Upon launch, Netflix members from the UK and Ireland will be able to instantly watch a wide array of TV shows and movies right on their TVs via a range of consumer electronics devices capable of streaming from Netflix, as well as on PCs, Macs and mobile tablets and phones.

Further, crucial, details have yet to be announced — prices, catalog and so forth. But it will be interesting to see where this goes: not least because the road is likely to be a little bumpier than Netflix is used to.

Unlike the U.S, Canada and other American markets, where Netflix was able to move into a leading spot pretty much without impediment, it seems unlikely the company will not be able steamroller its way into a dominant position in the U.K. and Ireland without resistance.

There is one main rival, Lovefilm, which started off as a copycat DVD rental service but has been moving to online distribution as a way to insulate itself from this incursion. The company, which was bought out at the start of this year by Amazon for a rumored $200 million, boasts 1.5 million users and a library of 67,000 titles. While it doesn’t have the same punch as Netflix, it is entrenched to some degree.

YouTube could be considered a competitor, too, especially since it has started offering a film rental service. Most broadband and cable providers offer serious TV and movie-on-demand packages, too, which are easier for existing users to sign up to and operate than a third-party services.

And then there’s Vdio, the secret new video streaming service from the founders of Skype and Rdio, which GigaOM’s Janko Roettgers uncovered last week. That’s due to launch, and you can bet that the founders will have learned plenty from the failure of their previous video business, Joost.

There’s another player that cannot be ignored, too, in the form of the BBC’s iPlayer. That massively popular service is largely used by people to watch TV from publicly-funded channels, so in theory it is much more like Hulu than Netflix. But while it doesn’t focus on showing movies online, it does have a hidden influence on the market because it’s free, funded by Britain’s TV license fee. It’s possible to argue that it has severe downward pressure on the pricing of the market, and perhaps one reason why Lovefilm’s British user base is proportionally smaller than Netflix’s. Certainly it sets a standard that Netflix will need to match.

Still, reactions in my Twitter steam suggested that there is still plenty of space for Netflix to wedge itself into the market. Lovefilm clearly has some weaknesses, including the breadth of its catalog, the availability of its streaming services and its customer service. Here are just some of them:

• “This is great news. LoveFilm simply isn’t pushing aggressively enough here. We need competition in the UK to drive forward.” (@garethspence)
• “Assuming Netflix don’t have same issue, if it’s competitively priced I’d move for access to Universal Pictures films alone” (@andybee)
• “Welcome the competition, really – will hopefully improve things all round. Not loyal, @lovefilm cust service is atrocious.” (@jeremynicolas)
• “Absolutely loyal to Lovefilm, it was a UK venture after all. WIll be interesting to see how Netflix create their position…. Top 3 reasons to love lovefilm: 1) Ease of Use 2) Growing Watch Online portfolio 3) Pester free subscription” (@mattbambow)

Reed Hastings and his team will no doubt be taking note of that reaction and hoping they can provide a broad package that appeals to customers.

And they’ll certainly be looking for some good news to cheer up investors who have watched the last couple of months with confusion: customers confused by a price hike, then angered by it, before the business apologized and announced its plans to separate the DVD and streaming business… which it then backtracked on, unceremoniously killing the scheme before it was even born.

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I believe that the economics of attention is much more ruthless and unforgiving than the real economic underpinning of a product. What I mean is that you can find money for your company from an investor, but it wouldn’t really matter if you don’t have users’ attention.

This is a hard reality that has been obvious in highly competitive and somewhat subjective marketplaces. Hollywood movies, music and even fashion are markets where “attention” determines the outcome. As far as I am concerned, the Internet and mobile applications fall in the same category.

No Second Chances

And just as it is hard for a movie to recover from a bad opening weekend, today’s “apps” are likely to lose their place in the marketplace if they don’t make a good first impression.

For nearly a decade, the start-up mantra has been release early and release often,” a concept that first was applied successfully in the development of Linux. I think it is time to amend that line of thinking a little. That means that developers will have to find a balance between the speed of offering a service and the promise of happiness and utility from the get-go.

If an app makes you happy or if it is useful, then you will more likely focus on the positive and overlook the shortcomings, argues Chaitanya Sareen, co-creator of the foodie app, Chewsy.

