Feedback: Experts weigh in on Howcast

(Reuters) - 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. The following panel of experts critique Howcast's business model and opportunity for growth:

*********************************************************************************************************

EXPERT COMMENTS:

PAUL KEDROSKY, RESEARCH CONSULTANT, TEN ASSET MANAGEMENT

Paul Kedrosky is an investor, writer, and entrepreneur. He is a sought-after speaker; an analyst for CNBC television; a columnist for TheStreet.com; and the editor of Infectious Greed <paul.kedrosky.com>, one of the best known business blogs. Paul is currently a Senior Fellow at the Kauffman Foundation <www.kauffman.org>, where he is focused on entrepreneurship, innovation, and the future of risk capital. He is the Research Consultant for Ten Asset Management, a southern California institutional asset management firm with approximately a billion dollars in assets. Paul is also a venture partner with Ventures West, an institutional venture capital firm with more than $600 million in assets. In 1999 he financed and launched one of the first hosted blog services, GrokSoup.

"It seems to attract a reasonable amount of traffic, it's not gangbuster stuff, but as a constituency it (how-to video) seems to be growing nicely. Unless you can get to Google-class numbers then an advertising model, predicated on video content, is really tough.

"The way I always answer the question ‘Can it be profitable?' is it depends how big they want the company to be. If they want to grow a large company that is going to have 50, 500, 5,000 employees then you need the traffic volume and if you're not going to have the traffic volume, you better have a way to run it on a shoestring of less than five employees.

"A $10-million raise implies that it got somebody 30 or 40 percent of the company and then if you do the math backwards, in terms of the exit, it implies there is someone thinking they can do a $400-500 million exit from this company to get a reasonable return on their original investment. 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.

"What I was impressed with is that they actually have a sense of humor about themselves and I think that's one of the things that separate them from everyone else in this business. The trouble with a lot of the how-to class of text and video sites out there is that most of them are fairly humorless. It feels like there is going to be a quiz at the end.

"It's nice that they also have an iPhone app for it, because that's exactly the place where a lot of people are going to consume how-to stuff. So they've done a couple things really right that helps them stand out from a fairly crowded segment."

ZACHARY SHULLMAN, MANAGING PARTNER, CAYUGA VENTURE FUND

Zachary Shullman joined Cayuga Venture Fund <cvf.biz/> in 2004 and also teaches at the Johnson School at Cornell University. He currently serves as a Director of Primet Precision Materials, Advion BioSciences, Instinctiv and CherryPharm. Prior to joining CVF, Zach was General Counsel at a technology startup that raised considerable venture capital. He also practiced corporate law at Ropes & Gray in Boston and Harris Beach in Ithaca. Zach serves on a number of advisory boards affiliated with Cornell programs.

"It's a really tough environment for advertising right now, so unless they have some really creative ways to inspire advertisers to advertise on their videos, then I would be concerned about that.

"How many eyeballs are they trying to get? Say they want 10 million users? If they charged everyone $1 they would cover their operating costs. 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?

"My biggest concern is that there is virtually no barrier to entry. There is no intellectual property and there are many companies that have this problem and some of them are very successful. But there really is nothing that would stop a competitor from doing what they're doing. They are not creating some cool software application. They're not creating some trade secret. They're certainly not creating something patentable. If it's not something that is difficult to replicate, it gives us (investors) pause."

ZUBIN MOWLAVI, FOUNDER & CEO, LUCID FUSION

Zubin Mowlavi, the founder of Lucid Fusion <www.lucidfusion.com>, has over 10 years of experience in interactive media development and Flash technology which he directs in all of Lucid's marketing and advertising efforts, including direct e-mail marketing. Zubin produced cutting-edge campaigns for such companies as Irvine Chamber of Commerce, Grupo Posadas/Fiesta Americana, Sage North America, Kenwood USA, Redbull, Sirius Satellite, and Sony Pictures Classics. Zubin holds a Bachelor of Science in Computer Engineering from the University of California - Irvine.

"It's a very casual, friendly style that they have to their videos and if you like it, you'll continue watching them. There are other video sites out there, but they don't have the same sense of consistency and their platform isn't as intuitive as the one that Howcast has.

"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.

"Everything boils down to the number of videos that people are watching on a monthly basis and in order to get something to grow organically and grow fast the key is going to be content generation… Keeping the same format, style and personality that they have, but partnering with other content generators."