5min & The $30,000,000 Question

The below article has been contributed by Roi Carthy who is an Israeli-based startup consultant.

What do you do when your next biggest competitor has $30,000,000 (and you don't)? That's exactly what I asked the folks at 5min.

5min pegs itself as a destination site for tutorial videos. The idea is that any questions can be answered in a 5 minute video. This can range from how to kite surf, to how to pour a head of beer. So instead of searching for an exercise program and locating a written one, you would instead locate a video of a workout tutorial in which you can actually see the drills. Right now 5min has over 2000 user generated videos in its catalog. Check out the official 5min introduction video:

The company was founded in late 2006 by Ran Harnevo (CEO), Tal Simantov (CMO) (pictured right) and Hanan Lashover (CTO). The three secured a $350K seed investment from Grey Interactive (Israel) and a few local angels. This allowed them to go live in February and scale-up their operation to 8 full-time employees. They are currently in discussions for Round A financing (although I've understood suitors are welcome…).

5min believe the how-to video niche to be a viable one. First, from the user-experience angle the assertion is that even though such videos can be found on YouTube, they get swallowed-up by the beast and are difficult to locate. As such, both producers of such content and users seeking it would prefer to have a destination site.

Second, from the business-model perspective, 5min believes this niche offers interesting opportunities for advertisers. Think of Gibson advertising alongside/in a guitar tutorial vid.

Side Note on "Traffic = $$$": It's all too easy to say "advertising revenue". Delivering the phenomenal number of views necessary to support such a model is completely different.

I honestly feel too few entrepreneurs truly comprehend the economics and its implications. Jeremy Liew of Lightspeed Venture Partners wrote a great post about this.

The 5min team spent the first months developing their platform. This includes the backend magic, which they architected to be laden with metadata potential. They also developed their "SmartPlayer" (embedded above), a very good looking embeddable Flash Player specifically designed for how-to videos. It includes features the 5min team dubs "must-haves", including: Zoom control, speed (frames, slow-motion), etc. The feature that caught my eye is the Storyboard which allows video producers to add text in relation to the video. Users can then print-off the storyboard for a complete step-by-step tutorial. This will be especially useful when dealing with musical notes and recipe ingredients.

Leading the competition pack is VideoJug which announced a $30M funding round in May. Unlike 5min, VideoJug produces their videos in-house. I don't see this as a disadvantage. UGC is great, but it's far from perfect. Take for example issues such as tempo, timing and cadence. Rarely would you find a UGC producer that takes these into consideration before shooting the video. With VideoJug these come first and foremost.

On an excitement meter of 1 to 10, I would rate VideoJug as a 4, but I would also rate About.com as a 4. Thing is, About.com is a big money maker. "Boring" is a solid business principle and VideoJug clearly knows this. In fact, what I imagine is driving them is knowing that Big advertisers (Procter & Gamble, General Motor, etc.) feel more comfortable with such in-house/professional content, as opposed to UGC.

Now, does knowing their main competitor has $30,000,000 keep the 5min team up at night? Seems not. They give VideoJug the appropriate respect, but feel that UGC how-to's is where they should focus their efforts on. In fact, they're gaining traction… There a few promising business development deals in the works with well established companies (sorry, can't comment on these).

As I see it, the problem is that VideoJug can't be completely incompetent if it raised $30M. Meaning, UGC vids can't possibly have escaped their mind. They can all too easily take $10K, produce a UGC platform in a month and just see what happens. I don't see what they have to loose.

Is this space big enough for more than one large player? My gut says no. Smaller players can certainly make some nice money but I doubt we'll see $xxM acquisitions.