BloGiza

2006 - The Year of Online Video pt. 2

The Establishment Goes Online

The online video revolution goes a lot further than the YouTube phenomenon. If anything, 2006 may be remembered as the year that the Internet became an official outlet for mainstream, big-studio product. This has come in a variety of different forms:

• Full episodes available online - Over the past 12 months, the major US television networks had a revelation. Rather than fighting all the file-swapping of TV shows they could embrace the new medium. In quick succession, NBC, ABC, and CBS started offering full episodes of their shows on demand. On their official websites no less.
  
  If you think about it, this is a complete revolution in thinking. And yet it makes a lot of sense: instead of the show being broadcast once, you can broadcast it hundreds of thousands of times. You can build your show's brand and add your network's own advertising. In the future, you can also greatly increase the amount of advertising you broadcast by monetizing each of those shows on demand. A win-win all around
  
• Added features - In addition to broadcasting full episodes of the shows, the networks have also started utilizing the Net to provide bonus material for fans. Reality shows like Survivor now feature behind the scenes footage, deleted scenes, and interviews with participants. Even more interesting is the creation of "webisodes" short (2-3 minute) Internet-only video clips like those recently created for the shows The Office and Battlestar Galactica.
  
  These webisodes, which focus on secondary characters, not only help enrich the viewer experience but they also give the viewers something to look at while the shows are on hiatus. I am betting that we will see a lot more activity like this in 2007
  
• YouTube as a marketing channel - I touched on this before, but the networks have realized that it's better to use YouTube than fight it. If you need any more proof of this point, compare NBC a year ago -- when it forced YouTube to take down all clips of "Lazy Sunday" -- with this year when the network utilized YouTube for an uncensored version of the Christmas Present Song.

I think we will see more of all this in the new year.

2006 - The Year of Online Video pt.1

The Year of the YouTube

Show of hands everybody: One year ago, on Dec. 26 2005, how many of you out there had heard of YouTube? How many had actually used it? Considering how ubiquitous the video-sharing site has become it’s amazing to think that 12 months ago the site was only getting a couple of thousand hits a day is now the number 6 destination on the Web.

Not to mention the fact that 24 months ago the company didn’t even exist.

 YouTube is one of the most popular time-wasters on the Web. It is the go-to site when you want to post videos of your cat. It has created a number of home-grown mid-tail celebrities like the Numa Numa guy, Judson "Evolution of Dance" Laipply, Lonelygirl15,  (and of course our own Papadizi). It has become a marketing channel for professional media outlets.

Even before Google bought out YouTube in December, I was ready to proclaim 2006 to be the year of online video. You could feel something building up throughout the year as a medium which had previously been an early adopter technology.

Setting aside the hype surrounding YouTube’s massive exit, online video – and specifically short-form video nuggets – is looking like the 21^st century’s first new media form and one of the most exciting things to happen to the online world since the creation of the online world.

From the standpoint of the tech investor, the rise of YouTube and short-form video opens up a number of interesting possibilities. Just a few off the top of my head:

• Better-quality, faster video delivery
• Video on Mobile
• The combination of video and advertising
• New types of video-based Web communities
• New advertising platforms based on Web video
• Perhaps even a high-quality content production studio (who knows?)

More thoughts tomorrow.

Play as You Go

Full disclosure: This post is about one of our portfolio companies. But it is a pretty cool company.

So at the risk of being accused of eating our own dog food, we invite everybody to try PlayOn Arcade.

PlayOn Arcade is a casual gaming site with a difference. Most casual games sites let you play free for an hour, after which you need to download the full version of the game and pay $20.

Here, you pay only for what you play. Instead of committing to any one game, you open up a PlayOn account which allows you to play all the games on the site for 1 cent a minute. The first hour of each game is still free, and if you play more than $20 worth of any one title, the game is yours to keep. No risk.

PlayOn is powered by Double Trump, one of Giza's portfolio companies, and a leader in the burgeoning field of micro-licensing. It's a new concept, but one which we feel has a lot of potential both for the gaming world and beyond.

In the meantime, they are helping turn me into a huge Diner Dash addict. But that's another story.

NBC Does Video Convergence

Today's New York Times has an article about this week's latest YouTube phenomenon. This one comes courtesy of "Saturday Night Live". Last week's SNL aired a parody music video called "A Special Christmas Box".

The clip features Justin Timberlake and Andy Samberg singing a smooth R&B number about making a special Christmas present for their girlfriends.

The premise behind the joke (and the gift in the video) just barely passed NBC's censors, who insisted on that a  certain word -- that appears 16 times in the film -- be bleeped out. In an unprecedented move, the creators of the film asked NBC if they could post the un-censored version of the clip on YouTube. And NBC agreed.

(The uncensored clip can be seen here; I'd put it up directly but we are trying to run a family-friendly blog).

Okay, It's incredibly amusing. But why am I writing about it?

Because it is the latest example of one of the year's most interesting trends: the migration of mainstream content to the Web. The migration pattern is one particular facet of what I call the YouTube effect. Increasingly, major production studios and television networks are harnessing the Web both to provide another broadcasting channel for existing material as well as a way to provide new material that complements shows on the air.

NBC blundered onto this phenomenon last year when another SNL music video, Lazy Sunday, became a sensation after users posted it to YouTube. Originally, NBC had YouTube take the video down. But they soon realized YouTube's potential and have gone so far as to open up their own channel on YouTube where they broadcast clips from NBC shows.

