Brightcove's David Mendels on consolidation, profitability and the future of the OVP segment's 800-pound gorilla

David Mendels has been COO and President of online video platform Brightcove since Jan. 1, but has had a seat on the management team since last Oct. 1, a seat he originally thought would be a temporary one. It's been a big year for the OVP, which is the largest player in the segment with more than 1,800 customers at last count. The company is benefiting from an ongoing consolidation of the industry, Mendels said, and expects in the next 12 months to see huge growth in the mobile segment as well as an acceleration of the development of TV Everywhere initiatives. Despite Brightcove's jumping out to a fast start, Mendels said it isn't likely to be profitable this year, as it was for several quarters during 2009. But, he said, that's because Brightcove made a conscious decision to double down its bets on growth and innovation, putting profitability on the back burner--for the moment.

FierceOnlineVideo: What's one overlying trend that you can point out in the OVP segment?

David Mendels: A general theme that you can certainly point to is consolidation. We started this space about five years ago, and we've tracked--at various points--somewhere between 50 and 100 companies around the world that do something in this space, and we are absolutely seeing that there is a consolidation occurring. I think that's resulting in business acceleration for us at Brightcove.

This is typical in the software industry where you see a category come into being... it happens with every category of software. Three, four, five years ago I don't think people recognized that this was a category, so they all built their own systems. Now they're seeing they don't need to build their own, it's complicated, it's hard, it's expensive, and there are vendors out there like Brightcove that they can just sign up with and go with. They don't have to figure out how it's done. They can have access to a pretty sizeable team that's working for some of the biggest customers in the world and we can leverage that. That's what's really occurring in the market. There's absolutely a consolidation and its certainly accruing to growth for us.

FierceOnlineVideo: The acceleration in online video during the past six months to a year has been phenomenal...

Mendels: Yeah, I agree. We're talking now to a lot of potential customers that we spoke to three or four years ago that, back then, decided to build their own systems. Now, they're saying, "Oh, my God, it's gotten more complicated, not less complicated to publish video on the web." A lot of that is due to the platform fragmentation that's occurred on mobile devices, connected TVs, and so a lot of those people are coming back and looking to work with Brightcove. It's a great opportunity.

FierceOnlineVideo: What's Brightcove been doing for the past 6 months?

Mendels: It's been a great first half. We doubled the size of our customer base in the first six months of the year, and that just represents expansion on a number of vectors that we're very excited about.

On a global front, we continue to expand around the world and provide a really high quality scalable, reliable service, and people who can help deliver that service around the world. Last year, we announced our German operation and Spanish operation; this year we have already announced our French operation, our expansion into Asia and the Pacific, and we have people on the ground there in Singapore, Korea and Australia. Our Japan business is thriving... we've closed some really significant business in Latin America. So, around the world we're really growing, and that's an exciting phase for us.

We're also growing in terms of different market segments. The media market continues to expand for us as more and more content comes online, so that's been going extremely well.

The non-media market--enterprises that use video for communications, and marketing and e-commerce--is growing at a fantastic pace. I think there's a huge upside there over time as we continue to get new customers.

And then, lastly, we started an offering last year that lets us expand to more small and medium businesses, and that's growing phenomenally as well. Our belief from the beginning has always been that online video is not just about the big media companies. Every professional website in the world is going to have online video. Video will be a first class media type just like text and images. And that, we feel, is really coming through and so it's an exciting time.

FierceOnlineVideo: Your move into the SMB ranks is looking better all the time. The small and medium business market is a massive potential market...

Mendels: What's exciting about it is--as I look at the first 1,000 customers or so we have there--is that they're not early adopters of technology. They are small manufacturing customers, they're unions, they're non-profits, they're government agencies. They're a wide range that even includes lawyers and doctors. Every one wants video, because video is a great way to tell a story, it's a great way to communicate, it's a great way to market, it's a great way to sell.