MVP + Happiness + Utility = Early Traction

Sareen makes a good point. If you look at some of the more successful products, they found early traction because they combined a concept popularized by Eric Ries as the “minimum viable product” and “happiness/utility.”

I distinctly remember the day I downloaded MoveableType’s blogging software and installed it on my server. It was an arduous process, but in the end it was worth it because it made my blogging experience so much better. Ben and Mena Trott added features as they went along, but it was that first stage of “satisfaction” and “happiness” that made me use the platform for nearly four years.

It is hard for any of us to remember that Google’s Gmail was a pretty bare-bones product when it first launched, but it had search and seemingly unlimited storage, which helped us focus on the upside and less on the downside. Ditto for Apple’s iPhone 1.0, which seems downright dowdy compared to its younger siblings. It was so delightful that we put up with AT&T’s terrible network, the lack of copy-and-paste and long wait lines.

What Doesn’t Work?

Now compare these examples with the likes of search engine Cuil, video platform Joost and more recently Color — they all found themselves in a hole from the minute they launched. All the focus was on their shortcomings.

Before focusing on the latest whipping boy of the web, Color Labs, I wanted to point your attention to Joost, one of the most anticipated startups of its time. As an early enthusiast, I loved the possibilities of the company, which was started by Skype co-founders Niklas Zennstram and Janus Friis.

It had pretty much everything going for it, and yet it flopped. It had gained so many early adopters but it didn’t have content for them and it didn’t know how to solve the technology problems it faced.

Cuil, which was co-founded by an all-star team from Google, had similar issues — it had a ton of money ($33 million and change) and an idea that made perfect sense. Except it wasn’t able to deliver on its original promise — to out-Google Google — and to it all, the site went down when faced with an onslaught of visitors to the website.

Cuil lacked that aha feeling that keeps end-users coming back for more. The service’s initial promise turned into a negative experience, and the company failed to recover. Joost and Cuil are cautionary tales for anyone, and I cannot but notice eerie similarities between the three companies

• Exceptionally well-known and talented founders.
• Big hairy audacious goals
• Tons of initial investment money
• Promoting a new consumer usage behavior
• Lack the happiness/utility balance

I would argue that the Joost and Cuil failures came at a time when social media amplification was not as effective as it is today. Today, the sentiment good or bad news gets amplified very quickly, thanks to the growing number of people using Facebook and Twitter. Furthermore, it takes a lot longer for those waves of negativity to slow down.

Now if there was only a little competition on the market, then Color could find its way back to the forefront, but these days there are just too many options. Tomorrow there will be a new hot app, and another and another. And if you miss your chance once, then as I said earlier, you are toast.

So What Does Work?

In my post mortem of Joost, I wrote:

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.

What that means is that you need to do one thing and do it well. If you are making a mobile app, then you focus on developing for one platform — one that offers the path of least resistance, has the highest market penetration and, more importantly, is the platform of choice for the people who are likely to use and talk about your product. In the U.S. at least, developing for Apple’s iOS platform is a good bet.

And once you have made the platform choice, I think it is important to get the user experience just right, even if it means holding out for a couple of weeks.

With over 650,000 apps across multiple mobile platforms and tens of thousands of web services, it is pretty clear that there are no second chances on today’s Internet.

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As Om wrote this past summer, Joost had everything going for it less than three years ago: tens of millions of dollars in funding, serial entrepreneurs as founders, a hype machine, proven technology and big media partners eager to take equity. But the hype turned into backlash, media partners lost their love, key personnel including the CTO departed and early adopters tuned out as browser-based services rather than Joost’s desktop client prevailed.

Could the same things happen to Spotify? The four major record labels have taken equity in the much-buzzed startup (alongside Joost backer Li Ka-shing and other investors), but are now stalling a planned U.S. launch over royalty rates. Its CTO left last month. And in the meantime, browser-based alternatives in a variety of models are also getting attention. (One of them, Rdio, is the new project of Joost’s co-founders — and tellingly, there’s a browser-based version.) The bloom, it seems, is already falling off the rose, and Spotify hasn’t even reached the U.S. — what should be its most lucrative market — yet.

Although the two have plenty in common, their problems aren’t all the same. Spotify is already far more popular than Joost ever was — in fact, its free service is too popular, giving Spotify an expensive monthly bill that’s not nearly offset by advertising rates or paid user conversion. Joost’s content library wasn’t as deep as rival Hulu’s, while Spotify’s extensive library and slick user interface are among its great selling points. For now, people love it — perhaps too much for it to be sustainable.

