The Online Video Market Marketing Essay

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Executive Summary

Globally, 3 trillion minutes (6 million years) of video content will cross the Internet each month in 2016. That's 1.2 million minutes of video streamed or downloaded every second, a recent Visual Networking Index report by Cisco forecasted.

All of us together will watch 833 days of video every single second by 2016, and most of that video consumption won't happen on the PC, mentioned Janko Roettgers of gigaom.com in a recent article.

The online video market is rapidly growing and becoming the preferred mode of content online. From YouTube to BBC iPlayer, from Hulu, NetFlix to national newspaper websites, video content is the new driving force on the web. This has prompted the marketers to find ways to leverage the large user base.

But there is an inherent problem with the videos in their current form. The video interaction has not evolved much with time, it is still not interactive. And this is where we, nuVideo come in. Our innovative technology coming from the stable of Microsoft Research, allows viewers to interact with the video. We transform a regular video into an interactive/clickable video wherein the user gets the ability to click on any object in the video and get more information about it. Better still user can also buy products from the video itself among other things.

Say, a user is watching a music video shot in Alps, clicking on the mountains in the video, the user can get information about where the video was shot, and going another step the user gets the opportunity to book tours or airline tickets to Alps. All of it right from within the video being viewed. Sounds cool!! It certainly is.

That's not it; our technology opens new avenues for the online advertising industry to reach a fast growing online video audience. nuVideo will allow advertisers to increase their brand and sales opportunities by direct and indirect marketing. The publishers will be able to better monetize their videos using our innovative technology that allows them to not just showing a video like current times but also provide solutions to the users from within the video.

As with any new company, nuVideo recognizes its share of challenges in this data driven online video ecosystem. We are focusing on the online Celeb News market to begin with, which provides a rich blend of quality content, highly engaged viewership, and a fast growing market that tops close to $3billion/year in revenues. We will need to compete with some well known companies and to quickly gain customer acceptance. We are constantly evaluating the market trends & customer pains and working on best possible ways to address them. Also, having the backing of Microsoft brand, gives us more credibility.

We, at nuVideo, truly believe this will mark a turning point in the way people consume videos online.

Note: I worked as an external consultant for the company to research and create this business plan. In presenting this plan, I am taking the standpoint of the company nuVideo to avoid any confusion. Much like the company itself is pitching the plan.

Acknowledgements

I take this opportunity to express my gratitude to everyone for their encouragement which helped me in completion of this project. I would like to start by saying that I began working on this project for 2 reasons, one reaches its conclusion with this report and hopefully the other will have its course soon.

I would like to show my greatest appreciation to my supervisor, Dr. Andreas Eisingerich, without his support and guidance I would never have been able to contain and complete this ambitious project. He was abundantly helpful and offered invaluable assistance, support and guidance.

I would also like to thank my colleagues at Microsoft for providing me this fantastic opportunity and helping me take one more step on the leadership ladder. They shared their knowledge, ideas, and countless tips all of which have culminated in this project. Thanks to my project, I got the opportunity to visit Cambridge multiple times and had a wonderful experience.

The entire journey of the project has proven to be of tremendous value to me and I'm taking home a lot of key learning from this. I completely agree with the saying, there is a lot more to master than just learning from book and this project has given me opportunity to do just that. I would always look back at this project with a feeling of pride and accomplishment.

Most importantly, I would like to thank my family and friends, for their continuous support and for the fact that they never stopped believing in me. They gave me great confidence in carrying out this project very seriously.

This project would not have been possible without the support of all these wonderful people. Thank you all.

Table of Contents

Executive Summary II

Acknowledgements III

Table of Contents IV

1.Introduction 1

2.Mission 3

3.The Market 3

3.1Market Overview 3

3.2Market Size 4

3.3Market Analysis 5

3.3.1SWOT Analysis 5

3.3.2PESTEL Analysis 7

3.4Risks and Handles 8

3.4.1Professionally Made Content 8

3.4.2User Generated Content 8

3.5Competitive Analysis 9

3.5.1Key Competitors by Technology 9

3.5.2Key Competitors by Target Market 12

3.5.3Porter's 5 Force Industry Analysis 13

4.The Technology 14

5.Key Differentiators 14

5.1Free Access 15

5.2Truly Interactive 15

5.3Non Intrusive User Experience 15

5.4Innovative Business Model 15

6.Business Model 16

6.1Search Advertising 16

6.2Product Videos 17

6.3Video Commerce 18

6.4Leasing the Technology 20

7.Marketing Strategy 21

7.1La Launch 21

7.2La Long Haul 21

7.2.1Social Media 21

7.2.2Blogs 22

7.2.3Internet Advertising 22

7.2.4Viral Marketing 22

7.2.5Champion Users 22

8.Management Structure 23

8.1Long Term Organization Structure 23

8.2Key Responsibilities 24

9.Financial Forecasts 25

9.1Costs 25

9.2Revenues 25

9.3Financing 26

9.4Profit and Loss Estimates 26

9.5Sensitivity Analysis 27

9.5.1Realistic Scenario 27

9.5.2Optimistic Scenario 28

9.5.3Pessimistic Scenario 28

10.Expansion Strategy 28

10.1Phase I - Education and Training 29

10.2Phase II - Product Placement 29

10.3Phase III - Online Movies 30

11.Exit Strategy 31

11.1Selling the Company 31

11.2Selling the technology 32

12.Appendix i

12.1Appendix A - Realistic Case Revenue details i

12.2Appendix B - Optimistic Case Revenue details ii

12.3Appendix C - Pessimistic Case Revenue details iii

12.4Appendix C - Cost Structure details iv

13.References iv

Introduction

We interact with each other much more naturally than we do with machines. Current man-machine interfaces are considered to be the bottleneck in the efficient and effective utilization of the available information flow as observed by a broad user audience. This was pointed out by B. Schneiderman in his research 'Universal Usability' in the year 2000 and it still holds true after more than a decade. We have seen huge advancements in technology but none has been able to make the interaction more, interactive.

