BloGiza

The online year that was

As today is the last day of 2007, it’s a little hard to resist looking back at the past year and trying to sum it up. So, I won’t resist. Unlike last year, 2007 is hard to summarize with one handy tag such as “the year of online video” or “the year of social networks”. There was a lot of activity in a number of different areas, the rise of a major player in the social networking space, and the rise of a new form of communication.

So, herewith a few highlights IMHO of the online industry in 2007

Story of the year: The consolidation of the advertising industry
Y’all thought I was going to say Facebook, right? Now, while the rise of Facebook is certainly the most hyped story of the year, my vote for the most significant development  (not to mention the biggest source of M&A activity) is the rapid consolidation of the online advertising space.

During the last 12 months, Google bought out Doubleclick for $3B. Shortly thereafter, Microsoft acquired aQuantive for a staggering $6B. AOL bought out targeted ad firm Tacoda, as well as Quigo which. Yahoo acquired Blue Lithium, as well as a majority stake in Right Media. WPP bought 24/7 Real Media. And the list actually goes on.

The M&A hyperactivity in this sector is an indication of the fact that online advertising has reached a certain stage of maturity. Beyond that, the consolidation is likely to have long-term ramifications, especially in regards to the rise of Google as the behemoth of the information age as well as the development of new business models online. And that’s what makes this, at least for me, the biggest development of the year.

Phenomenon of the year: Facebook
Obviously, I couldn’t not mention Facebook which gained momentum extremely rapidly this year and became the go-to social network for those of us who aren’t musicians, 14-year-olds, or skeevy perverts. Facebook only opened itself up to the world outside the university sphere towards the end of 2006. I joined up early this year. Before long, almost every high tech-ist I knew (and many I didn’t) was on it. Lately, the sphere has expanded further and everyone, their parents, and their parents’ friends are connected. Clearly we’re on to something.

Of course, it will be interesting to see whether Facebook will be an ongoing concern for most people or just a passing fad. I like it for business purposes, as a tool for microblogging, and as the communications platform of choice for a number of my friends. On the other hand, I have a hard time answering those who complain that there’s nothing to do there. We shall see.

New technology: Microblogging
The rise of Twitter and its clones provided us with probably the only real new media form we’ve had in a few years, viz. microblogging. At first, the concept seemed a bit stupid. After all, why would I want to blog in tiny, one- or two-sentence bursts? But then you start getting into it and discover that Twittering (or updating your Facebook status, which I tend to do more) is a nice complement to blogging for those times when you have something small and/or clever to say but which doesn’t warrant an entire post. Plus, it’s the first Internet app that makes perfect sense for the mobile. It’ll be interesting to see who snaps up Twitter and for how much.

Interesting development in local tech: The renaissance of the Israeli internet scene
Three or four years ago, it seemed that the Internet industry in Israel was close to dead. During the days of the ’99-’00 bubble, the high tech scene was awash in Internet startups looking to be the next ICQ. Then the bubble burst and most of the companies went under. Worse, the VC industry was burned on the subject and it subsequently became almost impossible to get a new Internet startup funded.

As recently as two years ago I regularly had colleagues in the VC world lecturing me that Israel was incapable of producing Internet companies and, besides, these types of investments weren’t suited for VC anyway. What a difference a few years and a YouTube (and a Facebook) later make.

Once again, we are seeing dozens of new Internet companies each month. What’s more, there is a real feeling of an Internet scene here, helped along in no small part by Facebook, the work of groups like the Co.ils and the Geek Garage, and of course Jeff Pulver’s social activities. Let’s hope this continues to develop and mature.

Case of possible overhype: Online video
I’ll catch some crap from friends about this, but the online video space has become somewhat overhyped in the last year. Actually, that’s kind of unfair. What has happened is that in the post-YouTube age, online video has become ubiquitous. This has led to a lot of noise and a sense of, “Ok, what do we do now?”

Towards the end of last year, it looked like the field of mid-tail, independently produced video content (e.g. Ask a Ninja, Rocketboom, Ze Frank) would be the next big thing. As of now, that has failed to happen. There haven’t been any real breakthroughs this year. Even projects as big and as hyped as Joost have yet to take off as a mass-market application.

I still have big hopes for this sector, but it may have to wait until sometime in mid-2008.