And so I look at that and say, "Well, if that's the first 1,000 customers, there's a million of them, and it's a very exciting product line for us because I think our customers have found it very easy to adopt. They can get into a trial and immediately be up and running and then sign up with us; it's very low cost, very affordable, and it lets them be up and running with video on their page that day.

That lets them really take advantage of all the depth that's in Brightcove, that we build into our business because we have so many large, complex customers as well.

FierceOnlineVideo: I know you have a lot of feet on the ground, but can any company really give all those small customers the kind of support that they need? Not only to just get up and start running, but to keep running and making their online video presence more sophisticated?

Mendels: Absolutely. We have built our system to scale, at Web scale, and we are constantly rebuilding things with the idea that, OK, every year we're growing 10X, at least, and not one X, or one-half X or whatever, so we are absolutely able to provide that. We have a very strong team, and the product works. It's not that hard to support. We find that customers are able to get up and running very easily. We're able to do that very profitably, we do have hundreds of people now around the world and so, it's a good business. It's not a problem to scale that at all. It's a very exciting business.

FierceOnlineVideo: What's the next six months hold for Brightcove? Where is the business headed?

Mendels: It's along the same vectors. You'll see continued global expansion, and I'll highlight Asia/Pacific right now because its out newest region. We just got people onboard in those regions and I think you'll see a lot more happening there over the next few months and we'll announce some significant new customers and new programs and momentum. We're pretty excited about the things we're learning in that market; it's a great opportunity for us.

I think on the product side, there are a couple of really big themes for us.

One of them is something we've been talking about all year... and we'll probably continue talking about all year, and all next year, which is this platform fragmentation that's occurring. People are not just viewing online video on laptops and desktops, but increasingly on mobile devices, Apple devices in particular have been incredibly successful with the iPad and iPhone. Android devices have been very successful, as well as connected TVs and what's coming from companies like Google and Apple and others in the TV space, as well as some big consumer electronics companies. So we believe that a core part of our value is that our publishers want to reach their audiences and they don't want to have to figure out all of that complexity. They want to upload their videos, get them in the right formats, and the right quality of streaming, the right analytics, the right monetization options, the right meta data for search and all those other things and then just have it work.

And I think we are a good ways down the curve of making that possible. We recently released what we're calling our new smart players which will automatically detect if Flash is available or not and deliver HTML5 and that's working extremely well for our customers. There's a lot more to do there, as we continue to build out all of their pieces we've made available over the years in Flash and HTML5, but then I think as this year continues we're going to see more and more activity around connected TVs as well as the handheld devices.

FierceOnlineVideo: Obviously, connected TVs are hot, 3D is getting there... how does that impact Brightcove?

Mendels: I think it's early for 3D on the Web, in terms of 3D video; it's sort of a continuation in a sense of the core investments we've made in scalability around ingestion, transcoding, as we've gone from a business that just a couple of years ago was doing mostly short form video clips, say one minute long or two minutes long, and now we're doing those at incredible scale, many tens of thousands of files per day that we can ingest and transcode, but on top of that we've seen many of our customers move to really high-quality long-form video, like Rogers in Canada and Fox in the U.S. who are delivering to us extremely high quality files which are very large high bit-rate files, and then we are managing how that gets delivered in both a low bit rate way to mobile devices and a high bit rate way to large screens, and I think if you think about the move to 3D, it's going to require another leap in scale in terms of ability to ingest even larger files. We've been building the infrastructure to do that and I think as that technology emerges, we'll be ready for it.

FierceOnlineVideo: What kind of a role does Brightcove have in TV Everywhere?

Mendels: We announced a TV Everywhere initiative earlier this year and that has been going quite well for us. The business relationships between programmers and studios, those things have evolved a little bit more slowly than I think everybody had hoped at the beginning of this year. It is happening, so we will be rolling out our first pilots and deployments of our TV Everywhere solution with a major cable programmer later this year. We think there's a great opportunity for that to drive more video online, more premium content. We've been building out that technology stack, we have some early customers, and I think that will be a major theme for us over the next few years.

