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Summary:

Joost, a much-vaunted online video startup, has announced that it will offer a white-label video hosting platform, thus entering a crowded market littered with the carcasses of other failed video hosts. As someone who has followed Joost from its very inception, I’m amazed at how badly it’s stumbled. It shouldn’t have.

3030100306_79d180583b_m.jpgJoost, a much-vaunted online video startup, today announced that it will offer a white-label video hosting platform, thus entering a crowded market littered with the carcasses of other failed video hosts. The company is also losing its famous chief executive, Mike Volpi, whom it’s replacing with Matt Zelesko, the current vice president of engineering. And it plans to cut a portion of its workforce — between about 70 of its remaining 90 employees, according to Advertising Age. It also shut down its office in the Netherlands.

When I read about all the planned changes at the company earlier today, the first thought that crossed my mind was: Stick a fork in it; Joost is done. After all, this whole white-label video strategy is like a leaky lifeboat in the middle of the Pacific Ocean. The NewTeeVee crew sums up the situation very succinctly: “Becoming a white-label video provider was what a business did when all other strategies failed.”

As someone who has followed Joost from its very inception, when it was known as The Venice Project, I’m amazed at how badly it’s stumbled. It shouldn’t have.

It had everything going for it, including:

  • Successful, Celebrity Founders: Niklas Zennstrom and Janus Friis started the company in 2006 after palming off Skype to eBay for billions of dollars.
  • Proven Technology: Joltid formed the basis for music- and file-sharing service Kazaa and later Skype.
  • Substantial Funding: It raised $45 million in funding from the who’s who of the tech world: Sequoia Capital, Index Ventures, Viacom, CBS and Chinese tycoon Li Ka-shing.
  • Incredible Buzz: The company had incredible pre-launch buzz that helped it to convince thousands of users to download its P2P video client — something that doesn’t happen all that often on today’s web.
  • Big, Famous Partners: It managed to gain early traction with content providers such as Viacom and CBS, which were also investors in the company.

So what went wrong? Quite a few things, actually. Other startups should learn from the mistakes of Joost and avoid repeating them, such as:

  • Too Big, Too Fast: Joost hired too many people, too quickly. It never behaved like a startup but instead always felt like a grown-up company with too many bureaucratic layers.
  • Too Geographically Spread Out: The company was based in multiple geographic locations — New York, London and The Netherlands — and as a result, each location became somewhat of a silo.
  • Not Enough Focus: Remember what your mom used to say when you took too big of a bite? If you’re not careful, you’re going to choke. Startups are just like that. Unless you focus, you’re going to choke. Joost couldn’t focus on one single market — and startups need to focus on one market at a time in order to win.
  • Too Much Hype Too Soon: Like many, we were one of the early fans of this startup. Its founder pedigree generated a lot of pre-release interest. Nearly 250,000 folks signed up for the beta version of the software. But when technology problems hit, the pre-release buzz turned into buzzkill.
  • Slow to Fix Its Technology Problems : Joost’s P2P network had technical problems early on that resulted in user defection. The company didn’t move to address those concerns fast enough. These technology problems have continued to nag the company throughout its life, even when it switched to a browser-based focus.
  • Client vs. Browser: The company took too long to realize that the client-based strategy was going to lose out to browser-based video services. Its legacy of building clients became its Achilles’ heel.
  • Didn’t Press Its Early-Mover Advantage: Joost had correctly identified that it needed the blessing of the content owners, but it failed to move aggressively enough to convince them to work with its platform. The client and technology problems didn’t help matters, either.
  • Big Media Dis-Connect: Its big media investors were never willing to give Joost a content edge over the competition, prompting users to tune it out in favor of other services.
  • Too Many Internal Problems: The company had some serious management problems, some of which led to the firing of its CTO in January 2008.
  • Hulu: It started with a simple, easy-to-use interface for its browser-based video service, offered higher-quality video and used content from its backers, NBC and Fox, to become a household name, which in turn allowed Hulu to convince other content owners to sign up for its platform. Now it owns 10 percent of online video traffic.
  • Chasing Its Own Tail: Joost also made some basic mistakes, such as not having a good SEO strategy. It never quite figured out a social media strategy in order to garner viral growth, either. It was like a tech company from the 1990s — out of sync with today’s web environment.

The dark cloud of doom started to settle over the company last year, as the team at NewTeeVee noticed time and again. NewTeeVee writer Janko Roettgers offered a recipe to fix Joost last fall, but apparently it was too little, too late, even then. The company consistently failed to gain any traction, even after unveiling new APIs and a browser-based offering. In the end, however, it all boiled down to a lack of content.