We have seen a surge in online videos as an interactive mode in the past few years, with companies like YouTube and Hulu becoming the preferred mode of video consumption. A research by comScore, an internet Analytics and Research Company shows that online videos reach about 51.4% of the total US population. More than 43 billion videos were viewed during the month of December 2011(comScore data Metrix, table below), with Google and its affiliates Sites getting the highest at 21.9 billion. It also suggests that an average viewer watched about 23 hrs of online video. The video advertising market has grown into becoming a huge space.

But the question remains, is this video consumption truly interactive? No is the answer.

S. No

Site

Videos Viewed (in '000)

1

Total Internet

43,472,412

2

Google Sites

21,897,734

3

Vevo

810,334

4

Hulu

776,999

5

Yahoo Sites

630,605

6

Microsoft Sites

587,842

7

Viacom Digital

506,140

8

AOL, inc.

451,496

9

Facebook.com

238,671

10

Turner Digital

211,662

Videos Viewed in Dec 2011, Source: comScore, Dec 2011

More recently, the internet has become a playground for Videos with the launch of plethora of companies providing platforms for users to share their creations with the world. The figure below from Cisco's research shows the distribution of internet traffic and as we can see Video has become the dominant consumer of internet traffic.

Proportion of Total US Internet traffic, src: Cisco

But the question still remains, is the video interaction interactive? The answer is still, No.

This is where we, nuVideo, come in with a different answer to this question and that answer is 'Yes'. Yes the interaction is interactive with nuVideo. Yes we can make videos truly interactive. Yes we can make your experience with a video more than just watching it.

nuVideo is a company taking the video user experience to the next level. The nuVideo value proposition is videos that you can click and interact with in a non-intrusive manner. For example, in a video you wonder what make of handbag a celebrity is holding or which exotic location was a movie shot in, you jump onto Google to find out. You no longer have to do all that. Need to know about anything in the video, just click on that object (handbag or tourist point) and bingo, you have all the information. OK and what about buying a particular item, you can do that as well from within the same video.

nuVideo system will identify the objects from inside the video and will make them into clickable information catalogs using our innovative system. You can click on these elements to know more about them. How this works is, when a user uploads a video at nuVideo, our system identifies all the objects in the video and associates them with the relevant details and also sellers if the item can be bought. This system is largely automated, with most of the objects identified and marked requiring minimal human involvement. However, there is a certain level of customization needed for an advanced level of marking the objects. At the end of this fairly simple and quick process, your interactive video is ready to share.

nuVideo will allow you to get much more from the very same video, enjoying and engaging in a whole new way.

There is another side to the nuVideo story, from the advertiser's perspective. Advertisers are always looking for ways to reach out to users with the final aim of converting them into customers. Video advertising has become very popular among these advertisers who want to engage with their customers but there has always been some criticism about the impressions to sale conversion rates. nuVideo proposition allows advertisers not just to track user clicks on products but also providing real time purchase capability. nuVideo is the perfect answer to that problem.

The online video and advertising landscape remains a land of opportunity. It will continue to be an exciting industry with even more excitement as the technology advances.

Mission

Our mission is to 'Take the User's Video Experience to the next level'. By User video experience we mean the engagement of the user with a video, the current watching experience. And taking to the next level refers to providing the user with the ability to interact with the video in a natural, effective and non-intrusive way.

The Market

nuVideo has a wide range of applications and opportunities to tap into. To begin with, we are focusing our effort on the online Entertainment or Celebrity News industry which provides a rich blend of entertaining and sought after content, highly engaged viewership and a fast growing market. It is a very vibrant and naturally attractive industry because of the involvement of high profile people and their dedicated fan following.

Market Overview

The Entertainment News Industry aka Infotainment Industry refers to type of media which provides a combination of information and entertainment. They are generally presented in a light and informal style about the personalities of different celebrities, politicians, sports stars or people of high public stature. There is a hint of speculation combined with factual information about personal and public life of high profile people, to make the news content exciting.

There are quite a few websites and online magazines in the market that release a host of celeb news and follow-ups on a daily basis, but the content in mostly in the form of static non interactive videos. When we talk about the celebrities there is a huge element of fashion and style involved. And it is this fashion and style that most excites the consumers/viewers of these videos. The urge to know more about even the minutest details of their favorite celebrities such as what jacket is a star wearing or what purse is a diva carrying, makes people wonder all over the internet. Mike Shields of MediaWeek.com mentions, sites like TMZ boasts of a fairly large and expansive collection of archived star and celeb photos and videos, allowing their fans to follow changing hairlines and waistlines of their favorites performers over time.

Users spend a lot of time and effort to find the brand of an accessory a celeb is wearing, they then search for a store selling that branded product and some eventually buy it. Using nuVideo, with our interactive video technology, all this can be integrated within the video itself thus relieving the user of all the hassle. The user can click on the item and get all the details instantly and at the same time there is a potential for a sale of that product.

Smart phone and tablet computers are another interesting and exploding market. They make for a special market for nuVideo. Touch screen being an intrinsic trait of these devices, it makes them a perfect mode on consuming interactive videos. nuVideo will also be made available for smart devices such as iPhone, iPad, Android devices and other smart devices. Though there is a lot of correlation between the desktop PC/Laptop and Smart devices market but at the same time they demand for very specialized solutions which are at times widely different. With the growing trend of all major companies coming out with smarter and interactive devices, the need for all forms of data to be more interactive is more today than ever before. We will be taking advantage of these changing trends in the user behaviour and offering services that provide them with the maximum value.

