comScore and Compete have published the latest video industry stats and there’s plenty of good data there:
From comScore:
More videos are consumed on Google properties (read YouTube) than any other network or property….
and more and more people are watching clips on Google (read YouTube properties):
From Compete:
The findings from comScore also include:
Other notable findings from September 2007 include:
I’ve said this frequently, but YouTube’s $1.65B deal is looking cheap. They not only own search, but their lead in video is pretty commanding, too.
In the greater picture, video is clearly where search was in 1999-2000. In other words, a major part of the online ecosystem, searching for a revenue model.
The business model with regards to advertising is embryonic, but the distribution channels are quite developed…
To further put things into perspective:
“September saw Americans view more than 9 billion videos online”
Now consider the following:
- ComScore recently released worldwide search statistics showing 15B monthly searches in North America, following up on their recent report showing 9.8B monthly U.S. core searches.
You see that video will be much bigger than search pretty soon. Moreover, since 47% of time is spent consuming content vs. 5% searching (report) then it can almost be argued that video has a 9x premium over search.
Of course, something like 7 websites out of 10 are discovered via search and search has proven to be highly monetizable… but no one will tell me that video - powered by TV’s $75B ad market - won’t be as monetized as search. That is sheer folly. Undoubtedly, video will be a far, far greater slice of the total ad market online than search. More on that here.
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WatchMojo NewsletterVC Fred Wilson not only offers some candid insights into his track record as a venture capitalist, but he ponies up the most accurate description of why venture-backed businesses fail:
Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.
Read more. But this is pretty much exactly what I mentioned some time ago regarding frugality, one of Sequoia’s main criteria to invest in a management team or business. Peers in WatchMojo.com’s cohort group have raised anywhere from $5-16M in funding… if you include the earlier players who started in the late 1990s, then that amount can go as hugh as $32M.
Madness I tell you. I firmly believe that video content producers can become successful exits in the $100M to $1B range, if not more… but because the broad web video advertising market is so nascent, these companies have built up operations that are too bloated and what not… most of these companies will have burned way too much money and might not even be around to see the day by the time the video ad market develops…
Today Facebook announced that it had closed an additional $60M investment from Li Ka-shing. This is interesting for a few reasons.
For one, it adds one more investor joining MSFT’s $240M investment at the $15B valuation. It’s important to remember than MSFT did not invest $240M, but committed to investing $240M at $15B at the next round (the money might have changed hands, but the paperwork has not).
More importantly, this adds a lot of leverage and gamesmanship to Facebook’s Chinese strategy. Bear in mind that MySpace China has the luxury of being represented by none other than Wendi Murdoch, Rupert Murdoch’s wife. The local representation is a greater advantage than money can buy.
Of course, there’s more to it than that: Facebook was willing to pay $85M for a Chinese site with 10M uniques in China, that deal has not closed, and might not even materialize… In China, 10M uniques is nice but not a winner so I think Facebook might prefer to develop their own site there than acquire or partner… but that means finding a Mark Zuckerberg in China to shepherd the project, which is not obvious because Zuck is a control freak kind of guy… I’m not knocking the guy, but let’s face it: his senior management team is a musical chair and revolving door… part of that reason, methinks, is so Zuck can maintain operational control over all areas of the firm.
Ultimately, Facebook might still buy its way into the market, but with an additional $60M and Ka-shing on board, they’ll have more leverage in talks: we’ll buy you or we’ll compete with you. Usually it’s easier to buy than to build, but the threat alone would scare lesser men.
From a reader: “What do you mean by Redmond outsmarting Facebook in your post and that the $15 billion valuation will come back to haunt them?
By Redmond, I mean Microsoft, of course. There are a couple of statements in my sentence, the first one being that MSFT outsmarted everyone and the second one being that Facebook will one day regret the deal.
WHY MICROSOFT OUTSMARTED OTHERS
MSFT is not an investment company, it really could care less:
a) what valuation was attributed to Facebook and
b) what stake they have in the deal they just made with the social networking site.
MSFT did this to block Google much the same way Google paid MySpace and other Fox Interactive Media sites $900M: essentially to block the competition. Had Yahoo! or Google done the investment, MSFT’s ad deal with Facebook would have been severed for a mere $10M fee, MSFT would have lost a large chunk of its non-MSFT inventory and it would have further trailed Google and Yahoo! in search and online advertising.