I suspect that we will see a whole lot more of this in the coming year and by the end of 2007 there will be a hell of a lot of overlap between broadcast TV and the Web.

Frosty the VC

So true, so true...

SaaS ruminations

---

Well... If you see VCs going ga-ga over Software as a Service (SaaS for short) companies the latest rumors about NetSuite should give you a clue why. The grapevine tells us that the on-demand ERP provider will be going public with a whooping $1 billion valuation which is about 10.5X on their revenues. Apart from hype what is the reason for such a valuation?

To me it's simple. SaaS just makes sense!

For the customer deploying service based applications means they don't have to go through the nagging and tedious IT and procurement processes. They can deploy applications on a small scale before committing the whole organization. When they decide to go for a full blown deployment the total cost of ownership will still be significantly lower than standard enterprise applications. IT guys are likely to cry foul and say that integration is going to be more difficult and the organization will lose the synergies between applications. Well... feel free to boo them and tell them to go learn about the new era of application integration.

For the ISV SaaS means that scaling sales is easier, implementation cycles are shorter and making new offerings available to your entire user base is much simpler. These attributes translate into revenue growth that is not as linked to cost as in traditional models. As you know high growth means high share prices and that in turn causes investors to go ga-ga.

In the Zeitgeist

Google just released its 2006 Zeitgeist, its list of the most popular search terms of the year. Interestingly "Bebo" comes in at number one, strengthening the feeling that it will soon become the number two social networking site.

Also, take note of the number four spot. It does my little provincial heart proud....

Virtual Big Blue

CNet has an interview today with Irving Wladawsky-Berger, IBM's head of technical strategy and innovation, who has pioneered Big Blue's entry into the world of Second Life. Come January, IBM will open up a business unit focused on virtual worlds such as SL. The new EBO hopes to use Second Life for purposes of training, conferences, and commerce.

I'm still not sure what to make of all the recent fuss about Second Life. On the one hand, it does look like a number of companies (Reuters, Dell, Sun) have decided to establish their virtual presence in Linden Land. On the other hand, one can't help shake the feeling that this is all a big fad that will have been forgotten by next year.

(For a thorough discussion of the second issue, go here.)

My main takeaway from the interview with Wladawsky-Berger is this quote:

How will Second Life be integrated with other parts of the Internet? Right now, there's not too much overlap.
Wladawsky-Berger: It has to be integrated. We need to make it easy to interoperate with other virtual worlds on the Internet and be able to go back and forth between virtual worlds and Web sites in an easy way. The problem now is the lack of standards like we had with HTTP, HTML (languages for sending and describing Web pages), etc. We need to create them across virtual-world platforms as well as Web sites.

Anybody interested in starting up the world's first  Second Life VC?

The Metacafe Hoo Ha...

...seems to have died down a bit this week so far.

Last week was a different story. First came a report that Metacafe was in advanced negotiations and would soon be snapped up by an unnamed buyer for $200-300M. This was followed by a flurry of discussion in the tech-blogosphere. Besides speculation about the identity of the buyer, there seem to be two opinions about the deal: Either $200 is a steal or else it serves as more proof that we are in a bubble.

A few days later Tech Crunch reported that the acquisition talks might have broken down because Metacafe's Comscore numbers were down for November. This week, as I mentioned, nada.

Some thoughts on the issue:

1. As far as the identity of the buyer, I don't have any concrete information. Yahoo, of course, is the prime suspect and would be my first guess especially post-GooTube. I wouldn't be surprised, however, if it turns out to be someone like Viacom.
2. I don't buy the rumor about the Comscore numbers souring the deal. Presumably, negotiations have been going on for a couple of months now. I would be extremely surprised if they stopped because of one month's worth of bad numbers.
3. Speaking entirely on a personal level, I hope the deal goes through. Not because Giza is invested in Metacafe (unfortunately, we are not). No, rather because it will give a real push to the local Internet industry and the way we VCs tend to look at it. There have been few sizable Internet exits here over the years (ICQ and Shopping.com notwithstanding). And a lot of people still have a tendency to avoid investing in Internet out of a fear of content-based plays or a feeling that Israeli companies don't know how to create consumer-based offerings.
   
   Having seen a lot of Internet companies in recent months I tend to disagree with this approach. I think the entrepreneurs here are as skilled and Internet-savvy as any you will find in the valley and that Israel can produce world-class Internet companies. Now all we need is a serious exit to help prove this point.

At the Geek Garage

The Garage Geeks held its second meeting Thursday night. The occasion was the release of Guitar Hero II , which gave us all the opportunity to spend the evening drinking beer and rocking out.

(For those who haven't tried, it involves classic rock tracks, an obstacle course of sorts, and a customized game controller shaped like a miniature guitar. I wasn't quite able to get the hang of it)

The best part of Garage Geeks is that it gives us Suits on the finance side of Israeli high tech the opportunity to hang out with the entrepreneurs and other techies in a casual setting.

Props to Yossi Vardi who showed up to shmooze as well. A lot has been said about Vardi's commitment to Israel's internet entrepreneurs. But considering that the man probably has many things he could be doing on a Thursday night other than hanging out in an abandoned garage in Holon, it speaks volumes that he made the effort.

Some more pictures from the event: