Jack Welch argued that you should compete in a market so long as you could be #1 or #2 in that market.
Apparently, a lot of current VCs are students of Jack Welch. YouTube is the undisputed king of online video, then the market is fragmented:
I’ll admit this much, I am probably very diplomatic because most of these sites are distribution partners of our company WatchMojo.com, but by the same token, that’s never stopped me from ripping our largest partner YouTube, either.
So, first, some context:
- first Veoh raised $40M
- then, Metacafe raised $30M
- today, it’s Daily Motion, who raised a whopping $34M
According to WSJ, via PaidContent.org (who is less diplomatic than we are, calling the post “The Race of Also-Rans: French Video Sharing Site Dailymotion Raises $34 Million; More To Come”):
If Veoh can raise $25 million, and Metacafe can up the stake to $30 million, then why not Dailymotion? The France-based online video sharing site has raised $34 million in its second round of funding. The round was led by Advent Venture Partners of London and AGF Private Equity of Paris, a division of Allianz AG. The site has raised about $9.5 million in October last year from Atlas Venture and Partech International.
Dailymotion, which is based in Paris and was launched in 2005, has grown rapidly to reach some 37 million visitors a month, the story says. It was recently fined a modest $32K by a court in Paris for unlawfully carrying a clip from a 2005 movie by a French director. With this big round, the copyright infringement stakes are going to get higher, for sure. Last month Dailymotion rolled out Audible Magic copyright detection software on its site, which catches clips after they have been uploaded.
Of course, GE operated in mature businesses, well, mature by the web’s standards. So online, the argument could be extended to competing in a space so long as you can be Top 5.
In fact, that makes sense, if you think of search, where Google, Yahoo!, MSN, Ask.com and AOL account for 99% of the market share and all boast multi-billion dollar businesses.
In fact, 99% of the total market capitalization of the search engine industry is
= Google’s $150B
+ Yahoo!’s $17.5B
+ MSN’s $10B
+ Ask.com’s $3.15B
+ AOL’s $3.15B
= $183.8B.
For our analysis of their respective search business’ worth, click here and scroll down to Part II. This link actually outlines the value of the video advertising business in 2011, and the parallel between search and video is eerie.
Today, the search industry accounts for 40% of all online advertising, or $10B worldwide per year. By 2011, the more aggressive projections by Understanding & Solutions call for video to generate a $10B market (more dovish projections by eMarketer call for a $4.3B market, but we digress).
If you connect the dots, the potential for the Top 5 video players can represent as lucrative of a market in video in 4 short years as it does in search today. Mind you, this is a massive leap of faith. Also, one problem is that there is no guarantee that the Top 5 “value-holders” will all be video file sharing sites.
Yesterday, for example, News Corp. and NBC finally baptized NewCo./Newsite Hulu, and that already boasts a $1B valuation according to provate equity bankers Providence. Then, like we’ve outlined previously, come the numerous video search players who are vying for a seat at the table of Top 5…
Translation: it’s not my partner status as executive producer/founder of content producer WatchMojo.com that makes me diplomatic, I actually think that some of the VC investments in late round stages makes sense because a lot of VCs want exposure to this space. Where I tend to respectfully disagree with the “smart money” is that most of the content that currently gets played on YouTube, Veoh, Revver, Metacafe, DailyMotion and company is not what advertisers want, meaning that a lot of the use of funds will go to subsidizing hosting and bandwidth.
Of course, other uses of funds include legal fees. Make no doubt about it. As ridiculous as Viacom looked today in the Web Junk snafu, expect more legal muscles to be flexed… Another use of funds, obviously, is building out sales teams. Right now, most of these companies don’t have the sales infrastructure required to capitalize on the booming market, which takes us to the most likely scenario surrounding many of these “also-rans” (to quote Rafat, of course).
I know what you’re thinking, looking at the Table above: “but Veoh, Metacafe and Daily Motion” are not in the Top 5″. True. But considering YouTube was acquired by Google, MySpace was taken off the market by News Corp., and then Google Videos, Yahoo! Videos and MSN Videos being corporate giants, in VCs eyes, they are Top 5 sites.
A lot of these companies will eventually get bought out… either for traffic, or technology, or simply out of sheer paranoia.
So, are VCs dumb or smart to back them, it depends… anyway, we’re seeing late stage VC investing in file sharing, where will we see Series A rounds?
We covered that here earlier today.
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September 1st, 2007 at 5:41 am
This is probably the most sensible and balanced analysis I have read of the state of the market in video sharing. Call me enthusiastic, but I am doubtful that a Newscorp / NBC initiative will really make it. If you talk to a Ben Bejbaum at DailyMotion of say Michael Birch at Bebo, these guys don’t treat web2 as simple ingredients; there is something in the vision they deploy and the way they relate to their community that sets them apart. My personal bet is that video sharing is uniquely great at capturing short-form, instant video consumption and is well placed to extend this to longer form content etc over time (whether by partnership or otherwise). Time will tell, it’s certainly going to be a big execution challenge for all of us in the industry. Oh, I forgot: VCs are paid to take risks, so sometimes they fail
When we funded DailyMotion a year ago there were about 160 video sharing sites. At least now the field is much narrower, and the potential winners are well identified. Great great site, keep it up !
September 7th, 2007 at 11:24 am
Thanks for the kind words Fred.