Google grads seek traffic for how-to video startup

TORONTO (Reuters.com) - The Web is full of user-generated video, but for Sanjay Raman's tastes most of it is too bland and poorly produced to actually watch.

So last year he launched Howcast (www.howcast.com), a video-sharing website dedicated to do-it-yourself content with former Google colleagues Jason Liebman and Dan Blackman.

While at Google the three Howcast co-founders noticed how popular do-it-yourself content was, but how little of it was in video format.

"How-to content is something that is really popular in terms of user search queries," said Raman, who worked as product manager for Google Apps. "As video was really exploding online we saw the opportunity to marry those two concepts together."

Howcast, which employs 30 people split between offices in New York and San Francisco, features videos on topics ranging from "How to teach your dog to play dead" to "How to start a fire with a battery".

The videos are broken down into 25 categories and are narrated in a step-by-step manner, beginning with a list of things you'll need for the project. They are accompanied by separate text-based instructions, or wiki guides.

Unlike other DIY sites, such as About, eHow, ExpertVillage, Videojug and 5min, Howcast utilizes a more entertaining and humorous approach. Some of its most- popular videos are more tongue-in-cheek in nature, such as "How to find out a girl's name after you've slept with her" and "How to grow grass in someone's keyboard."

"We try to take the format of a how-to and make it more exciting and engaging than it would normally be," said Raman.

In order to boost their video content, Howcast created a program that pays filmmakers, mostly students, between $50-100 to produce videos for them.

"One of the reasons behind creating our own content was that we could create compelling videos that advertisers would want to monetize or sponsor...If you just have user-generated content you may not be able to drive advertising dollars or engage advertisers in producing content with you."

Despite the economic downturn, Howcast has raised $10 million in funding, with $8 million coming from New York venture capital firm Tudor Investment.

The founders' Google connections have also helped them land distribution deals with a who's who of online video players: YouTube, AOL, Yahoo, MySpace, Hulu, Metacafe, Dailymotion and Bebo.

Late last year Howcast created an iPhone application that has so far generated 500,000 downloads and was featured in an Apple commercial. It was also voted one of Time Magazine's "50 Best Websites of 2008" and Raman said they are currently averaging about 20 million monthly playbacks.

"We've actually doubled our traffic in the past six months," he said, which has helped bring in more advertising revenue through deals with JetBlue, Playboy and mobile network AT&T.

THE PITCH

Howcast's revenue model is solely ad driven and while online sales are up, it's still tough sledding.

Like most web-based companies, Howcast charges advertisers a set rate per 1,000 views, or impressions, otherwise known as a CPM (cost per mille) model. Most of its revenues are currently coming in through its distribution deals, where Howcast gets a cut of the take generated by playbacks of its videos on partner sites like YouTube.

In order to generate more revenue, it needs more videos. Raman said it usually takes a day or two to churn out a new video, like last week's "How to come back from a political scandal" in response to South Carolina Governor Mark Sanford's announcement that he had an extramarital affair.

Howcast produces about 200 videos a month right now and boasts an archive of about 50,000 videos, which Raman wants to double over the next year.

Howcast's big challenge is to find ways to considerably boost its traffic, either through distribution deals or viral marketing campaigns that will attract people directly to its website. Raman needs to keep finding ways to get more eyeballs on their videos so they can view the ads and ultimately help them realize more revenue.

"From a long-term perspective, we always talk about how we can scale our content production and make this company profitable."

TAKING IT TO THE EXPERTS

Paul Kedrosky, who writes the popular business blog Infectious Greed and is a former partner in the California-based venture capital firm Ventures West, said websites like Howcast traditionally don't bring in gangbuster traffic numbers and feels it will have a tough time realizing any kind of sustainable large-scale ad revenue.

"Unless you can get it to Google-class numbers, then an advertising model, predicated on video content, is really tough," said Kedrosky, adding Tudor's investment of $8 million was likely based on an evaluation that Howcast would potentially hold an exit value of $400-500 million.

"It's possible, but it's fairly heroic. A large raise lets you do lots of stuff, but then it forces you to do some kind of large financial event, like a sale or something else, to actually get out the other side and make money." While skeptical on Howcast's revenue potential, Kedrosky was impressed with the content, especially the entertaining nature of the videos.

Kedrosky liked that Howcast has leveraged the iPhone, as it makes their content far more user friendly and accessible, rather than assuming people are going to run back and forth between their computer and whatever task they need help doing.

"They've done a couple things really right that helps them stand out from a fairly crowded segment."

Zachary Shullman, managing partner of Cayuga Venture Fund in Ithaca, NY, thinks Howcast should charge users a nominal annual subscription fee to watch its videos.

"Say they want 10 million users? If they charged everyone $1 they would cover their operating costs," said Shullman, who has concerns about an ad-based revenue model at a time when advertising dollars are drying up.

"People are buying very stupid iPhone applications for $1, so why not charge $1 or $2 to subscribe for a year to a how-to video site?" Shullman also worries that because Howcast doesn't have a patented technology platform, they are not protected from another site doing the same thing and potentially poaching its traffic.

"There really is nothing that would stop a competitor from doing what they're doing. If it's not something that is difficult to replicate, it gives us (investors) pause."

Zubin Mowlavi, the founder and CEO of new media marketing company Lucid Fusion, is very impressed by Howcast and the viral nature of the video content. Mowlavi also said Howcast's digital platform is superior to most of the how-to video sites he has come across.

Mowlavi, whose company has produced cutting-edge marketing campaigns for the likes of Sage, Kenwood, Redbull, Sirius and Sony Pictures Classics, feels Howcast's biggest challenge will be marketing their content. He suggests partnering with agencies and media companies that have clients whose content they could augment with Howcast videos.

Mowlavi suggests that ultimately it may just come down to timing and having that one video that hits at the right time and brings in crazy traffic numbers.

"If there's something that's timely that they can address that has real value for people, then I think it will get those first-time users to go to the site and then continue to reference it."