Predictions for 2008
You’ve got to be kidding me. Only fools make predictions in this online age where what you write will forever haunt you. Still, I’ll make some safe and predictable ones for the upcoming 12 months:

• There will be a number of huge-size Internet exits that will have people scratching their heads
• The whole notion of privacy will continue to erode as Google finds out more and more about you
• Mobile internet will remain where it has for the last three or four years, i.e. tantalizingly around the corner as the Next Big Thing
• Some technology or company that you’re not thinking about will be the big story of 2008

So, for all my celebrating friends and colleagues out there, I want to extend best wishes for the new year and hope that 2008 brings health, happiness and success to us all.

Joost!

Holy crap! Joost has just announced that it has raised a whopping $45M in its first institutional round. Investors include Sequoia and Index, as well as CBS, Viacom, and a Chinese billionaire.

Also, they are going into open beta very soon.

My thoughts:

1. If I hadn't mentioned it before, holy crap!
2. This answers my question of how CBS plans to compete with the NBC-News Corp Internet venture.
3. It will be really interesting to see how these projects deal with scaling effectively once millions of users tune in. P2P works more or less fine when it comes to transmitting audio (i.e. Skype); let's see how the architecture handles video.
4. I'm so jealous that Sequoia always gets in on these projects

Behold the future of television, folks. You can tell your kids you were there in the early days.

The revolution will be televised

Gil over at De Gardener has posted videos of a talk that Jeff Pulver gave about two weeks ago at the last Garage Geeks event.  Pulver talked about his vision for the future of television. And that future resides on the Internet.

Much of Jeff's speech revolves around the idea of using RSS as a delivery platform. Which isn't too surprising, since he is currently very involved with Network2, a new Internet venture that seeks to aggregate all the independently produced episodic content on the Web and create a kind of uber-television network for it.

In the last couple of months I've been immersed in the New Media world. It seems that after years and years of hype about TV and the Internet coming together, it's starting to happen. Joost is the highest-profile example, but there are literally dozens of companies working on becoming the NBC (or Fox, or Comedy Central, or whatever) of the Internet.

As I see it now, no one group will emerge as the 800-lb gorilla of the space. There is too much content out there and -- at least in the realm of top-tier content -- a lot of gorillas already competing with each other. What I think we will see are a number of different classes of television broadcast online:

• The Big Kahunas -- These guys will be serving up professionally produced, premium content to the widest available audience. This includes not only episodes of Lost and Desperate Housewives, but also the latest Shakira videos, as well as re-runs of Happy Days. As mentioned, Joost looks like it will be a major player in this category as doubtlessly will the still-unnamed NBC-NewsCorp project
• The Middle-of-the-Tail Guys -- Here you will find episodes of independently produced shows like Ask a Ninja, Chad Vader and Jeff's favorite, Feed Me Bubbe. Not to mention thousands of other examples of people doing their own series. The content will likely be shorter-form and not quite as slickly produced, but my feeling is it will manage to find an enthusiastic audience. Network2 is looking to dominate this category.
• One-offs and amateurs -- The traditional realm of YouTube, Metacafe, and their ilk. You want videos of cats playing the piano? This is the place for you.

Of course, these categories are far from fixed and rigid. I expect we will see a lot of overlap between the players, not to mention various other broadcast models such as live vlogging. However it plays out, it's going to start playing out soon. And as soon as it does, the ad dollars are going to start rolling in that direction.

Web 2.0 in a Nutshell

This video was taken at one of the work sessions at the recent SXSW conference in Austin. In its snarky, cynical, humorous way it captures the essence of so many of the Web 2.0 companies we come across:

(Hat tip: My pal Ron Pick at Clickwise)

Joost Update

I've been playing around with the beta of Joost (nee The Venice Project) for a couple of months now. Or should I say playing around as time permits and otherwise smugly enjoying being an early adopter.

At any rate, it seems that the general public will soon have a chance to experience it for themselves. The company has announced that it will be moving to open beta at the end of the month. In addition, Joost has signed some major advertisers and will be adding some new premium content from Sony and Turner.

My thoughts at the moment:

• Everyone expects Joost will be a huge success. In fact, it's almost taken as a given. Which, if you take a step back and look at the situation objectively seems a little bit odd. After all, we're talking about a paradigm shift in the world of televised media which brings with it tremendous risks both technological and business. But I guess after Kazaa and Skype, Zennstrom & co have enough magic pixie dust to allay all fears.
  
• There is some decent content on Joost right now, but the majority of their programming doesn't speak to me. There's a lot of music content, some independent films, and some documentaries. Perhaps I'm older than the target demographic and that's why I don't connect.
  