FierceOnlineVideo: Can the Web support a strong move to TV Everywhere, with huge amounts of data going out to individual subscribers?

Mendels: There are certainly bottlenecks, but I think there's lots of opportunities and ways for that to be addressed. We've already seen the Internet scaled multipleorders of magnitude in multiple ways. I don't view those bottle necks as fundamental barriers at all.

FierceOnlineVideo: This is the end of your first "official" quarter as president...

Mendels: I've been on the board for a couple of years, and I joined the management team on a sort of temporary basis--at least what I thought was a temporary basis--last Oct. 1, I officially joined as president and chief operation officer Jan. 1. My involvement with the company, on a day-to-day basis, is almost a year.

FierceOnlineVideo: What are the biggest changes you've seen in that year?

Mendels: We've added almost 100 people in the last, incredible people around the world and so I just look at the energy in this company and am really excited. I think we have seen an acceleration, in terms of innovation, in terms of being able to deliver software that solves real problems for customers. We're helping customers do things they didn't know they could do, and that's exciting. It's been a very exciting year in terms of mobile devices, I don't think that when I started--even on Jan. 1--that was prior to the first iPad announcement, and prior to the real push for HTML5 that came a long with that. It's been a very exciting year in terms of technology and innovation and we've had to move very fast. We have been moving very fast and I think we continue to accelerate. It's been a lot of fun.

FierceOnlineVideo: Fun, challenging, exciting. All good words. Any bad ones?

Mendels: I would say this, we have customers for whom we are a mission critical supplier. We are a core way that they distribute their content and they are a content company, whether it's Showtime, Fox or any number of companies round the world. That puts a lot of responsibility on our shoulders to do that, and we are not perfect, that's a claim we don't make, and it's not the way I want us to express ourselves as a company. But what we are good at is being a learning organization. I look at how much better we are today at servicing customers than we were 12 months ago. It's exciting, I look at a road map for next year, and I think we're going to blow people away.

FierceOnlineVideo: What are the big hurdles for continued growth that Brightcove faces?

Mendels: I don't think there are any big hurdles to continued growth. There are challenges, there are strategic things, but its more a question of timing than growth. As people migrate content online, in the media space, they have challenges with monetization, what CPMs can they deliver? How can their business be profitable? So, their ability to adopt our technology is dependent on their business models. I don't see any fundamental problems there. I think there are challenges because not everybody is achieving the results they hope to. In the non-media space, the only barrier I see is awareness of this category. I don't know of a CMO in a Fortune 500 company that doesn't get that they are also a media company. Every company is becoming a media company and they have to communicate directly to their end customers as well as to their employees, as well as to other stakeholders in their ecosystem, and I don't think there's any one of them who doesn't think video is an important part of that.

The only barrier there is getting out the word so people understand, hey, there's a category called online video platform that can help you achieve that, without you having to invent it on your own. As awareness goes up, I think it's a good opportunity for growth. It's probably about awareness.

FierceOnlineVideo: What does Brightcove need to do better as a company?

Mendels: There's a million things we need to do better whether that's on our ingestion pipeline or our transcoding or our players or our streaming. I don't want to be arrogant at all. We are by no means where I'd like us to be and we have a large product organization that every day is building stuff, and I'm pretty excited about what we're building and we keep making things better. So, there's lots of stuff we need to do better as a company from sort of a feature/function perspective and we're investing in that every day. I think there is a set of questions that as more of the large, long-form media companies move more of their content online and more of their business online, there's new problems for us to solve in that space. Like how do you handle authentication and authorization that came up with our investment in TV Everywhere. There's  a lot of questions that people have around digital rights management and security that are still early days. As we extend our market footprint there are new problems that we have to invest in and get better at.

