Joost vs. Hulu: A Study in Contrast

In late 2006, I had the opportunity to become a beta tester for Joost, an Internet TV service.  The product was exciting and seemed to be the next wave of content distribution for the web.  I downloaded the Joost video player, and within 10 minutes I was watching television channels from around the world.  There were movies, sports, classic shows, documentaries, and much more.

So given this exciting technology, why did Joost announce this week that they are reinventing their business, with a new service and business model?  The plan is to abandon ad-supported television shows and instead become a video technology provider to media companies.

Their lack of success has not been due to a need for financial support.  Joost has some "heavy hitters" investing in their business, including Sequoia Capital (which backed Yahoo!, Google, and YouTube), CBS, and Viacom.  Also Joost's owners were the founders of Skype, a widely-used application for making calls over the Internet.

The easy answer would be to say Hulu and YouTube, or the bad economy, were the demise of Joost.  This is suggested by the New York Times in its June 30, 2009 article:

Joost is yet another example of an ad-supported Web company that has found it too difficult to make money on ads alone as marketing budgets have shrunk. In a post on the company blog, Mr. [Mike] Volpi [Chairman] blamed the changes on tough economic times....

Joost also joins the ranks of Web video companies that have been sidelined by Hulu and Google's YouTube.

While this is partially true, it does not tell the full story.

I think it is difficult to consider Joost and YouTube as competitors.  YouTube caters much more to user-generated content, and videos are always in "bite size" chunks, no more than 10 minutes long.  A much more apt comparison is Hulu.  Hulu launched after Joost, but had much the same goals.  They wanted to provide streaming video content through the Internet, offering a combination of television shows, short television clips, and movies.

While it is true many companies have suffered due to the economy, this does not explain Hulu's continued success and growth.  Simply put, Hulu has a better solution.  Initially, Joost required users to download an application and install it, while Hulu and YouTube provided immediate access.  Those seeking online videos are willing to sacrifice quality to be able to watch a video immediately.  In late 2008, Joost decided to launch a web player which would allow users to watch videos immediately, but this was viewed by many as "too little, too late."

Joost and Hulu also took very different approaches to who they would target as their customer base.  Joost wanted to be a global company from the very beginning.  They hired lots of people, and had offices in several major cities.  In contrast, Hulu has focused all attention on the US market.  Hulu videos are only available for viewing within the United States, although there are plans to provide videos to those in the UK in the fall.

Probably the biggest issue for Joost was the inability to turn an early advantage into success.  They realized that the future of online videos would require partnering with the video content owners.  Joost had investments from CBS and Viacom, and was able to reach content agreement deals with Warner Music, MTV, BET, and Paramount Pictures.  However, this did not materialize into high-value content being added to Joost's offerings.  For example, many of the Paramount movies provided through Joost were lower budget films that had limited success, while Hulu has more successful movies such as The Last of the Mohicans and Super Size Me sprinkled among lesser known films.

The death knell for Joost's ad-supported video delivery service was most likely sounded during Super Bowl XLIII in February.  Hulu purchased advertising time during the game, and delivered this memorable ad featuring Alec Baldwin:

Many Super Bowl viewers may have been unfamiliar with Hulu before the game, but this advertisement's "truthfulness" about television viewing habits was certain to have a lasting impression.

One other factor that should not be ignored is Hulu was initially a joint venture between NBC Universal, Fox Entertainment, with additional funding by Providence Equity Partners.  In April 2009, ABC joined the partnership.  Content providers such as NBC and Fox are ensured of making far more money by owning the distribution process rather than outsourcing it to a company such as Joost.

Despite the large sums of money invested in Joost and the well-known business figures serving as founders and directors, there are some key learning points from the Joost experiment for entrepreneurs of any size business:

  1. Understand what your customers want.  Users of online video sites were willing to sacrifice quality for quickness.  If you're planning to start a business, take time to study your customers and ensure what you have to offer truly meets their needs.
  2. Start small(er), and grow in increments.  The natural tendency of many startup companies is to attempt to fit too many markets, launch too many products, or cover too much geographical area.  Joost wanted to be global from the first day, while Hulu has been satisfied only servicing the United States.
  3. Take advantage of early opportunities, but know the competition is lurking.  This concept, and the concept above regarding starting smaller, are often a source of conflict for many newer companies.  It is challenging to start small while knowing the competition is gaining.  Joost wanted to take advantage of the partnerships and money provided by some very prominent investors.  I'm sure there was immense pressure on them to launch the product with many (probably too many) features.  A significant amount of time and money was invested in building the platform, only to find it was probably not the best answer.  Joost most likely would have been better served by launching a smaller, simpler platform.  If they had done so, the Joost team would have been able to retool the product more quickly when it became apparent Hulu had the better solution.

The story of Joost and Hulu is a cautionary tale that has been told many times.  There are plenty of examples I can remember over the past 10 years, and I have worked with past clients who could easily be placed in the role of Joost or Hulu.  Consider these concepts carefully when building the plans for your own business.