Skype and Joost are interesting companies to compare – they are about as close as you can get to one of those sociological studies that track identical twins who are raised separately. Skype was a spectacular success. Joost never got traction and was shut down. Both were started by Nicklas Zennstrom and Janus Friis, two of the great technology visionaries of our time. Both were big ideas, trying to disrupt giant, slow-moving incumbents.
There are likely multiple reasons for their different outcomes. Joost had day-to-day management that didn’t have much startup experience. The P2P technology that required a download made sense for chat but not for video. The companies were started at different times: Skype when there was far less investment in – and therefore competition among – consumer internet products.
But the really important difference was that Joost’s product had a critical input that depended on a stubborn, backward-thinking industry – video content owners. Whereas Skype could brazenly threaten the industry it sought to disrupt, Joost had to get their blessing. Eventually the content companies licensed some content to Joost, but not nearly enough to make it competitive with cable TV or other new platforms like Hulu and iTunes.
Real life, non-techie users care almost exclusively about “content.” They want to watch American Idol and listen to Jay-Z. They don’t really care how that content is delivered or what platform it’s on. Which is why Joost failed, and why so many video and music-related startups have struggled. Skype, on the other hand, didn’t have significant dependencies on other companies – its content, like its technology, was truly peer to peer.
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Without the content owners, Joost couldn't have been Hulu, but it could've been YouTube. And the reason they weren't was just poor strategy/execution.
I love YouTube and it was a great investment for its VCs, but its far from clear it would have been a good business, and not even clear it will be successful as part of Google.
Maybe, but I think if the founders could have chosen between the fate of
YouTube (even just the explosive growth and not the acquisition) and the
fate they've had, I'm pretty sure they would've picked the former.
Incidentally, while I'm pretty sure YouTube wouldn't have been viable as a
standalone business, it's a tremendous asset for Google, and almost
certainly profitable now.
Chris – I definitely agree with this, but I wouldn't underweight the strategic misstep of pursuing a technology that required a download.
I understand the rationale, particularly at the time, for using p2p infrastructure vs. browser based server/client model, but even a simple download erected a major adoption barrier that disincentivized users from using the platform – particularly when presented with viable alternatives that did not require a download.
Modern web consumers have been habituated to be skeptical of downloads – viruses and what not have burnt us too many times. Of course, it is possible to overcome the natural hesitation (Skype is a great example of a service that was successful in this regard), but when confronted with two options that provide essentially the same service – one requiring a download and one not – consumers will almost always select the non-downloadable option.
Then again, with the proliferation of mobile app stores we will likely see consumer download skepticism dissipate. Apple is pushing this forward with their carefully guarded approval process. I hope the broader open source community can also successfully police more open app environments such as Andriod's.
If “significant dependencies on other companies” is the difference, what does it mean for the chance of success of all the startups that depend on Twitter and Facebook? These two platforms can always close the faucet of data or make significant changes in their terms. I experienced some of it on my own back
.
I think the Youtube v. Joost comparison is a bit unfair – Youtube is first and foremost a short form, UGC platform whereas Joost was always meant to be a platform for long-form, professionally produced content.
Different goals, different execution challenges, different strategies.
Lots of stuff seems like a good idea and doesn't work. The more important point is they were in the game.
I'm not criticizing Joost or the founders. In fact I think they are heroic risk takers.
Totally agree. E.g. see http://cdixon.org/?p=913
In the original idea, the vision of Joost was to have the two, UGC and
professional content, and that's what made it so promising.
Today the startup that has the potential of realizing that vision is Boxee.
Right, I remember reading this post about the conflict between Twitter and its apps. Not a happy thought.
Right, I remember reading this post about the conflict between Twitter and its apps. Not a happy thought.
I think the Joost story is really interesting on many levels.
If you compare it to Skype, I'd argue that the most compelling reason why one failed and one succeeded is because one had a huge competitive advantage in growing an installed base: Skype was cobundled with Kazaa. True, Skype's network effects are strong but if Joost was distributed at scale, it could have gained the interest of content providers and built a nice platform. A large userbase attracts content. More content attracts more users. And more users also improve their P2P content delivery. So there is a network effect in the Joost business, although it's (two sided and) not as elegant because old media is part of the equation.