Market Size

Revenue/year - $3billion

The overall revenue for the celebrity news industry - anchored by sites such as the Yahoo OMG, TMZ and Radar Online - is more than $3 billion per year, according to The New York Times. (theweek.com, 2011)

Advertising is the biggest source of revenue for the industry. Many of the top celeb news websites rely on advertising as the primary source of income suggesting the circulation of large advertising dollars in the industry. Audience measurement firm Quantcast has reported that TMZ.com gets more than 20 million visitors in a month, but it almost certainly has close to 100 million page impressions. TMZ site show roughly four to five ads on most of its web pages, so it has approximately 500 million advertising impressions in a month. 247wallst provides some more details like TMZ is most likely to earn a CPM between $25 and $30 per ad depending on the quality of the ads that are shown. That would drive total revenue for their website this year to the tune of $17 million. (McIntyre, Douglas A. 2010)

Let us try and calculate the size of the market and define how much of it we are targeting. The Data from various websites such as popsugar and Radaronline says that on average 20 celeb news stories are published every day by each of these websites. Many of these stories are accompanied by images and videos. Let us assume that half of these stories are accompanied with a video. We are looking at roughly 10 videos released every day and close to 3650 videos in a year by each website.

From the viewership data below, provided by the comScore Media Metrix of April 2011, we understand that the average viewership of top 10 celeb news websites is about 120 million per month.

We are looking at tapping into 5% market share in the existing celeb news industry and target a viewership of close to 5 million users a month in 1 year. Being an innovative and highly interactive service the uptake should be fast helping us achieve the target. Also, user who wanted more dynamic video viewing experience will also become the target market effectively increasing the market size further.

comScore US Rank

Entertainment News Web Properties

March 2011 Readers

1

OMG! by Yahoo

23.7 million

2

TMZ

18.5 million

3

People Magazine

13.5 million

4

BuzzMedia Entertainment

12.8 million

5

CNN Entertainment

10.1 million

6

Zimbio

8.9 million

7

Entertainment Weekly

8.2 million

8

E! Online

7.5 million

9

GossipCenter Network

7.1 million

10

Mail Online

6.5 million

Table 2.1: Top Entertainment websites, Src: comScore Media Metrix, April 2011

Market Analysis

Let us analyze the market landscape for celeb news industry using industry standard frameworks like SWOT and PESTEL to get more details about the market.

SWOT Analysis

SWOT helps in identifying internal and external elements that are favorable and unfavorable to achieve a particular market objective. In our case we are looking at achieving a market share of 5% in celeb news industry.

Strengths

Huge untapped market in interactive video industry

Pre existing advertisers network of Bing/Microsoft

The video experience does not get interrupted. All clicked items are queued in a frame and can be accessed later with ease.

Microsoft's Brand Name is a big asset

Automated process, user does not have to tag the objects which are tagged automatically by the system

Search capability with clickable objects, instead of just eCommerce

Platform Independent technology, not based on flash, can be ported easily on smart phones and tablets.

Weaknesses

Collaboration with content owners

Willingness to pay for online content that might be cheaply available

Quality concern for user Generated Content

Making the user cognizant that the video is clickable.

Difficult to repackage existing videos, as the user viewing again knows the video is not clickable and might not click

Creating the content knowing it has to be clickable and interactive

Fast pace of the market, Videos need to be tagged quickly.

Lack of standard video streaming format and corresponding systems to track a videos advertising success via total viewership, average played duration could make it difficult to ascertain which modes are better value for money. In Short, lack of comparison with other video advertising platforms/systems.

Opportunities

Reducing cost of infra like SaaS, pay per use pricing

Evolving video viewing behavior from fixed time TV program to On-Demand

Can be integrated with Gaming Consoles like Xbox and Connected TVs

Extending to Mobile devices as Mobile Ads which is a huge and growing market

Video consumption increasing exponentially and so is video ad spending by advertisers

Very little or no competition in using Video objects as search items/terms

Threats

Dominance of User Generated content can jeopardize professional content monetization

The original idea has been around for a while now and many companies may claim IP rights.

There are some weaknesses and threats that need to be mitigated for our successful existence in the future. But the strengths and opportunities point in the direction of a successful business opportunity capable of achieving our set objectives.

PESTEL Analysis

PESTEL is a external analysis frameworks that will help us evaluates and get more details about the macroeconomic factors that we as a company should take into consideration.

Political Factors (P)

Privacy Laws of the government can restrict the targeted advertisements affecting the advertising revenues.

The growing inclination of governments to curb social media can pose a potential risk to free access to user content sharing. These can hugely impact the system. Ex - The US House of Representatives' Stop Online Piracy Act (Sopa) and the Senate's Protect Intellectual Property Act (Pipa) are designed to block access to sites containing unauthorized copyright material. (bbc.co.uk, Jan 2012)

A push to Entrepreneurship from the UK government in terms of various tax and investment incentives makes the political environment conducive for innovation

Economic Factors (E)

The current economic recession can affect the advertising revenues

Slower economic growth in the short term can lead to tightened cash inflows putting pressure on operations

Social Factors (S)

The growing acceptance of social media will help increase the viewership of Online videos further

The increased use of smart phones and tablets opens more avenues for video thus providing opportunities in other industries such as online education, music and movies

Technical Factors (T)

The fast evolving technology makes it difficult for the user to get comfortable with a technology

Adapting to the user needs in the fast evolving tech scenario can be very time consuming and expensive

Lack of existing standards in the online video makes data comparison and analysis difficult.

On the other hand, standardization of the industry with technology different from ours can severely affect the user uptake and growth.

Environmental Factors (F)

None

Legal Factors (L)

Data piracy rules are very strong. Additional effort in making sure adherence to these rules can be very tricky and risky.

IP and Copyright rules are different in different countries which can makes protecting the technology/idea very difficult.

Risks and Handles

The biggest challenge for us is to get the content or the celeb videos, as most of the videos by the celeb news websites are proprietary. In order to manage this concern, we will be looking at both the Professional and User Generated content. The professional content through collaboration/leasing from the owners will help maintain a good quality of the videos which would enhance the interaction with the end user. At the same time, User Generated content, uploaded by users, will increase user involvement and give control to the users and can be a big monetization opportunity.