So we know why MSFT needed to do the deal. Of course, the alternative was an outright acquisition or a hefty investment. Up to the deal announcement, rumor was that MSFT (or the “winner”, whomever that would be) would have to fork over $500M to $750M. That’s a lot of money. To put it into content, all of MySpace and parent Intermix was bought for $580M, my old employer IGN Entertainment was acquired for $650M.
The point is $500-750M buys empires, $240M does not. So for “only” $240M MSFT effectively bought a call option on Facebook giving it the right - but not the obligation - to buy Facebook in the future. Of course, it was not really a call, because even if MSFT wants to buy Facebook, Facebook does not have to sell. But, the upside is that this option does not carry a strike price (the pre-determined price that the holder of the option would have to pay to buy the underlying asset, in this case, Facebook).
If Facebook grows to become the next Google (I’m not convinced it will, because social networking is not search from an economic perspective at all and fanboys really need to wake up and realize this little fact), then MSFT can get some added value from their stake. If Facebook does not grow to be a money machine, then its valuation in the future will remain close to the $15B it got… if MSFT wants to buy it, it can. Don’t forget, eventually Facebook’s investors will want their money back… and their options are now limited to an IPO or a sale to MSFT. An IPO won’t really work, we’ve outlined that before, but the reason is simple: public shareholders will find better financial returns elsewhere in publicly traded online firms.
I think the $240M for 1.6% on a $15B post money valuation had everything to do with the lower investment MSFT wanted to make, Facebook’s desire to hit $15B in paper value and probably, the amount that Facebook investors were willing to dilute.
Yahoo! too could have paid a mere $240M, that is actually an amount Yahoo! could have forked over (though not really the $500-750M) but with MSFT already in bed with Facebook, this deal was MSFT’s to lose, and not Google or Yahoo! to gain. The flip side of why Facebook preferred a deal with MSFT was due to Facebook CEO Mark Zuckerberg desire to surpass Yahoo! and Google, leaders in display/banner online advertising and search. MSFT, in its current incarnation, is not a competitor to Facebook, it remains a software company… so Facebook sees its relative strategic value as being greater to MSFT. Facebook played this card well, but by getting a $15B valuation without actually hitting the cash register, it might come back to haunt them. Which takes us to the second statement.
WHY THE DEAL WILL HAUNT FACEBOOK
The implications for Facebook are simple: they will never want to do a subsequent down round, so any future investment will have to come in at a valuation greater than $15B which is not obvious, especially when you consider that current yearly revenues are $150M and $30M in profit. That implies 100x sales or 500x profit. This might pass when you are growing like crazy, but:
- if that growth rate slows down, or
- MySpace continues to grow as it has (which is rather ferociously), or
- Google actually does something with their OpenSocial strategy, or
- Facebook turns off users with their “let’s monetize users” strategy, or
- difficulty in trying to develop a business model, or
- people get tired of fb app overkill
- or frankly the reality that social networking will remain bottom of barrel ad inventory…
Then Facebook is in trouble. With its ferocious headcount growth, Facebook’s $240M won’t go as far as they’d like. even with an additional $60M, that brings the total warchest to $300M ($340M since inception). That is a far cry from the $500-750M it sought to raise.
Moreover, Facebook is a global phenomenon, yes, but its long term success abroad is anything but established, hence the rumor that Facebook was about to part with 33% of their funding to buy a Chinese social network site with a 10M user base. China, 10M… what is that, like 1% of the population.
Anyway, long term, few companies will be able - or want to - acquire Facebook above $15B… and an IPO will remain the only opportunity. But, in an IPO, seldom do investors and founders totally sell their holdings… so while they might IPO at a high price, their subsequent stock price can falter… and I think with its current financial profile, it probably will.
Of course, they said that about Google, too, at $85/share… but Google was printing money by the time of its IPO, so it’s very premature to talk about that with Facebook.
Ultimately, even if someone else, say News Corp., Google, Yahoo! were to approach Facebook about a sale, MSFT can simply get involved in the process to bid up the price enough to scare away others, leaving Facebook with no one to poke.
In fact, this is why AOL has been a hard sell. Even when Yahoo! or MSFT show an interest, Google’s 5% for $1B on a $20B valuation comes back to haunt them.
One of the best things about starting a company is that you become resilient and patient. I am one of the most impatient people I’ve ever come across (which begs the question, does one actually come across oneself? but I digress).