• IMHO Joost will need to get a lot more popular mainstream entertainment before it can really take off. There's a lot of good independent content out there, but I don't need a dedicated application to access it. (I would go to Network2 or other competitors). The newly announced deal (which includes programming from CNN and Adult Swim, as well as old episodes of "Charlie's Angels") is a step in the right direction.
  
• Having said that, it will be interesting to see what kind of premium content they manage to get. Will it end up being a repository for old TV from the '70s and '80s? Would that be a bad thing if it happened?
  
• Joost also needs to work on its UI before it becomes ready for prime time. After three months I still find it awkward to get things done, including fairly simple operations like finding the list of all available channels and exiting the application. And if I have a problem with it, I can only imagine how frustrating it would be to my mother-in-law if she tried to use it.

At the Com.Vention

The Marker kicked off its second annual Internet Com.vention (a.k.a. "Vardi-gras") today. As it was last year, the convention was the local Internet event of the year, a decent mix of Israeli entrepreneurs, investors, and local and international figures from the Internet world.

So what was the story this year?

• Many, many entrepreneurs. At last year's conference, it seemed that the ratio between investors and startups was, if not exactly even, then not extremely lopsided. This year, the entrepreneurs definitely outnumbered the money people. There were easily several hundred internet entrepreneurs -- many of whom we have seen at Giza over the last few months -- which is the clearest sign of how the Internet has exploded here recently.
  
• The morning panel on "hot trends in 2007" turned up basically what you would expect: video, semantic web, convergence, and user-generated content.
  
  Two interesting comments: Dr. Nicolas Bussard made an interesting point about how changes in Web design make it easier for people in developing nations to build sites and start accessing the net. And Mike Marquez of CBS Interactive spoke of what he called the "open content ecosystem," which is the interplay of all the technologies -- from mobile video to trend analysis to vertical search -- that will allow people to consume content wherever/whenever they want.
  
• The most piquant panel was the afternoon discussion devoted to the question of "So, is it a bubble?". Here, the panelists -- Angels and VCs, including Giza's Eyal Niv -- were split. Some say it is, some say it isn't. Everyone agrees that valuations are climbing, and that the influx of money into the sector increases the danger of companies getting venture funding who really shouldn't be. (Thus siphoning off the talent and time of people who might be otherwise engaged in better companies).
  
  At any rate, the panelists basically agreed to disagree. We may be in bubble land, but at least it seems that everyone is a bit more reasonable than they were seven or eigh years ago.
  

Viacom vs. YouTube, Round 3

First they tried to come to some kind of agreement. Then Viacom sent out a pile of cease-and-desist letters to YouTube warning them to remove Viacom's copyrighted content from YouTube's servers. YouTube complied, but apparently not to Viacom's liking. Now, Viacom has decided to sue YouTube for a whopping $1 billion over what it claims are 160,000 copyrighted clips that were uploaded to the video sharing service.

This lawsuit may have something to do with the deal Viacom recently cut to distribute its content via Joost. Either that or somebody peed in Sumner Redstone's Geritol the other morning. At any rate, it's a doozy.

First of all, join me in saying that sum out loud in a Dr. Evil voice: one billion dollars.

Next, let us bask in the ridiculousness of these numbers. (Or, better, read this analysis from the NewTeeVee site). Viacom is looking to get $6,250 per clip, which is actually pretty cheap considering that the maximum penalty for copyright violation according to US law is $150,000. I guess Viacom didn't want to look greedy or anything.

All this fighting, by the way, over a company that may have had something like $15M in revenues last year.

Presumably, this will eventually be settled out of court, a number of lawyers will get richer, and the online video landscape will be no better off.

Snackertainment!

This month's Wired magazine has a large spread on what they are calling "snack culture". What is snack culture, you ask? It's the idea that a lot of the entertainment we now consume comes in small, metaphorically bite-sized, pieces.

You can see this all over the place. YouTube videos have become an entertainment form in their own right. "Webisodes" and "Cellisodes" (two- or five-minute episodes of popular TV shows specially produced for the Internet or mobile) have been increasing in frequency. And ITunes has contributed greatly to the demise of the long-playing record in favor of the single.

Wired also adds to this list of snacks things like ringtones, widgets (why take the whole program when you can just add a few features to your desktop?), and even the lowly blog -- snack reading at its finest.

Why is all this happening? You might argue that peoples' attention spans are getting shorter. Or else we now have the gadgets to allow us to kill five or ten minutes while waiting at the doctor's office.