Professionally Made Content

Initially we will look to get into the content sharing agreements with existing websites such as RadarOnline, TMZ and Yahoo OMG. The revenue from interactive video-click advertising and possible eCommerce transactions will be shared with the content owners as an incentive.

Another way of securing professional content is the way YouTube partly does it. Users are allowed to upload any video. The actual owner of the video has the ability to block the video completely or keep it accessible but charge for the use. The usage charge can be a one time or recurring fee or an advertising revenue share model.

Both the models are tried and tested in many industries and having them work for nuVideo should not be a huge concern.

User Generated Content

Many a time it is the public who spot celebrities and get their video shots in hotels, restaurants and in their neighborhood. Users will be encouraged to share videos of celebrities, which would be made interactive/clickable by the system and possibly a part of the revenue from that video can be shared with the user.

This would help us sail through the content driven internet world and allow us to get the required video content.

Competitive Analysis

We looked at the competition from the twin glasses of the technology and the industry, to better understand the competitive landscape. We have also evaluated the industry competitiveness/attractiveness with the help of the Porter's Five Force industry analysis framework.

Key Competitors by Technology

There are a few companies that are using similar technology of making videos clickable but are catering to a completely different market with a different business model from ours. These are mostly in the B2B business, providing advertising opportunities to businesses. Some of these that do cater to general public are not free for one and two need the user to add information/details for the identified objects.

Let's have a detailed look at some of the closest competitors with similar technology offerings.

WireWAX

WireWAX is a Web-based, motion-tracking taggable video tool which allows users to add clickable hotspots. Users can tag objects, much in the same way as they would add tags to their photos on Facebook, and once these tagged hotspots are added, user can include buttons with images, links and other tools. The latter of the above objects, apps, is where things start to get really exciting…users can add a video-in-video, SMS/Message sender applications, competitions, interactive online games, animations…and much more (Paul Sawers, 2011 at thenextweb.com).

Key Features

Fast and lightweight extendable plug-in

Fast and lightweight iPad version, offering touchable video to the masses

Embed across blogs, other websites including Facebook

Their main target audience is creative designers and online video developers, though the system is not restricted for amateurs and others to get involved

SaaS business model - pay for what you use

Business Model

Paul Sawers, Apps & Media Editor at The Next Web describes well the Business Model of Wirewax. He mentions that wirewax operates a freemium business model, offering a basic level of service with restricted videos and their views in a month; it goes all the way up to a Premium level which is comparatively comprehensive and costs in the range of £1,000 per month.

Click Through/Engagement Level

Fashion retailer Oki-ni used wirewax to create 'shoppable- videos' where click-through rates have reached about 58% with a 1% conversion on an average product value of close to $254 (Mike Butcher -techcrunch.com, 2011)

For Nike, a 4:35min is the average engagement of a viewer of the 2:31min video (wirewax.com/)

Key Client

Nike,

FremantleMedia FMX,

Fashion retailer Oki-ni,

Tommy-Hilfiger,

EMI,

PIAS Recordings

Technology

The technology originated in TV production and boasts itself as putting some cutting edge vision research into practice in the most real-world of scenarios. The digital tagging points are created during the run time, in a cloud based WYSWIG editor which can be further used to bring in relevant information/media/commercial opportunities on a viewer clicking/touching. As described in a job posting for a mobile developer at career.stackoverflow.com.

How It Works

User can drop in your video file - or even enter any YouTube URL - into the wireWAX input box. The video will be examined; faces would be identified and automatically tracked/tagged. Then the user will have the ability to tag the faces or remove the irrelevant ones depending on the use. User also has the ability to quickly add large number of tags to other people and targets in an instant.

User can also instantly link products to Amazon, people to Facebook, show off your flickr or Instagram photos or play YouTube or Vimeo videos right there in the video. User can also create own pop-ups. If user wants to know where all the tags are, they can simply roll-over the video seek control at the bottom of the video. Any tag throughout the video is just one click away (src: http://www.wirewax.com/interactive-video-blog/).

ConciseClick

ConciseClick® website mentions that it enables clickable videos of the content to enable faster purchasing decisions. The ConciseClick Player allows viewers to rollover the cursor on the items seen in the video and be directed towards the specific products being sold. They recently announced that now they have introduced Email Marketing capability, which can embed a ConciseClick clickable video straight into an email marketing campaign.

Key Features

ConciseClick says their Video Player is designed to be neat and user friendly

The ConciseClick Player also works in both an independent format and also in conjunction with advertising agencies such as Brightcove and other agencies

Recently launched Email marketing capability with clickable video

Click through/Engagement Levels:

Concise claims the Customer engagement levels have increased more than 60% on Shop.Mattel.com after including conciseclick interactive videos were added

On an average close to 32% of Mattel website's visitors watch at least one ConciseClick video. For a particular Barbie video, 57% of visitors clicked on at least one object in the video. Other videos, as claimed by ConciseClick, have recorded even higher click through rates.

Another example provided by conciseclick is the Clickable video for Nine West that enabled them to engage consumers for their fall fashion trends at the point of sale, without inundating them with pop-ups, flashy banner ads or the standard pre-roll advertisements. The approach seems to be working: The retailer's video received over 54,000 clicks in its first two days, as well as posting an engagement rate of 6.1 (the average viewer clicked six times during one viewing of the video) (Joe Keenan, Nov 2010).

On another Mattel's video of Hot Wheels Battle Force 5, close to 89% of viewers clicked on at least one product. And these new interactive videos are helping improve sales. As reported y Mattel's website, of their top selling products on website, on average 30-42% came from ConciseClick videos (Meghan Keane from reelseo.com, 2012).