Photo credit of Mike Volpi pic: Eirikso via Flickr.

  1. The problem with Niklas and Janus is that the success of Kazaa made them think that P2P is more important than it is. P2P was necessary for Kazaa but only for legal reasons. We are now learning that non-P2P VOIP is actually a lot better. And non-P2P Hulu blew Joost out of the water.

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    1. Where exactly are we seeing non-P2P VOIP being better?

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    2. Good point. Who needs P2P when YouTube is willing to host videos for free. It’s tough for any business when your competition is willing to throw away $100-500 million per year. Of course, it remains to be seen whether YouTube has a viable business, or whether they simply succeed in destroying other businesses. I think that’s a general question we will soon see answered for the www in general, as the easy money investment climate dries up.

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    3. Dead right. Back when Joost started the consensus was that video needed P2P because of the huge bandwidth requirements (I remember a piece of analysis round that time suggesting it cost $1/GB all-in, and (pre-H264) maybe 1Mb/s for reasonable quality so you needed $0.25/hr of revenue just to cover serving and bandwidth- that’s a marginal case. But H264 and Moores law have eroded that difference so now I think everyone is looking at server distribution for video (anyone know Google’s cost/hr on Youtube?). That undermines the USP for Joost and means that no matter how well they executed the P2P model left them at a disadvantage in the real core requirement – to win the content deals. Furthermore, the only market with the scale to work (given the content-owners’ requirement to territory licensing) was always going to be the US, so the international base was maybe more of a burden than a benefit?

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  2. good post. He who controls the gold (content) is king. Will be interesting to see what becomes of Boxee in this regard as well.

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    1. Alex,

      Boxee is doing a couple of things right: they are open source so the project will continue to go on, with or without the company. Secondly, they are encouraging others to jump on their platform and develop Boxee extensions. That is very crucial for them to get real traction. Whether they will be ultimately successful – remains to be seen.

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      1. That’s an interesting point to hear (I’m an Open Source entrepreneur). Intuitively, it doesn’t seem to me that it would really do Boxee any good if the project goes on after the company is gone.

        But maybe you’re saying that a project with known longevity give customers and partners the security to invest their time, energy and money into it– paradoxically making the Open Source company thrive?

        My guess is that Open Source isn’t magic pixie dust to make any company succeed (or fail!), but it might give a business an edge in a market with some 800-lb. gorillas in it.

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  3. This is a great article, Thanks Om Malik!. As the CEO of http://www.binfire.com , a new start up, the history and lessons drawn from Joost experience are very helpful to us.

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    1. Sanjay Sharma Wednesday, July 1, 2009

      Hey David, thanks for the spam!

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    2. I love spam! yum! David, can you please share with us what you have learned? And could you please mention the name of your start up a half dozen times.

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  4. IMHO, the number one reason by far is lack of content. The early Joost client software was actually pretty good, but there was just nothing to watch.

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    1. Agreed, the good content they had was old and/or off-the-air shows. I was really excited to get in the beta when they first launched, but found myself using the client less and less after the first month because there just wasn’t much worth watching. The rest of this article is pretty spot on too.

      I’m also surprised they didn’t push their music advantage. At the time they had a lot of music videos and features, at a time when YouTube didn’t yet offer music videos and there were very few other alternatives.

      The whole situation is disappointing because there was so much promise and it was very innovative when it launched. The P2P technology in the client was supposed to offer a way for the video to be faster loading and much higher quality too.

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    2. I second this, lack of GOOD content. I’d say a close 2nd reason, at least for me, is that the content they had was impossible to find. I counted on the emailed newsletter to tell me what they had available, because I could never find anything on their site.

      Hulu, OTOH, makes it very easy to find shows and movies.

      Joost was like trying to find a text book in a really messy teenagers’ room. After a while, you give up.

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    3. They generated buzz in the Linux community with true crossplatform claims. When this vaporware never arrived the community did not appreciate being lied to by Joost.

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  5. Good analysis.

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  6. You either need content or distribution. Apple has the distribution through devices, Hulu the content. There is no technology play for video. Joost was a dumb idea to begin with, and has remained so throughout.

    Unless you control a chokepoint, you are going to lose out to those that do.

