New vzaar CEO sees steady growth into a strong OVP market share

Stephen McCluskey joined online video platform vzaar as CEO in March, and immediately began reshaping the Stephen McCluskey, vzaar CEOcompany.

Launched in 2007, vzaar was designed as a simple video uploading, encoding and hosting service targeted at eBay users. A typical user would upload an occasional video of a product they were trying to sell at a cost of about $15 a month.

In 2008 and 2009, the product became more sophisticated in terms of functionality, analytics, and its ability to allow some customization. Private investors, of which there currently are more than a dozen--including, now, McCluskey--put more cash into the company and McCluskey, 46, was recruited. He'd previously spent 15 years working for one of the U.K.'s largest technology management consultancy firms--PA Consulting Group--mostly on consumer electronics, telecom and software management projects. His background also includes a stint as Managing Director of Vebra Solutions, a software provider to the real estate market. He was also MD and co-founder of thinkproperty.com. He recently sold both companies to the Guardian Media Group, owners of autotrader.com.

His task at vzaar, which has about 12 FTEs, is to reposition the company, to continue helping it to mature, and to increase the pace at which it's currently growing.

So far, so good. The company earlier this month announced it had signed its 1,000th customer.

FierceOnlineVideo: So, what is vzaar?

Stephen McCluskey: Originally, it was really made up of very small businesses, or individual consumer users and that colored the initial business model of the company with low entry level pricing, which, to be honest doesn't really form the basis of the kind of business model you really want in a successful online video company.

FierceOnlineVideo: What changed?

McCluskey: The company began to realize that the customer base was shifting slightly and becoming increasingly professional as smaller companies started to use the service. Toward the end of 2009, vzaar began looking for a boost in terms of its strategic positioning and ongoing investment. More money was put into the company and I was brought on board in March.

FierceOnlineVideo: What did you do, initially?

McCluskey: I instigated a fairly fundamental strategic review; I looked at our competitors and the market, our marketing and funding and really started to sharpen up our business strategy. We've taken the focus away from the individual consumer user and targeted the small- and medium-sized enterprise customers. And we've been focusing on a number of vertical markets we feel we have some leverage to come from the reference customers we have. We're pretty big in the whole community field, like religious organizations, sports clubs, charities; we've got quite a few large media agencies using us, like Fallon in the U.K., and some pretty good profile through the National Press Association who use us, and we've got companies like Toys 'R Us, Budweiser, and IBM who are using vzaar.

FierceOnlineVideo: That's a pretty solid client list...

McCluskey: It sounds great, doesn't it? I wish it was for their entire global organizations... we're not quite there yet, but we do have parts of them working with us which is just fantastic. But, we're positioning ourselves quite well, and the key to this isn't that we're positioning ourselves as somebody else, but with what we actually bring to the market.

FierceOnlineVideo: What was the biggest change in vzaar's profile, and what made it happen?

McCluskey: Because we're a small company, we've been very agile, and that has allowed us to quickly turn around our product. We went from a video host whose users might have had a handful of videos uploaded over the course of a month, to one that has customers looking to upload multiple large files quickly. We had to build in a bulk uploader, for example, and multiple playlist functionality to enable our large-scale users to manage their portfolio of videos more effectively. And then we needed to be able to provide them with the analytics they needed to be able to justify the expenditure on the product. We've done all of these things since April.

My first day at work was on the 15th of March, and I spent much of the day with our developers looking at what we had in process.

FierceOnlineVideo: So, where is vzaar headed, who's its competition?

McCluskey: If you look at the online video platform market, it is an incredibly disparate market. You've got the larger companies, the likes of Brightcove and Ooyala, who really started, I think, from a different design philosophy some years back where they put many engineers in a room and created very long and deep, very functional product, that was aimed, arguably, at a conglomerate, a very large enterprise customer.

At the other end of the spectrum, you have a host of companies that are much smaller, often just a handful of people that are putting smaller software platforms together and are trying to do profitable deals with CDNs, etcetera.

FierceOnlineVideo: And that puts vzaar...

McCluskey: In the middle, I think. And that's where there's absolutely everything to play for.

For companies like us, Kyte, Kaltura, Fliqz, we're playing in a market that is just exploding at the moment in terms of growth levels.

Our sales are increasing on the order of about 25 percent month-on-month at the moment. It really is just going through the roof.

FierceOnlineVideo: Are you trailing the market, or are you beating the market?