Key Clients:

Mattel,

Macy's,

Nine West,

Martha Stewart,

Estee Lauder,

Hampton,

Mitsubishi Motors,

WestField

How it Works:

As explained on conciseclick website, Viewers move their cursor over the products they see within their videos, are shown the description or photo and the price of that item, and click on the "Buy Now" button takes them to the specific item being sold on the e-commerce website.

VideoClix

VideoClix introduced the concept of the clickable video in 1998 and spearheaded hyper-video with its cutting edge end-to-end distribution and monetization platform, catering to video producers and advertisers. VideoClix's easily expandable clickable video solution enables Brightcove publishers the ability to excite and engage their viewers across a wide variety of online video content. The VideoClix patent pending Smartrack technology creatively identifies recognizes and then adds tags to different objects (e.g. People, Places and Products) in the video. When a viewer clicks on any of these clickable items an interactive pop-up is triggered showing highly contextual content that can be accompanied by marketing and promotional content targeting the user.

Conclusion

As explained above, most of these companies do have a similar technology but are way short of utilizing the full potential. Also they are operating in a different industry than us targeting different markets. Most of these are offering Business to Business services for creating clickable product videos which for us is one of the many avenues. More than anything, the interactive video market has enough room for two to three competitive companies to compete and still generate exponential growth which will be healthy for the industry and users.

Key Competitors by Target Market

The target market of celeb news in which we would be starting off is also a highly competitive industry with large players dominating the market. We will be competing with them but only to a small extent since we are utilizing a completely different way of providing the information. In fact, there are more opportunities to collaborate and complement each other and this is how we would be looking at this.

OMG!

OMG is a celebrity gossip website which is owned and operated by internet giant Yahoo. The site is the most popular site for the celeb news and gossip garnering close to 24 million readers in March 2011 as per the comScore Media Metric reported presented above. The site benefits from being a part of the Yahoo network, which has a huge internet presence, and drives a large amount of traffic from other Yahoo sites also. It is also dependent on the advertising for its revenue but is skewed like other companies because of limited opportunities of monetization from current systems.

TMZ

TMZ is amongst the most popular and closely followed celebrity and gossip news sites which has presence in both online and television industry. TMZ as a company is reportedly having revenue to the tune of $58 million, but operating profits are only about $5 million. Evaluating the company at 10 times the operating income, TMZ would be valued at about $50 million.  However, the potential for success of its sports site and the overall growth of TMZ over the last three years would put the total value of TMZ at nearly double that-more than $100 million. (McIntyre, Douglas A. 2012)

Popsugar

Companies like popsugar get their revenue mostly from online advertising. Being privately owned companies, the revenue figures are not disclosed in public but the primary source of revenue for the company is advertising and then eCommerce from sister women fashion brands. Popsugar claims on their site that it delivers its content such as interviews, videos and news to over 28mn monthly unique visitors worldwide. Popsugar group post tens of videos and pictures of celebs every single day while others like Eonline.com and ovguide.com have a section dedicated to latest celeb gossip videos and entertainment videos.

Radar Online

Radar Online, one of the leading American entertainment and gossip websites, publishes an average of 30 gossip pieces per day. The most popular gossip websites, including Yahoo! omg, People, and TMZ, are estimated to have more than 20 million unique visitors each month. The website TMZ.com was valued at over $100 million in early 2010 (The Stream, stream.aljazeera.com 2011)

Conclusion

These companies have a huge presence in the celeb news industry but what we have more than them is the interactive video technology and our innovative business model. Our business model, along with the technology provides for a rich source of generating revenue in a market that predominantly relies on advertising revenue. With better monetization channels there is a higher possibility of growth and investment for us compared to any of the existing players.

Porter's 5 Force Industry Analysis

Porter's 5 Force Analysis is a strategy and industry analysis framework that evaluates the industry's competitiveness and attractiveness for a given business. It looks at those aspects that can affect the company's ability to serve its customers and make profits such as complimentary services, threat from new entrants' et al.

Bargaining power of Customers - Medium to High

Not many alternative websites

Switching Cost is low

Bargaining power of suppliers - High

Most videos are made by Professional Companies and only few by common users

Not many companies that provide professional made content

Threat of New Entrants - High

Limited Capital Needed

Services can be quickly copied

Scope for innovation/value adds like allowing downloads, business model innovation-Freemium model

Threat of Substitutes - Medium

Social media websites providing comprehensive services

Very dynamic and continuously evolving industry

Competitive Rivalry - Medium

Many big firms trying to capture the lucrative Online Video market

New and innovative products on offer

Conclusion

The Porter's Five Force analysis tells us that the industry is very competitive with bulk of the power lying with the suppliers and customers. There is a very high chance of new competitors entering market quickly and affecting the industry dynamics completely. The key to success is to get hold of the content which is the key. There is also an increasing risk of similar service launches so penetrating the customer market quickly has to be top priority.

The Technology

Our team at Microsoft Research has developed an exciting solution to take the video user experience to the next level. This would create opportunities for users to interact with videos more naturally on their PCs, laptops, tablets, phones and other smart devices.  It would also create an opportunity for advertisers to target viewers more effectively and non-intrusively. The most common concerns of the users about obstruction of the real content will be handled in an innovative and technologically smarter way. This will give users the ability to continue with watching the video and still be able to benefit from relevant and needed advertisements.

First, the user takes a regular (non-interactive) video and uploads it into the nuVideo system. The nuVideo system in the background identifies the objects present in the video and automatically makes them clickable. They are also associated with the related information and sellers (if items can be sold) during the process of conversion into a clickable video. Within a span of minutes the final video is available to user having all the functionality of a truly interactive video. The new interactive video can be shared with friends through social media or email from the nuVideo system itself. The user will then be able to click on these objects while viewing the video and perform various tasks like looking up info, shopping among others. The technology also lets the user search about relevant things while accessing the video. The simplified steps of the video transformation process are shown in the image below.