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  7. Nice shopping list but only one is really true and Christian nails it – content. Lots of people downloaded the client and almost none stayed because the content wasn’t compelling enough – me included. There isn’t a big market for fourth-rate TV on the internet. The rest is a footnote.

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  8. Om,
    You did a great job saying what the prob was… I think you missed a big one slightly touched on it but its gotta be said. The CEO… hiring a big corp guy to run a little startup? yikes HUGE mistake… that guy doesn’t know nothin about starting something in his garage getting 10 engineers to follow him into the darkness on no pay and hitting the funding light. Mike Volpi for ceo i remember reading that thinking “bye bye joost” they signed their death warrent with hiring bad leadership like that. Mike needs to stay big corp. cisco != startup

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    1. Hardyhar

      I think while you may have a point, I followed the company long enough to know that *wasn’t* really the problem and things were pretty messed up even before Volpi got there. I think in the end it is easy to point fingers at one guy — big salary and big brand name does that to you — but ultimately it was a failure of the collective including the investors.

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      1. Om,

        Ceo does get a lot of heat but that’s his job. There are many stories like this in the valley of mr big corp to thinking of doing a career change at 40 something to a startup. But if you aren’t a startup guy they usually fail.

        There are cases of good startup ceo’s taking the helm during extremely bad situations. A favorite story of mine was one of the first video advertising companies. They had 100 employees had burned through $20M all kinds of products making little to no money, the vp of engineer hardly showing up for work.

        The ceo who was brought in there on day 1 realized the major issues. Day 2 laid off 85% of the staff (unfortunate), nixed 90% of the products and focused the core business on 1 thing, and turned the company to profitable in 2 years selling it for north of $100M… you see that is a good CEO a good startup CEO. So if that is a good startup ceo and what a good startup ceo can do then what did Mike Volpi do? was he a good startup CEO? my vote is NO he let down his people and the investors and he should know that the guts and risk taking involved in being a good startup CEO is heavy and takes a tad bit more than being a big wig at cisco… but maybe you know that? you took money and are a founder…?

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    2. I agree.. Majority of promising start-ups which I knew failed because of bad hiring strategy for leadership roles. In most cases VCs are pressuring management to hires executives from large companies. They have a perception that the founding team or new hires from other small/mid size companies does not have enough experience to get their company to profitable exit – M&A or IPO. Also I notice that majority of partners at VC firms career tracks have been to work for large companies and most of never worked for successful start-ups. I think real successful enterpreneaurs are extremely helpful for start-ups, but they prefer to become angel investors and don’t prefer to work! as a partner at a VC firm.

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      1. I was curious to check out the management team at Joost and looked them up at http://www.joost.com/about/executives/. My first impressions are

        – Where did founders go (not a good sign for a start-up) ?
        – CEO not suitable for leading a start-up (team of 100) and next generation technology development because ‘For the 13 years he was at Cisco, Mike was instrumental in the creation of the company’s acquisition and investment strategies, as Cisco acquired more than 70 companies during his tenure.’
        – Non of other management have successful start-up experience.
        – Everyones have tittles to include SVP, VP, Chief. Tittles at start-ups should be limited to Senior Manager/ Director, because most of them don’t even have handful of direct reports.

        I feel sorry for investors and employees at Joost.

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  9. I agree with Christian. I was part of the Joost Beta and was very keen on it. Tried it out in the early stages but there was just no content! I am sure you only have a few opportunities to grab new viewers. I did give Joost a couple of goes but saw no improvemtn. Agree with the other comment ‘content is king!’

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  10. I’m not sure the content issue is one of quality. YouTube built a huge audience because it had volume, not quality. The problems I had with Joost were simple usability issues. I never found a compelling reason to open up the client after the 2nd or 3rd disappointment.

    Flash isn’t better because it’s better. Flash is better because it’s in your browser.

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    1. Well put.

      Before Hulu laid the finals nails on the joost coffin. Youtube had killed it. Why? because joost needed a client and it was not intuitive to share stuff and view content from anywhere.

      (pre acquisition) Youtube was google friendly, had search (not that great but atleast functional) and pretty good related content. This along with amazing sharing options (hey you could just email / im / fb / embed ) the link ensured that youtube was everywhere. Hulu added great content to the same basic formula.

      Interestingly when users pressed youtube to improve video quality, the founders always said that the wide availability of content i.e. reach (thanks to flash) was more important than quality.
      Joost had quality not reach. Ultimately that killed it. By the time joost went browser based people had forgotten it because every tv provider had flash video on their site anyway.

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