FierceOnlineVideo: The segment in general seems to have a real problem with customers flipping back and forth from one OVP to another, almost test driving the service. How do you deal with that, not lose money and keep customers?

Mendels: We have over 1,800 customers and we don't lose many. We might lose a customer here and there to a competitor, but I would say that's on the order or less than .5 percent a quarter, it's trivial. We don't find customers flipping and flopping a whole lot from Brightcove, we certainly get customers that might come to us from a smaller company. And we pursue that if we think we can add value to that customer. There's not that much flipping or flopping frankly, although there have been companies that have entered this space, made quite a splash and then disappeared from the space, Maven is one, Move Networks is one and so we obviously have been very successful in getting many of those customers to join us.

FierceOnlineVideo: How many of your 1,800 customers are the entry level ones, the $99 a month variety?

Mendels: I don't have that off the top of my head, but it's a continuum. We start at $99, then $199, then $499 and we have customers who are in the Pro and Enterprise space. We have customers who pay us $99 a month and those that pay us over $1 million a year. One of the things that has been exciting about our entering the small and medium business market is that we've seen a really significant pipeline of people who start there and very quickly move up to the professional space. We don't view it as separate businesses by any means, we view it as a continuum. As people get success and content, we're seeing a lot move in from lower tiers to higher tiers in our product line. It's been a good driver for our business.

FierceOnlineVideo: You guys are the 800-pound gorilla in the OVP space. Brightcove is "the one." Are you profitable?

Mendels: We were there in 2009 for a number of quarters. We made a very deliberate decision to double down in some investments because we could understand our growth trajectory, we could understand our unit profitability, and we decided that the important thing right now is to expand globally, and expand the product line and make investments to make our customers more successful and to reach into other parts of the world. So, we've been making those investments and we will get back to profitability as we start to see those investments pay off. We'll come out of that with a big global footprint and customers that can really count on our ability to scale because we've made a much deeper investment on the support side, on the product side, on the account management side. I think one of the things that is really different about Brightcove from anyone else that I've seen in this space, is the investment that we make in our customers after we close a sale. We have a phenomenal account management team. We've invested a lot this year in building a training organization to help our customers get up to speed; we have what we call a best practices organization that will help a customer with ad operations, with monetization... We have a large part of our organization that's focused on customer success. That's a big differentiator for us--we're in this for the long term. I appreciate your saying we're number one in the market, I think we have a long way to go. What I'm excited about is that I think we're making the right investments, even though we don't solve every problem for every customer, we really work hard to make them successful in the long term.

FierceOnlineVideo: What's the next big thing we can expect to see from Brightcove?

Mendels: Hopefully it'll be more of the same. I'd like to tell you that we're doubling our customer base every six months, but I can say that. As you get bigger, percentages change. A lot of people like to talk about how fast they're growing, and if you have one customer and suddenly you have three, you've grown 300 percent. That's not really a good metric. I think we're going to keep growing, I think you'll continue to see more international news from us, you'll see a lot of investment from us in the mobile devices and connected TV side, we're very excited about that. You'll also see us rolling out some of the technology that we've been working with Akamai on, and I think that will be exciting. Those are the big themes.

FierceOnlineVideo: Anything we haven't talked about that we should?

Mendels: Video for e-commerce is something we've really been investing a lot in. We're very excited about the metrics that we're seeing from some of our customers that are using video for e-commerce in terms of their ability to increase leads, increase conversions, decrease returns. We've got some great customers there and they're doing some really innovative stuff. In the U.K., you've got customers like Thomas Pink, or the Warehouse that just have beautiful implementations in the way they're integrating video into the e-commerce process and the whole lead generation process, and tying that in with a social media strategy as well. I think there's some interesting innovation coming there that I think we're seeing a lot of our customers starting to do. It's an area that we're really trying to get with our customers and understand how can we help more. It's an area where you'll see us make a much bigger investment. It's pretty exciting to see some of the brands that are coming online with video.