Simplified Flow in the nuVideo System

The technology uses sophisticated techniques in implementing the interactive functionality for the videos. The internal details of the technology and the working mechanism will be a part of the patent; this will help in preventing unauthorized imitation and replication.

The technology does not just enable the publishers to post their videos; it makes the video itself a defining part of the user journey. This opens up a huge opportunity for information search and search marketing through videos.

Key Differentiators

As we saw above there is a lot of competition in both the interactive video and the celeb news markets. In order to survive and grow in this market we need to differentiate ourselves from the competition and stay ahead of them in the game. Some of the key points that allow us to stand out of the rest are as follows:

Free Access

The competitors mentioned above that provide interactive capabilities to videos are not free of cost. The advertiser or the user has to pay a certain amount ranging from a few dollars to thousand dollars for using competitor's system depending upon various factors. We believe more and more people will be opting to use nuVideo if we are offering our services free of cost providing them with an opportunity to get's their hands on the technology without burning a hole in their pocket. A normal user and an advertiser everyone can use our system to make an interactive video. This is one big factor that will enhance the adoption rate of nuVideo by large number of users and advertisers alike.

Truly Interactive

nuVideo makes videos truly interactive by making the objects of a video truly clickable. The user can perform various actions by clicking on any object in the video. Some of the most common activities are looking for more information about items, shopping for items, playing interactive games and much more. nuVideo is a truly innovative technology which can transform any video into an interactive video with minimal user intervention. This gives us a fast turnaround time and video is available to be distributed and shared with public very quickly. Also the IP rights on the technology will give us the 'First Mover Advantage'.

Non Intrusive User Experience

When we think about clickable video we immediately think about something that would affect the experience of watching the video. But this is not to be with nuVideo. nuVideo has been designed keeping in mind that the primary reason a user watches a video is well watching the video and not some ads floating around. nuVideo provides for another way by which when you click on an object in the video, it gets added into a frame below the video. If the users want, they can pause the video and go ahead with the object they click. Or they can let the video finish, and after that access the list of objects that they had found interesting during the course of the video. This way neither the current video experience of the user is affected nor do they lose out on items or interest.

Innovative Business Model

We don't just stop at offering this innovative technology to our users, we also provide them with an opportunity to extend our system and make money out of it. Publishers can embed nuVideos into their websites or blogs. The video will serve as a video and also as an ad that can generate revenue. The revenue thus generated by every click or sale will be shared proportionately with the publishers. This can help a lot of publishers who are offering expensive video hosting and streaming services but are struggling to generate enough cash flows from advertisements.

Business Model

Given the varied applications of the technology, there are different revenue streams inherent to the system. The Ones that we are looking to capitalize on are as follows:

Search Advertising

Product Videos

Video Commerce

Leasing the technology

Let's take a look at each of the revenue stream and the potential it holds.

Search Advertising

In the short run this is the quickest way to start generating cash in-flows. This advertising model is similar to the existing search engine advertising model but an important distinction is that the search terms would not be user typed text but a click of an object inside the video.

A click or a talk about a particular object, say a travel location, would yield the results ranging from providers of details about the place to travel agencies offering travel packages to hotels and motels booking options. Just like regular search advertising, the advertisers would bid for particular objects to be at the top of the results page and/or being displayed as sponsored advertisers.

A recent report by IAB UK and PricewaterhouseCoopers stated that search advertising revenue reached $15.1 billion in the 2011. Search remains the largest online advertising revenue format, accounting for 46.5% of 2011 revenues, up from 44.8% in 2010 (IAB and PwC Research, 2012).

Image Source: IAB and PwC Research, 2012

Search has remained the leading format since 2006, having strong sequential growth through this period. In 2011, Search regained some of the share that it lost to Display Banners the previous year (IAB and PwC Research, 2012). As Laurie Sullivan mentioned in an article on Advertising Expenditure Forecast for June 2012, Publicis Groupe Company ZenithOptimedia estimates advertisers will spend about 15% more in 2012 on paid-search marketing, up 15% in 2013, and 13% in 2014. The report points to three growth drivers: new opportunities to create custom experiences, integration of four screens, and an uptick in mobile (Sullivan, Laurie 2012).

The model of bidding for keywords is a tried and tested model with many major providers such as Google and Bing mastering it. This will also help in an easier and quicker adoption since the advertisers are mostly aware of the workings details.

Product Videos

Online Videos are a great source of branding and product marketing as we found out from our market research. There are many successful examples of companies using similar existing services to create clickable product videos to enhance customer engagement and product sale.

An example of this is a similar clickable Mattel's Barbie Video as explained by a case study on eConsultancy.com in 2010. As per the study, after the launch of the video, the reported viewer engagement levels were up close to 60% on Mattel's online store. Also about 57% of viewers clicked on at least one product in the video. On Mattel's another Hot Wheels Battle Force 5 video, 89% of customers clicked on at least one product. And these videos are also helping to improve sales. Of the top selling products on Mattel's website, 30-42% comes from ConciseClick videos. (eConsultancy.com, Mattel's case study, 2010).

These videos are different from regular videos in that, they are created specifically for one or more products. These can be used to show case the manufacturing of a product or a possible use or simply the look of the product, to generate customer's interest. And they can be further enhanced to let the user purchase the product with 1 click from within the video.

In their "State of Video in e-Commerce" report for Q1 2011, SundaySky illustrates the total number of product videos offered by top retailers on their e-commerce sites as shown below. (Bryan, Paul http://www.uxbooth.com 2011)

Retailers having dedicated Videos for their products

This feature would be offered as a Service which companies can use to make their product videos interactive by paying a onetime fee. They will also have the ability to share the video on our platform of keep it private and use it at their will. This would require more involvement from the team to provide the required quality and tags to the advertiser.

While there is no exact number of the product videos out there but based on the above estimates there are clearly hundreds of thousands of video floating on the internet. Realistically, we target to make 15,000 (roughly 5%) of these and new product videos interactive by the end of first year and charge a small fee for customization and post-video transformation service.