Whatever the cause, we are clearly seeing some sort of cultural paradigm shift here. And being VCs, we soon ask ourselves, "How do we get in on this thing?" Sadly, YouTube has already been spoken for. But we are seeing other signs of activity in this space. Most recently (and locally) we can point to Evergreen's investment in Aniboom, the "YouTube of Animation". I presume we'll see some more in the future.

Viacom vs. Goobe

Now we're in for a fight. Last week, Viacom -- the media conglomerate that owns, among other things, MTV, Nickelodeon, and Comedy Central -- demanded that YouTube pull more than 100,000 clips which Viacom says infringe their copyrights.

This is an interesting development, since Viacom had previously been in negotiation with Google to come up with an agreement to kosherize the material in question. This latest move might mean that Viacom is fed up with perceived foot-dragging on Google's part, or it could be a negotiating tactic.

At any rate, according to the DMCA Safe Harbor regulations, YouTube now has less than 10 days to take the clips down. Which means I don't have much time left to enjoy those Stephen Colbert clips and Steely Dan videos that I like. Sigh.

In the broader scheme of things, this points to the complication of bringing the world of video to the Internet in a clear and legal way. In theory, it seems like it would be easy for Google to sign deals with the media companies. But it's also clear that Viacom et al are still trying to preserve what they can from their old business models, so the theory only holds so far.

I'll be interested to see how this flap plays out and what implications it has for Joost and other companies trying to merge TV and the Web

(BTW, an interesting debate on the subject can be found in the comments section here)

Venice Project gets a New Name

From today no longer should one say "The Venice Project". Rather, the new service has been given the new and official name Joost.

(Personally, I liked the old name better. But that's neither here nor there.)

Joost has been getting a second round of coverage in the techie media this week, including Wired's rather good profile of the service and its founders, Janus Friis and Niklas Zennström. The gist of the article is that Joost is good for TV because it provides two elements that are key for making the transition from broadcast TV to TV over the Net: a reliable and efficient P2P delivery platform, and full security/copyright protection.

I've been playing around with it a bit this week and hope to have a more in-depth posting on the service soon. Initial reaction: As far as an Internet-TV service, it's almost there. The UI is not where it needs to be, and the content is a little music video-heavy for my personal taste. I would hope that Janus and Niklas manage to resolve both quibbles before Joost is ready for prime time.

And, for everyone who has been asking, I don't really have any invites to give out at the moment. Sorry.

I got an Invitation to Beta Test the Venice Project!

I can see the rest of my free time this week disappearing as we speak.

An update will follow...

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.

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...

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....

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.

Web entertainment talent gets a vote of confidence

Here's another interesting item on the Web video frontier: United Talent Agency, one of the biggest talent firms in Hollywood, has opened up an online arm in order to scout out potential talent from the Internet world.

The goal this time around, executives say, is not only to recruit the next generation of television and film writers and directors from the relative obscurity of sites like YouTube and Revver. It is also to help the major Web portals that are hungry for original content to find the creative people they need — just as movie studios have long turned to talent agencies when looking for new directors, screenwriters and actors.

“It starts with just helping identify people on both sides of the aisle,” said Brent Weinstein, head of the new division, UTA Online. “The barrier to entry is so low, everybody is now a potential artist. So there’s this great unwashed of talent out there, 99.999 percent of which is probably not good enough to have a traditional film and television career. But on the Internet, a lot of different types of things go. And yet for buyers, this is a wall of people, so how does a brand know which one of them can help it execute?”

This is yet another indication that we are seeing the rise of a new type of entertainment medium. Short-form video or semi-pro video or whatever you want to call it has gotten a real boost in recent months, certainly since the Google-YouTube deal.

It looks like the future of entertainment (or at least some of it) will reside in all the semi-professional stuff that makes buzz on the Web. Now it seems that Hollywood has started to take notice as well.

GooTube

Or should it be "YouGle"?

Well, it's now official: Google is buying YouTube for $1.65B in a stock transaction. The deal ends several weeks' worth of speculation about who would buy out the video-sharing site and how much they would pay for it. I had heard speculation that the deal would top a billion, but I think the final price tag will surprise a lot of people.

After all, although YouTube is probably this year's Internet success story and one of the best pure-Web brands (along with MySpace, Facebook, Flickr and several others) from the second wave of the internet it still doesn't have that much by way of revenues. Certainly not to justify its boffo price tag from a conventional standpoint.