Last night I met some fellow entrepreneurs and I told them that when you manage a startup and high-growth company, there are really only two things to remember:
If you wake up in the morning and are greeted with bad news, don’t worry too much because you’re bound to get worst news later on in the day…
And if ever you are greeted with some good news, enjoy it cause it won’t last, something is bound to go awry…
If you remember these two tenets of startups, then you will be amazed at how much success you can have because you don’t sweat the small negative stuff and you don’t let the good stuff get to your head.
“If you saw this one coming, give yourself a very large prize.”
Tech Crunch’s Duncan Riley
I can probably find it in an email, a presentation… though it was probably verbal… but since 2005 when we built the first product in the Mojo Supreme assortment of goodies, the MetaMojo.com search engine, I figured it was a matter of time before Google would do two things:
- personalization
- socialization
They did the personalization part in 2006 when they launched Coop. I covered it plenty here.
They did the second part just now: Google is running an experiment that can “influence [the] search experience by adding, moving, and removing search results.”
Think Google meets Digg.
This was one of the many bells and whistles we looked at adding, but ultimately didn’t because the strain on our index’s database would slow down the speed of the product, which is more important frankly initially than the ability for users to vote for results on the fly (we can change the order on the back end, however, seamlessly).
There’s a reason why we devote (and have devoted since January 2006 when I left my old company) 99% of our resources on WatchMojo.com and not MetaMojo.com. MetaMojo.com has two products: a vertical best of breed search engine, and a video meta search. The video meta search is actually getting more and more popular… But the vertical search’s benefits are over time easily duplicated by someone like Google, and we knew that.
The reason is that as the world’s largest computer with the largest distribution in the world and the best monetization engine in the world (see a trend), Google can overnight add features that would take years and millions in capital to scale by a startup.
For the record, I still believe in vertical search, niche players etc., but search is NOT really in the first inning. In some ways, it is, yes… but I do not see anyone knocking off Google (not saying anything new there, admittedly, as they have 66% of search ad revenue and query market share).
Of course, I think mass market search players like Google will launch things and startups can execute it far better, but unlike the Coop product that is easy for startups to do (if you knew that our total budget for MetaMojo.com was since 2005 you’d think we were magicians and could turn water into wine), what they did today is a bit more tricky (the pressure on their database of results, which is already in the billions of sites, is staggering)… but for Google - the world’s largest and strongest online computer - it’s a simple add-on.
Technologically notwithstanding, I am more surprised that they did this, because Google has long been all about the algorithm, and by allowing mortal men (and women) to change the order of results, then they are taking a new direction.
Of course, with all major companies, the individual first steps they take is somewhat moot, it’s the follow up and execution that is key…
Facebook will continue to grow well into 2008. MySpace tripled after News Corp. bought it and its growth remains impressive. But let’s face it, Facebook today is becoming a sea of crap: too many applications with little utility, too much noise and less and less value. In fact, it’s become a lot of the things that MySpace-haters disliked about MySpace.
I won’t get into the details yet, but I see MySpace managing their sheer size and growth by making some moves and taking some steps that add a lot of value to it, whereas Facebook has gone off the cliff and becoming a cacophony of crap. And, because Mark Zuckerberg thinks he’s a cross between MSFT/Google (platform) and Apple (the next Steve Jobs), he’s hell bent on remaining on the sidelines and not cleaning up the mess, “we’re neutral” he said at Tech Crunch 40.
Well, don’t be. I agree that I should be able to ban all apps. Call me a Luddite if you want, but I don’t want to be poked, let alone super poked. I don’t even know what the normal, natural reaction to a poke is…
Beyond the commercial / product things that need improving and the search for a business model, I think that $15B paper value attributed to Facebook will come back to haunt them, it will probably block any future exit. But that will be 1-3 years before they realize it. Ultimately, the Redmond crew outsmarted Facebook’s young management team for a relatively small sum of money.
USA Today joins the latest to drink the widget koolaid:
Max Levchin, CEO of Slide, the largest widget maker, with 134 million monthly viewers across the major social networks, likens the entrepreneurial climate among widget makers to the early 1980s, when software companies such as Adobe Systems developed applications for PCs. “It’s a really exciting time for software development,” says Levchin, who also co-founded online-payment processor PayPal.
There is a lot of value in creating products or services that resonate on social networks, that’s for sure. But, let’s be somewhat candid here, we’ve basically diluted the definition of a web application to include anything and everything to get investors excited.