That said, Spotify appears vulnerable for other reasons beyond the cost of its popularity — and in other ways that felled Joost, too. We’ve yet to see how its technology will handle more massive scale, and with offices in Stockholm, London and New York, it’s already geographically very spread out for a startup. The perception that it’s overhyped could leave first-time U.S. users underwhelmed, especially if the U.S. version isn’t as good as the European one. What’s more, Spotify’s battle to engage users in the mobile sphere among cheaper or free alternatives could be 2010′s version of Joost’s failure to deliver a browser-based product in time to head off Hulu and YouTube. In the fast-changing landscape for digital music, Spotify would be wise to look for Joost for a precedent — and a reminder that nothing is a sure thing.

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Friis and Zennstrom had earlier sued not only eBay but also the investor consortium (which is led by Silver Lake Partners and includes Index Ventures, Andreessen Horowitz) that was looking to acquire about 65 percent of the Internet communications service for about $2 billion.

Today, the Messrs Friis and Zennstrom sued Michael Volpi, who till recently was the CEO of Joost, an online video startup that was started by Skype founders. They also sued Index Ventures. Volpi recently joined Index Ventures, a London-based venture investor that had cashed out big time when eBay snapped up Skype for billions of dollars. As Liz reported earlier:

The gist of the lawsuit is that Volpi learned how to modify Joltid’s proprietary software to run on the web without the aid of a peer-to-peer software when he was transitioning Joost from a peer-to-peer service to a web-based Hulu clone. And with this knowledge, he was able to pitch a version of Skype that buyers could take over from eBay while side-stepping ongoing litigation.

The lawsuit is pretty harsh on Volpi who was once viewed as a savior for Joost.

“Volpi and Index lacked the credibility and financial heft to lead a private equity investment consortium to acquire Skype unless and until they advertised their knowledge of the Confidential Information.”

“In a very short time, Volpi burned through a substantial amount of the working capital available to Joost at the time he became CEO. Moreover, he had removed from Joost a significant portion of Joost’s innovating and market-driving technology, leaving Joost to rely on third-party technology products. Volpi’s overall business strategy failed. Moreover, it was a failure that was extremely expensive, with Joost expending tens of millions of dollars of investors’ capital.”

As I have pointed out in the past, there is no love lost between Skype founders and Index Ventures, and today’s lawsuit is further proof of that. I am not sure where the disagreements lie, but the fact of the matter is that the two groups are major players in Europe’s startup world. Skype founders run Atomico, an investment fund that is aggressively wooing startups in the old continent. And no one is ever going to mistake the Skype founders and eBay management as BFFs.

Whatever the reasons, this battle is going to get very ugly. The fact of the matter is that if you are a major eBay shareholder, you should be worried. I mean, very worried. People are overlooking the fact that eBay is going to have to pay at least half of the damages, whatever they might be. In other words, that cost is going to be borne by eBay shareholders. As I said…don’t just be worried, also be mad. Funnily enough, eBay’s stock is up for the week.

Secondly, the Skype founders are ruthless businessmen who are going to make eBay pay for their stupidity. They are in the catbird seat to basically define the destiny of their creation. Without JoltID’s peer-to-peer technology, Skype will have to reinvent itself as a SIP-based player — as likely as me playing for a minor league baseball club.

Friis and Zennstrom are not above shutting down Skype. Janko Rottegers, over on our sister site, NewTeeVee, recounts the history of JoltId in succinct detail and writes:

Kazaa’s code was developed under contract by a startup in Estonia, with all of the work being coordinated from the Netherlands. Kazaa became Zennström and Friis’ flagship peer-to-peer product, but the idea was always to license the underlying P2P technology through a separate corporate entity called FastTrack BV. FastTrack’s code became part of a number of file-sharing clients such as Grokster, Morpheus and iMesh.

Morpheus proved to be especially successful and eventually managed to get more users than Kazaa itself. Then, out of the blue, the Morpheus client stopped working in early 2002. It quickly became clear that FastTrack had shut down the client by denying it access to its P2P network. Morpheus alleged at the time that this was a ploy to steal its user base and once again make Kazaa the most popular file-sharing client. Friis and Zennström had a different take and argued that Morpheus had failed to pay its licensing dues.