Video Commerce

Online videos and eCommerce markets are growing exponentially. When we merge the two together we are looking at a whole new segment of a huge market. And this is exactly what we will be doing, taking the interactive video experience to whole new level. And it can be easier explained with the help of an example.

Let's say the user is watching a video of Megan Fox and she is a carrying a spectacular handbag. Now, with the interactive video user can click on the handbag and get all the details about it. At the same time, user would be having an option buy/order the handbag. Using interactive or clickable videos as part of the overall ecommerce strategy of the company is comparable to using a smart phone instead of a Palm device. Interactive videos are more effective and efficient in converting viewers into buyers, by producing a conversion rate of up to 30% and in some instances up to 50+%. Viewers can see, touch and nearly taste the product in the video (eConsultancy.com, Mattel's case study, 2010)

To generate revenue from this transaction, we will be getting into collaboration with select providers of the goods. And each transaction would result in a commission from the selling store.

It sounds similar to the search advertising described above but the way this is different is that search advertising shows a bunch of results from which the user can decide. While here there would be a link of the partner seller within the popup of the object description that will let the user buy the item directly bypassing the search results page altogether.

Image Source: Justin Foster, video-commerce.org

Contractual agreements will need to be signed with the partner shops selling the products but once a network of partner is set up the revenues from volumes will be very high.

This chart below from Market Analytics Trefis.com represents the average sale price of items sold on eBay's properties including eBay.com, Half.com, Rent.com and Shopping.com. The average price incorporates the wide range of prices found on eBay--from low priced merchandise to expensive electronics, motor vehicles, and boats. Average Selling Price of Merchandise on eBay has declined from around $60 in 2007 to $51 in 2009 and will be slightly better at about $53 in 2011.

Figure Src: Digital Trends, onlinemarketing-trends.com, March 2011

The conversion rates are the metrics we are concerned about. Generally speaking the more expensive the item for sale, the lesser is the average conversion rate. For example, for $500+ costing items, the average conversion rate is found be ranging from 2 and 3%, while a conversion rate of over 5% is considered outstanding. Similarly for $50 items and under, the conversion rate of above 6% is considered excellent, while the average rate ranges from 3-4%. These figures vary also by type of website, catalog store vs. name brand store, etc. as explained by petersonsales.net in an article called 'A Look at Conversion Rates for Websites'.

Leasing the Technology

To reach a wider audience and gain acceptance, the technology of making the videos interactive/clickable will be leased out to other vendors who provide video services like education, movies et al to the masses. Some of the sites include: khanacademy.org, coursera.org, dailymotion.com etc

There is a value add for both the parties involved. The licensee gets the ability to make the videos more engaging and will benefit from getting increased user engagement. And the licensor will get twin benefits. Licensor will get brand recognition with each video that is viewed by the user. At the same time there is potential of generating revenues from these videos.

An example of this model is YouTube videos, that can be embedded with other sites and YouTube gets revenues from running advertisement in the video. We would be utilizing the search advertising channel described above to generate revenue from this model. A survey by DIGIDAY and Adapt TV showed that 31% of North American advertisers pay between $11 and $15 on video CPM on average, and more than 50% pay between $11 and $25 CPM making video one of the most premium ad formats online.

Now the revenue generated from these video ads will be shared equally by us and the publisher to provide enough incentive for the uptake of the technology.

Marketing Strategy

Marketing, in a nutshell, is a way of reaching out to the customers and building a strong relationship with them. It is a way of communicating to the customers the value that we intend to deliver. We would be taking a 'Shooting Star' approach to achieve both these goals, wherein we will launch with a big bright light ball that is the head of the shooting star and will continue like a bright trail of light that follows the shooting star. Thus, our market strategy comprises of 2 main elements that we call, De Launch and De Long Haul as explained below.

La Launch

Launch is a very important milestone for any company and it is imperative that the launch strikes a sudden chord with the potential customers. Being a tech company in the internet world, we plan to launch at big Technology Conference such as TechCrunch Disrupt and Launch Conference depending on our evolution phase.

There is always a risk of getting lost in tens of new products that are launched during these events but with a novel concept such as ours, we are more likely to gain some spotlight. These conferences provide a great opportunity to present in front of Journalists that can provide free press and Investors who provide some valuable feedback serving a dual purpose. There are hundreds of journalists covering these events along with some celebrity investors that make these a perfect show-stopper for new launch.

Not going in too much implementation detail, we would need to be well prepared with pre-briefing the journalists and getting blog guns ready before heading into the Launch.

La Long Haul

We intend to carry forward the momentum generated with the launch event and even capitalize it to reach more eyeballs. Here are the means through which we will accomplish this.

Social Media

Social Media has proved that it is here to stay and if we want to connect with the modern users we better be present there and in a big way. We are looking at not just the large social networks such as Facebook, Google + and Twitter but also some smaller and specialized networks such as Mashable and Pinterest.

We will be leveraging twitter to connect with the wide reaching celebs and important personalities

We will use Facebook and Google+ to connect with the masses, across demographics and geographies

Mashable is a fantastic way for us to keep our users updated about new developments and happening in our space. This will be very helpful in brand building.

Pinterest allows members to "pin" images, videos and other objects of their interest to their pinboard, from where they can be shared with people with similar interests.

Blogs

Along with having our own blog that updates the users of the latest developments and trending topics, we will also be using specialized blogging sites such as Le Fashion and A Beautiful Mess, to write blogs with our interactive videos as part of the blog in return for a line about our services. These blogs have very loyal following and can be very effective in getting users the experience of our services and eventually redirecting them to our website.

This strategy is easier to implement as more and more blogs need interesting posts and have videos of the topic they are discussing and this is exactly where we come in the picture. Blog posts with our interactive video serves dual purpose of providing us free publicity and at the same time making the users aware of our interactive technology through the videos.

