeli investment. Why? QR codes are all the rage in China – and for a good reason.

Photo Credit: PR 

You know those funny black-and-white QR codes you see at bus stops or on the backs of cereal boxes? When was the last time you used your mobile phone to scan one?

Me neither.

In many countries, QR codes suffer from an image problem. They’re just not very enticing. This is a challenge in places like the U.S., where QR codes have failed to live up to their initial promise, as well as in places like China, where QR codes are ubiquitous.

Though the average Chinese person is exposed to over 150 QR codes a day, it’s hard getting yours to stand out amid the noise, according to Visualead‘s VP of Marketing Oded Israeli. “In order to differentiate your QR code or to stand out, you need something to be really cool about it,” Israeli told Geektime.

That’s where Visualead’s technology comes in. It allows QR codes to be incorporated into visually exciting graphics or GIFs.

Alibaba comes knocking

Visualead’s patented technology came to Alibaba’s (BABA) attention when the startup won a pitching contest at the Global Mobile Internet Conference in 2013 in Beijing.

Israeli says he cannot disclose the amount invested in this B-round by the Chinese giant (valued at $300 billion) because Alibaba has a policy of not revealing investment amounts.

“But I can tell you that it is in the millions of dollars and far exceeds our previous round, which was $1.6 million.”

Geektime’s sources estimate the amount to be $5 million.

Founded in Israel by Nevo Alva, Itamar Friedman, and Uriel Peled in 2012, Visualead started with a web service that charged SMBs and individuals a small fee to create personal, visually stimulating QR codes.

“We attracted 500,000 SMB brands that used our service online from over 200 different countries.”

Why China uses QR codes more than any other country in the world

“We realized China is the largest O2O country worldwide. It has the heaviest use of QR codes in the world.”

Israeli explains that O2O is used in China to mean offline to online (as well as online to offline). It is a popular expression in that country that is closely related to the term Internet of Things.

“In China every social network gives every single user a personal QR code in order to connect with their friends. The reason is if I search for ‘Simona Weinglass’ on Facebook, there’s just one. But if I search for a Chinese name, I’ll probably find 300,000.”

Israeli explains that it’s become a cultural habit in China that when you go to a meeting or meet friends at a bar, at the end of the meeting everyone pulls out their phone. One person shows their personal QR code and everyone else scans it using their social network app.

“That’s how you find friends on social networks in China.”

According to Israeli, there are 700 million smartphone users in China. Each one is subscribed to one social network – many subscribe to two or three. And QR codes are also used to find apps, web sites, and business cards, as well as authenticate transactions and as an anti-counterfeit technology.

In addition to the funding, the Alibaba Group and Visualead entered into a strategic cooperation agreement for the use of Visualead’s patents and technology across Alibaba Group’s ecosystem. Visualead will use the proceeds from the funding to develop next-generation O2O technology.

This won’t be QR-related, says Israeli: It will be a consumer experience that connects the offline world to the online.

And of course, Alibaba will get first dibs.

Aside from Alibaba, Visualead’s clients include Coca Cola, Orange, Crocs, BMW, DeNA, YvesSaintLaurent, Sina Weibo, RenRen, Ali The Fox, and NY Daily News.