Would it have turned out to be a good business? I don't know. As you suggest, even though exits are celebrated as successes, the standalone biz models in this area seem to remain fragile.
These types of companies – e.g. the social gaming bigs – that have both the revenue and margins to successfully go public recognize that operating on someone else's proprietary platform is, in the long run, an unacceptable dependency. It's a fair bet to expect them to evolve into/onto their own web-based products before chasing the public markets.
I agree with the post and most of the comment here. I would say that one thing is missing from the debate: virality.
I was an early Skype adopter and remember telling everyone I knew how cool it was to make free phone calls. Also, the more people I told, the more I could call.
Joost did not have this kind of network effect.
Very true, although virality cuts both ways… not very useful at first… but you are right virality very much worked to Skype's advantage.
Actually as an investor in Skype I remember thinking Kazaa deal would be big but by the time it came around Skype was already very widespread without it.
Then I stand corrected
Dunno. Skype's initial network effect was point-to-point (ie I could call my mother internationally for free) but it was still valuable. The fact that other people were also using the network was largely irrelevant to me.
Skype's content, technology, and business development is truly peer to peer. There are no paywalls or lawyers to inhibit superior experience supplanting an existing behavior, using the landline phone.
Joost was clumsy from day one, with inferior service, sparse content selection, technology hurdles, etc. We need to remember that at Joost's launch, YouTube was already serving up hundreds million videos streams a month. The video delivery technology war had already been won before Joost's hyped up unveiling.
All that said, are we about to see the next evolution of TV and computer convergence? FIOS has Facebook/Twitter and streaming from computer integration, Boxee is building HDMI hardware at $200 price point and releasing Beta, and quality televisions have become so dirt cheap that differentiation may happen only via built in WiFi connected media centers.
Interesting times lie ahead.
You mention the problems with licensing from content companies, but in the same sentence you point out two products that made successful licensing deals with content companies, iTunes and Hulu.
Could the bigger obstacle be that the founders were already rich from having disrupted a different space? It's pretty rare for a massive disruptive success to be followed by a similar success from the same founders. The problem is both the success, which can breed complacency, and the prior disruption experience, which can harden commitment to inapt strategies.
Yep. Strategery-folks call this stand alone effects. If your offering has network effects too, you're in a sweet spot.
Agreed on the challenge of getting people to install a download to view videos when the rest of the web was heading towards flash video.
Skype is the only tool I still use after 7 years after first installation.
Even though http://www.comfi.com/ is far more cheaper, at least in Europe.
Natural experiments to tease out causal effects are always fun to find and exploit. To quickly summarize, we have the same founders, slightly different conditions, but the main treatment effect was that company A required licensed content and company B did not. B succeeded and A failed, therefore, need to get licensed content killed A.
Let me throw out another experiment. Company A and company B both require licensed content. A fails and B succeeds. Here I'm thinking about Joost and Hulu. See Gizmodo's review of Joost, Hulu and Miro back in Nov 2007 http://bit.ly/57ByVc. According to Gizmodo:
“They're maddeningly incomplete, like a crappy library in a rural town. Joost is probably your best bet in terms of quantity and quality, with Miro working better if you want a ton of new programming but don't care about corporate quality.”
Why did A (Joost) fail and B (Hulu) succeed if both needed licensed content? I always thought it was the partnerships that Hulu had, first with NBC Universal, then Disney, and then Fox. Hulu gave up what it needed to get high quality content.
I enjoy reading your posts and one day would like to learn more about your doctoral work on backward causation. I'm a fan of Rubin's matching framework to tease out causal effects.
[...] From cdixon.org [...]
Never though to compare the two, given that they're in very different spaces but share the same backbone. You're right, the fact that Joose relied on someone else's content (or otherwise would be a gray/black market service) made all the difference.
You are right, in essence Joost was trying to compete with it's suppliers. It's hard to disrupt when doing so…
It's also hard to point to a single failure, and even in the context of the rest of the market we have to ask whether someone like Hulu is actually successful?
I'd contend that Hulu has deeper pockets which means they will stick around longer. Hulu has a huge benefit in the fact that it is owned by NBC, Fox and ABC (27% each – http://en.wikipedia.org/wiki/Hulu) – and Hulu isn't paying anything for this until April 2010 I believe – from that point on, the clock is ticking. The irony is that their international efforts have gone nowhere in 1.5 years, why not? could it be because the content owners want a big piece of the pie? a piece they can't give away..