Internet Advertising

Online advertising will play an important role in the early phase when getting the word out to as many people is of most importance. Search advertising can be particularly useful especially because the customer comes looking for something and so it is more likely that they will go ahead and experience the new system.

There are several advertising platforms available but we would be using the 2 most popular Microsoft/Bing and Google keyword advertising as they have the widest reach.

Viral Marketing

We understand that getting an ad or video viral is not actually in our control but having the basics right can certainly increase the chances of it happening. For one, we are already working in the Celebrity News market, and having a celebrity in the video does help in getting increased attention. And we are pretty confident of getting such videos from our content collaborators.

For the other basics, we will make sure there are ample ways for the users to share the video with their friends via Tweets, Facebook share, blog post share or a direct email. This is a must in order to reach the maximum audience.

Since the very nature of our system involves interactive and interesting celebrity videos, we will attempt to make at least one video go viral every quarter to have the customers come back.

We are well aware that the viral marketing can also destroy the image as much as it can build one if something goes wrong, but we believe that 'Any publicity is Good Publicity' and are willing to take our chances.

Champion Users

Champion User is a way to make the user engaged and make them feel a part of the family. How this would work is if a user posts a video, which is made interactive by our system, and it becomes the most popular (having the maximum views) video during the week then the Video along with the owner's mention go onto our home page.

This system is also intended to ignite the competitive spirit of the user in sharing and promoting their videos and becoming a Champion User. An important thing to note is that there are no monetary rewards as we consider them to be more of a put off and they end up making the system being compared with unreliable make quick money websites.

Management Structure

One of the most important things for the success of a company is the management team. There has to be a high level of trust and mutual respect for the team to be successful. Initially, during the first year of operations we would be starting with a small team of 3 core people, each managing one core set of responsibilities namely Technology, Sales & Marketing and Operations. Supporting these 3 would be a small team of 1-2 people for each of the functions to meet our financial and growth objectives. It is important to have a small team to start as it will help keep the costs down. This would also provide insights of all the business function to all the key people which will be essential for the long term success of the company.

Long Term Organization Structure

The management structure we are looking at during the long term will have 2 main divisions the Technology team, which looks after the underlying technology, and the Business team that will manage the operations of the company. We will keep a flat management structure to leverage the synergies between all the divisions and departments. The management team will be headed by Microsoft Contact (name withheld) as the Head of the company, who will be developing long term strategies and managing the overall operations & resources of the company. The Head of the Company will be supported by a Business Head who will be responsible for operations including Finance, Sales and Marketing. And will be accompanied by a Technical head that will be responsible for the Technology Implementation, evolution and support. We have intentionally kept away from naming these positions as COO and CTO respectively since we want to have an open and equal management structure. This thought of not have the C-Suite has also been resulted from the fact the young people like us are more interested in interesting and challenging work rather than just fancy titles.

The position of the division heads we be filled at the required time during the course of smooth and expanding operations of the company. Later when the company starts to grow the Marketing, Finance and Operations would be headed by separate leads managing their own teams.

Organizational Structure

Key Responsibilities

The key responsibilities for the most critical business functions are as defined below. Most of these responsibilities are not mutually exclusive and so a good communication between the departments is an absolute must. We will have a flat organizational structure to encourage interactions and reduce lags. This will allow us to effectively leverage the synergies between functions for better overall results.

Financial Forecasts

Costs

The main element of our cost is the huge IT Infrastructure that would be needed to support our operations. We are not looking at setting up a huge Data Center to cater to our IT infra requirements. Instead we would be leveraging the cloud infrastructure from some established companies such as Amazon or 100tb. This would relieve us of the effort of looking after these and we can channelize our energy in growing the business and evolving the technology. The maintenance and support of these physical infra would also be sourced to a specialize vendors who can provide onsite and remote services such as corpcomputerservices.com. The other major component is the employee cost or the salaries. We would be employing 2 people who would continue the research and development of our core technology and about 3-4 people to manage the large marketing activities that we plan to undertake along with other operational activities. We would also be having a legal advisor in our team who will look after the IP rights of our technology and other copyright issues related to the content. As we grow, we see the need to expand the team with the users and we are looking to more than double in the year 2 of operations and match the growth of our services in the years to follow.

An overview of our estimated cost over a period of 5 years is as follow:

Cost Items

Year 1

Year 2

Year3

Year4

Year5

IT Infrastructure and Maintenance

$ 820,000

$ 3,200,000

$ 4,800,000

$ 16,000,000

$ 32,000,000

Employee Costs/Salaries

$ 630,000

$ 2,500,000

$ 5,000,000

$ 9,000,000

$ 14,000,000

General Administrations Costs

$ 200,000

$ 400,000

$ 800,000

$ 1,500,000

$ 3,000,000

Total Costs

1,460,000

4,680,000

7,800,000

$22,500,000

$46,000,000

Detailed benchmarks and calculations for each of the cost items are available in the Appendix Section in the end to avoid confusions.

Revenues

nuVideo is accessible free of cost to the users from which they can create and share interactive videos. We would be generating revenue primarily from advertising. We understand that standard advertising is a challenging avenue to generate large revenue but out innovative business model as described above gives us the opportunity to monetize those aspects of video that have not been feasible previously, such as Video Commerce.

Revenue From

Year 1

Year 2

Year 3

Year 4

Year5

Search Advertising

$ 9,525,000

$ 38,100,000

$ 63,500,000

$ 190,500,000

$ 381,000,000

Product Videos

$ 750,000

$ 2,500,000

$ 5,000,000

$ 15,000,000

$ 30,000,000

Video Commerce

$ 225,000

$ 900,000

$ 1,500,000

$ 4,500,000

$ 9,000,000

Leasing

$ 5,032,500

$ 10,065,000

$ 16,775,000

$ 33,550,000

$ 67,100,000

Final Revenu