I predicted that while online video would remain a hot space in 2008, this year would start to see the beginning of the end for many online video startups.
In a recent interview with CenterNetworks, I stated:
“I do anticipate that we’ll start seeing a lot more little flops as an increasing number of VC-backed startups that have failed to develop into viable businesses start to run out of cash.”
“The truth is that far too much money was invested in startups chasing the same dream.Take online video: dozens of startups, many of which have no differentiation whatsoever, received funding, some of it sizeable.
“VCs looked at YouTube and threw far too much money at online video plays because their funds had to have some presence in the market. The outcome of this is inevitable. Personally, I think it will be entertaining to watch.”
So it was with interest I read that online video startup Revver is shopping itself to potential buyers. Rumoured asking price - $300,000 to $500,000, plus the assumption of the company’s debt, which is apparently in the $1m range.
This attempted fire sale is particularly painful - the company raised $12.7m over two rounds from top-tier investors including Draper Fisher Jurvetson, Bessemer Venture Partners and William Randolph Hearst III. Needless to say, given the amount of capital raised and debt incurred, a six-figure asking price indicates that the company is in real trouble.
Revver’s failure is just one of many I expect to see this year but it should be especially worrying to second and third-tier online video startups because Revver has accomplished more than many others.
The company was the first startup in the space to share ad revenue with content creators - it made the news when the creators of the Diet Coke/Mentos Experiment made $28,000 distributing their video through Revver and lured popular video creators such as LonelyGirl15 and Ask a Ninja moved to use its service.
On September 13, 2007, the company announced that it had reached the $1m payout mark. Clearly, however, the company was not able to generate enough revenue to make the business viable.
This doesn’t bode well for the legions of online video startups trying to dethrone YouTube or to simply establish a niche in the online video space since the vast majority are even less popular than Revver.
Of course, this isn’t stopping others from continuing to enter the market. Ex-Googlers, for instance, just raised an $8m Series A round for instructional video service Howcast. Quite a chunk of change for an already-crowded space.
But I’m not complaining - watching investors lose money when their ill-advised investments in an overcrowded market fail just might be more entertaining than watching videos themselves.