A recent WSJ article mentions that when YouTube tested “pre-roll” ads (i.e., ads that play before the video launches), more than 70% of viewers abandoned the site.
Consider two startups entering the business of sharing videos:
Startup A has a lot of financing, and has not chosen a “revenue model” yet – first it plans on building dominance in the market. Then it will figure out how to monetize the traffic.
Startup B cannot afford to pass on revenue for very long, so it offers an ad-supported service. However, as in the above statistic, pre-roll ads deflect 70% of visitors – and many may switch to Startup A.
If Startup A had a plan for making money, it would have caused them to shrink and fail like Startup B. However, a day will come when Startup A must also make money – and then it will discover that its market share is only the result of its ad-free environment – as soon as it advertises it will lose viewers, too.
The difference between YouTube and most other “Startup A’s” -is that YouTube has a thousand brilliant minds at Google who spent ten months trying to find a solution. Most startups are not that fortunate.
Posted in Blogging, Business, Business Strategy, Case Studies, Consumer behavior, GOOG, Google, Internet, Management consulting, Marketing, New Ventures, Statistics, Strategy, youtube
I was recently asked to comment on a startup that is attempting to compete against both Micrsoft Office and Google Docs & Spreadsheets.
Here is what I suggested:
“Historically, there have been any number of office products that performed better than MS Office but weren’t able to capture share. As a small player, it is extremely unlikely that your fate will be any different – don’t expect to beat Microsoft and Google at their own game.
“Your approach, therefore, must be to develop a fantastic product targeted at a specific niche. The weakness of Google and Microsoft is that they are mass-market products and serve everyone adequately, but no one well. Choose either a niche market segment or a specific functional area – and dominate it. For example, mid-sized law firms, or word process that integrates with CRM for sales folks. If you develop best-in-class applications for a niche, not only will you have a compelling value proposition and easily identifiable target market, but it is much easier to achieve critical mass and become the dominant player.
“One point to note: interoperability is key. There must be seamless, flawless opening and saving of Microsoft apps. There’s the old saying within Microsoft that the next version of office isn’t ready to ship until it breaks previous compatibility standards. It’s your job as a competitor to fight them in this arena – to stay up to date so that your users won’t experience any headache when interacting with the other 98% of users.”