By the way, Meg Whitman, who signed off the biggest corporate mistake in the history of Silicon Valley, is running for the position of the governor of California.

http://viewer.docstoc.com/
Joost –

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“I have background in networking so I will go back to my old stomping grounds,” he said during a phone conversation. He is also looking at enterprise infrastructure and related software opportunities. “Index has given me a fair range of flexibility.” Volpi has known Danny Rimer, the driving force behind Index Ventures for a long time and said that it was that relationship which helped him make the decision to join the venture fund.

He will also stay on as chairman at Joost, as the company transitions from it’s much-hyped video-streaming platform, to become a (yet another) white-label video provider. Volpi told AllThingsD’s Kara Swisher in an interview today that it’s a great time to be a VC: “In a market downturn, it is a good time to invest. There are a lot of great opportunities out there now.” I wonder if Joost’s backers said the same thing when they were pouring their money into the startup’s black hole?

Updated with comments from Volpi who talked with Om Malik.

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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.

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Joost had launched its desktop client with much fanfare but for a panoply of reasons, such as bandwidth limitations, software issues and lack of content, the company lost traction and usage of its client dropped. Joost isn’t the only startup to give up backing solely the client. Veoh and Jaman adopted a browser-and-client strategy, which has helped boost their audience.

Joost was started by Skype co-founders Janus Friis and Niklas Zennström and raised over $45 million in venture capital. The company hired former Cisco executive Mike Volpi as its CEO, and in the summer of 2007, it seemed Joost was heading to the moon. Over past the 12 months, the company has had to tweak its game plan, trim its work force and refocus to a world that is less accepting of clients. The company wanted to be a key distributor of Hollywood content, but that opportunity has faded with the rise of Hulu.

Liz wondered about the possibilities of turning Joost into a web app, and well, it looks like that is finally happening. NewTeeVee writer Janko Roettgers had come up with five ways to save Joost when trouble hit last year — developing a web version was one of them. Killing the desktop client points to that.

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“We are focusing on US, Western Europe, China and a few other Asian markets,” he told me. “Taking a more measured approach to our expansion, and keeping it in sync with markets where online advertising is mature enough.” Volpi pointed out that Joost launched in China two weeks ago, and has recently signed content partnerships in Scandinavia. When you add to the mix UK, France and a couple of other Western European countries, Volpi said it is pretty obvious that the company is not scaling back from its global ambitions.

“What we are not doing is chasing every market, because as a start-up we need to be focused,” Volpi added. Due to its heritage – it was started by Skype co-founders Niklas Zennstrom and Janus Friis – Joost had received a lot of press coverage. God knows, I wrote about them a few times. The fact that it is run by Volpi, a highly regarded former Cisco executive and funded by the likes of uber VC funds Sequoia Capital and Index Ventures, it is hardly a surprise that Joost is being closely scrutinized. The company raised about $45 million in May 2007.

Joost was supposed to be the delivery vehicle for Hollywood content in the US. Instead, Hulu, a web-based video company backed by major networks chose its thunder and market, leaving Joost scrambling to play catch up. It has Viacom and CBS as its primary US partners, and it clearly needs to sign-up more A-list type content providers. Furthermore, the BBC’s iPlayer (where the former Joost CTO currently works), Kangaroo and other players are beginning to challenge Joost on its turf in Europe as well.

That said, the company doesn’t have much room for error. It needs to quickly improve its client and platform. Joost client has been subject of much criticism. Volpi knows that. He said that Joost is going to announce a new web-based platform in a few months. (We offered them 5 ways they can get out of trouble. Anil Gupte had listed 7 reasons they could be in trouble.)

When I asked Volpi about layoffs, he said that company realigned its work force. A few people were let go recently, as I first reported for NewTeeVee. Many contractors were cut as well.

As a result Joost of today is a trimmer version of its former self, thanks to pruning by Volpi, who became Joost CEO in May 2007. Some of these details were outlined in a Portfolio article. I tried to pin down Volpi on the total number of employees the company currently has, but he would not comment.

Rafat in his report says that Joost has about 100 employees. By that yardstick and my own not-quite-confirmed-data, that’s a head count reduction of around 35 to 40. Volpi said that the company is adding more “engineering” folks in their New York office and contrary to published reports has no plans to shut down the Netherlands operation.

Photo by Joey Wan.

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