Joost certainly had trouble acquiring content at the right price, so we should ask, can video entertainment exist online without the studios or distribution networks being intimately involved? Can new market entrants disrupt the status quo?
If you look at Joost, there was little disruption going on. They were simply an online-only TV service provider. The content was the same (30-60 mins). The advertising was the same (15-30 seconds). There was some innovation around interactive video, but this didn't seem to have an impact on viewers or the content providers.
The point is that Joost didn't really have a solid disruption strategy and failed to learn about the market they were in before they spent a huge amount of money on tech. Simply licensing and putting video online, delivering the same old stuff, with the same old advertising was short sighted.
Why?
Take a look at the existing industry – the best way to deliver the same old video, with the same old advertising is by owning the end to end chain where you own a) the distribution (tech), b) the channel (marketing) and c) the studio (content) – see Time Warner, News Corp (DirecTV, Foxtel, Sky), Comcast (even more so with the NBCU JV).
I'm not saying that there aren't huge opportunities to take advantage of the internet to revolutionise video entertainment – however taking the same old formats that were created for mass media broadcast networks 50 years ago and showing it on a different screen is not innovative..
Areas that are innovative that could bring value to creators, viewers and advertisers are;
- in a business that is studio driven – why not innovate new models of financing, owning and distributing video? give creators [the real talent] a reason not to produce or work for the studios in the first place. don't rely on stuff from the studios -> create an environment where better stuff is produced.
- brand advertising is the bedrock of TV revenue. why not deeply innovate around brand advertising experiences? innovate to deliver something much more valuable to viewers and thus to advertisers. do something you can't do on TV – have a conversation, engage in a meaningful way.
- over the years, many layers of “marketing” have been inserted between the viewers and the creators – there's no connection. why not give both sides the ability to interact with each other? create better content, evolve storylines in real time, involve fans.
One day I hope some of the senior management team will speak up with their lessons learned…
Hulu hasn't spent $1 licensing content from anyone yet – they are owned by NBC, ABC, Fox. One day they will have to pay and it could kill them.
I don't think Zennstrom/Friis were involved in the day to day management – Joost was an investment for them.
Although they were undoubtedly advisors, I could certainly see them [they are after all only human] mis-applying previous lessons to a different market or identifying false-positive successes of Skype and applying them to Joost.. “the hardening of inapt strategies”.. Some of them could have been
- use p2p – more efficient, higher quality with scale
- get big quick – skypes network effects seeded and required this to be successful – they wouldn't have been successful without it
- go international straight away – good for phone calls, not for TV content – one market is hard enough
What strategies would have been better?
I like what you are saying about being in the game. It's one thing playing, but did they learn anything?
Did they spend too much money too quickly?
Did they invest too much in irrelevant tech?
Or more positively…
What went right?
Was customer acquisition [relatively] cheap?
Were they able to sell advertising?
How engaged were their users? Did the social TV features they rolled out work?
I think it is a good lesson for anyone wanting to work on the internet, at the end of the day content really is kind….well aside from backlinks!
Coming to this a little late, but there's another issue no-one's mentioned: Joost didn't understand what business they were in. They thought they were a radical disruptive internet business, but to the content guys, they were just another channel, asking for content but not wanting to pay.
To the distribution people they expected to get content from, Joost was just another cable channel. The SVP of distribution in LA, London or Munich saw no reason why he should take a promise of $X from Joost when he could get $10x with an upfront minimum guarantee from someone else, be it NBC, Sky or Canal Plus. Especially when he'd committed to internal targets that depended on that 10x. What was his motivation to give Joost all the best stuff for free?
Coming to this a little late, but there's another issue no-one's mentioned: Joost didn't understand what business they were in. They thought they were a radical disruptive internet business, but to the content guys, they were just another channel, asking for content but not wanting to pay.
To the distribution people they expected to get content from, Joost was just another cable channel. The SVP of distribution in LA, London or Munich saw no reason why he should take a promise of $X from Joost when he could get $10x with an upfront minimum guarantee from someone else, be it NBC, Sky or Canal Plus. Especially when he'd committed to internal targets that depended on that 10x. What was his motivation to give Joost all the best stuff for free?