Levchin, for example, is a brilliant bloke, but comparing Slide to Adobe is pushing it, to put it mildly.
I think the greater issue is “you better have a strategy in place for social networks, because clearly that’s where audiences are going.” Whether or not widgets remain the holy grail is another question.
The Web has definitely been turned inside out, look at AOL.com, who last year was discontent to be a walled garden, opting for a free portal, then one short year later imploded the portal strategy to become a network, too.
We ourselves at WatchMojo.com are no different: we continue to develop our property as a storefront but the lion’s share of our growth comes from our network, too. Just this week, I explained how we were building the most valuable apps on the most valuable social networks.
That’s some heady growth, we’d never be able to match the size and reach of our network on our property… but giving up the property altogether makes it hard to really showcase your value, since a property is a storefront required to sell your wares, no?
Either way, the notion that widget makers are the next hot IPO is sheer folly:
“The possibility of going public has never been better for us,” says Jia Shen, chief technology officer and co-founder of RockYou, makers of a widget that turns anyone’s photos into slide shows. The 2-year-old company boasts 40 million monthly viewers across the major social networks.
Sure, while you’re at it, let me show you a bridge, too. This does not mean that they’re not valuable, but caution is required when evaluating the value thereof. Just this week, a popular, money generating app was sold for $21,500… not exactly IPO pricing.
Although Facebook members generally eschew banner ads, they are more receptive to widget ads, according to a study in July by market researcher Grunwald Associates.
“If 2007 was the year for widgets, then 2008 will be the year advertisers reallocate their budgets to take advantage,” says Martin Green, vice president of business for Meebo, an instantmessaging company that creates widgets.
I don’t doubt Green would say that, he’s biased. It’s like me saying video will take over the Web, then the world. Of course, are people biased because of the business they’re in, or are they believers in a business and then enter a business, displaying a bias afterwards. I don’t doubt widgets will be relevant in the social networking landscape, but only because social networks themselves are hard to monetize. But, even then, let’s face it: social networking ads will remain paltry next to total online ads, which will be a $30B+ market by 2008:
Ads on social networks are expected to haul in $1.2 billion worldwide this year and $1.9 billion in 2008, says researcher eMarketer.
I don’t know. I personally see the need to have a network as a very important facet of a company’s growth plan, but to get all jazzed up around widgets seems rather faddish.
I won’t make any friends in high places… but I probably won’t lose many either… so here goes:
Brightcove made more and more promises to investors to raise more money (we’re a CMS platform, a YouTube like destination and an ad network), then it scaled back its consumer destination strategy (wisely) and gave up its dream to be an ad network (wisely). So now it’s a video serving platform, only. It’s good to focus, but it sure will be hard to make that $80M in funding generate a positive IRR… but who’s keeping track of that when it’s other people’s money, right?
Now, they’re seemingly giving up the low-end, long-tail market and going for high-end publishers only (I think).
Latest strategy shift from the folks over at Brightcove:
Dear Brightcove.TV member,
Beginning December 18, 2007, we plan to end support of direct consumer uploads to Brightcove.TV. As a result, you will not be able to upload new videos to Brightcove.TV after December 17, 2007. But videos you have already uploaded to Brightcove.TV will remain available on the site and through your Brightcove.TV channel. Videos you have embedded in other sites and blogs will also continue to play.
If you have a Brightcove Platform or Network account, which means you use the Brightcove Console, then you will still have the option to promote videos on Brightcove.TV.
Brightcove.TV will continue to be a guide to great video from Brightcove media and business partners. The site will have new videos added to it daily from these partners and these videos can be saved as favorite videos in your channel.
If you work for a media company, marketer, non-profit, or business and are looking to purchase the Brightcove platform to publish and distribute video on your own site, please visit the Brightcove Products Overview section of our website.
We appreciate your interest in Brightcove and apologize for any disruption this change may cause you.
Sincerely,
The Brightcove Team
I don’t even know what this means anymore. The company’s raised $80M in VC money and from media companies. Nice!
Related:
- Media companies investments in Video
- Brightcove’s Strategy du Jour
- Brightcove: Keep is simple stupid
If you have experience working in ad agencies, or selling to ad agencies, and want to be part of the video content, advertising and distribution revolution, email me at ash@mojosupreme.com.
Ideally, you are based in NYC… Thanks.