All of which has some people mumbling about Bubble 2.0.

Anyway, some thoughts:

1. The deal confirms the belief that short-form video has emerged as the first new significant media form of the 21st century. YouTube has been evolving quickly and now provides not only a platform allowing people to express themselves but also a cutting edge distribution channel for semi-professional and industry content.
   
2. It will be interesting to see what kind of effect this will have on other video sites.  Specifically, I'm curious to see what will happen with Metacafe, Israel's main entrant in this space.
   
3. This was a surprisingly strong move by GOOG and breaks the conventional wisdom that Google doesn't make big strategic purchases.
4. I tend to agree with Om that the big loser in all this is Yahoo, which lost out on the deal. Yahoo will now be forced to scramble to close some other large deal (Facebook maybe?), which will likely be regarded as a "me too" play.
5. Google will now have to defuse the ticking legal bomb that YouTube represents. The only major threat to YouTube comes from the kind of concerted attack (by the MPAA, RIAA, and other large bodies) that brought down Napster. The success of YouTube is widely seen as coming from illegally distributing copyrighted materials. This includes not only last night's episode of "The Colbert Report" but also home videos of people dancing to Britney Spears.  YouTube will have to cut industry-wide deals in order to rectify the situation; if the industry is smart, they will embrace the new medium.
6. A grudging mazel tov to Sequoia, YouTube's sole backer, who will be walking away after two years with a 43x exit.
   

Short Vids are Here to Stay

Despite all the hoo-ha about Web 2.0, it's becoming increasingly clear that short-form video is the real Internet story of 2006. In the last week we've heard rumors that YouTube is looking for a $1.5B valuation. Not to mention the fact that this year's Web 2.0 conference will feature a showcase of short videos hosted by John Battelle.

We've grown accustomed to thinking about sites like YouTube as the distribution channels of the future, but I (at least) envisioned it as a channel for distributing traditional long-form content such as movies or TV shows. However, it seems that video nuggets have developed into a media form in their own right.

One of the more interesting developments surrounding short-form video content is the recently announced NBBC. NBBC is a joint endeavor between NBC Universal and NBC's affiliates. In brief, the service acts as a marketplace for quality video content. Content creators use the NBBC platform in order to place their content on publisher web sites.

Content creators can use the site to increase the exposure of their videos and to receive ad revenues (the service works on a rev share business model). Publishers have access to new content. And NBC can use the platform both as a new avenue for monetizing its existinc content as well as get a cut of a brand-new revenue stream.

Significantly, the service is open to anybody with video content. NBC does not seek exclusivity nor does it seek to own the content.

Interestingly, this seems like the first example of a major content provider extending its brand to user-generated material. If NBBC manages to take off, you can be sure that other media entities will follow.

So, where is YouTube going?

YouTube is quickly becoming the poster child of what I (half-) jokingly refer to as "Bubble 2.0". With millions of users, endless amounts of hype, and bandwidth charges which reportedly run $1 million a month YouTube critically needs to figure out how to start monetizing its tremendous potential.

To their credit, YouTube management is trying to think creatively and coming up with a variety of different business models and approaches. Obviously, they are using the standard text ads but this isn't enough to generate serious revenues.

YouTube has been talking about providing "pre-rolls", or short 10-20 second advertising spots before the clips. I've been reading some interesting discussion about why this will or won't work, and whether it has the potential to turn YouTube into a company with $150 million a year in revenues or $20 million a year.

More intriguing is the site's recent foray into channel branding.  YouTube has been offering the ability to define content channels for a while, but they have recently tried to harness the approach for commercial purposes. Content owners can use their branding channel as a new marketing avenue by providing music videos, trailers, and advertising materials in the form of YouTube clips (with all the Web 2.0 goodness that implies).

Unfortunately, YouTube's choice for its first celebrity channel was Paris Hilton, currently hawking her debut album. By most accounts, Paris's album is a dud and the same can be said about her YouTube channel. Still, the idea has a lot of potential, especially if YouTube manages to sign some heavy-duty content partners.

Personally, I would imagine that the company will have to utilize a multi-faceted business model. Traditional webvertising and branded channels (especially of the non-Paris Hilton variety) seem like no-brainers to me. To some extent, the same can be said about embedding ads in the videos themselves.

This is a thornier issue, since it will force YouTube to institute some kind of mechanism for quality control, or at least some way to sort content into different quality categories to best maximize its CPM/CPC potential.

It will be interesting to see how it pans out.