McCluskey: I think at the moment the answer to that is that we've grown very quickly, primarily due to our product changing so rapidly and our positioning changing so rapidly. A lot of this has been driven by the U.S., with the European markets trailing slightly behind. We've always been a U.S. centric organization. About 70 percent of vzaar customers are U.S. based. I have every confidence that that growth is going to continue for the foreseeable future, which I'd put at 18 to 24 months.

We've got good backing, I've just raised more money, we don't have any large-scale VC, although they speak to us every now and again. The challenge I've got is to continue the growth that we're seeing and to improve, for example, the in-video advertising side of thing. And really evaluate where the market is.

FierceOnlineVideo: So, vzaar is hiring, growing, evolving?

McCluskey: We're recruiting quite heavily at the moment in terms of development, the finance side of the organization, and customer service. I would describe our stage of maturity as an organization as a very fast-growing adolescent. We're really getting to that point where, a the current rate of growth we're experiencing, I think that we're going to be a real contender in that market within the next six to 12 months.

FierceOnlineVideo: Can you give me an idea of your annual sales?
McCluskey: To be blunt, I'm not sure I really want to do that at the moment, because we're in the middle of an internal shareholder round, which positions us to grow, but I'm also in discussions with external investors and I think it's appropriate at the moment that I not comment on sales. What I can say is that we are looking to break even within the next six months or so. We're pretty close to that and I've just signed off a new contract to provide bandwidth which underlines our growth expectations. I would say a good order of magnitude more than what we have been doing to date.

We're past our initial growth phase, past our initial funding phase, we are in a quite rapid growth moment.

FierceOnlineVideo: What differentiates vzaar from the other OVPs in the market segment you're pursuing?

McCluskey: I think there's a combination of factors in terms of the product itself, I think we would argue that one of the reasons that our take up has been so strong is due to the actual ease of use of the product. I know an awful lot of people make that kind of claim in relation to software and online products, but I think one of the things we've worked on really hard in recent months is thinking through the whole customer, user experience from the very moment they first sign up for the service, their first upload, and then the management of that over time as well. I think there something about the user experience, and the user interface, of the product that really gives us an edge. I also think that the feature set is really quite good. Our price positioning, in relation to our competition, is one that I would describe as affordable. We're very competitive when it comes to not just the positioning in terms of price per bandwidth, but in terms of the value you get at the different pricing steps.

We're focusing very hard on just producing a really good experience for our customers.

FierceOnlineVideo: The No. 1 complaint I get from business owners, the main concern, is that online video is--to them--confusing. It's still scary to them.

McCluskey: I would agree with you that business owners who are looking at using online video need to be better educated in what that actually means. One of the frustrations that we all share in the online video space is that many of the current users of this service are only just becoming educated in the implications of actually taking online video on. One of the most frustrating things that we hear, for example through our customer service, is people who sign up, then discover that their own bandwidth limitations leave them struggling to use the service. Those are problems that are outside our control. And, what that means in practice, is that we need to ensure that we're providing an element of education. I think one of the things that will turn a lot of people off, are issues like that.

FierceOnlineVideo: The OVP space is destined to change, acquisitions, mergers, failures. What's your view?

McCluskey: I think the strategic options that are open to an OVP like vzaar will be multiple, particularly when the company has gone into profit, has a rich, more functional product and a strong customer base. At that time I think options like that are potentially on the table. I think the likes of Brightcove, Ooyala and many others would like to be bought by a CDN; I think that with the levels of investment some of those companies have got, that are arguably over capitalized at the moment, and the amount of money they're putting into their international growth and high-cost sales operations, means that they'll be attractive in terms of large scale and high visibility. But in terms of getting actual return, I suspect over time in this market--potentially vzaar--more of the companies in this middle market will be more attractive and cost effective acquisitions.

For what it's worth I also think that as the market consolidates, after this current growth phase, you'll see mergers come into play. Let me be clear on this, we're not discussing that with anyone at the moment, this is purely supposition rather than based on any activity on our parts.

You potentially could see another play on the scale of Brightcove or Ooyala on the international scene come through.

If we have this conversation in a year's times, I think vzaar will look different and the market will look different, too, because it's moving so quickly.

FierceOnlineVideo: Can the pace of growth that OVPs are seeing keep up? Is the middle enterprise market the key?

McCluskey: Yes; at least, I hope that that's true. Ooyala and Brightcove also are doing well to position themselves in that middle ground, but my contention would be that our product and service level are more geared to that type of customer than an organization that's been built around serving really large corporate enterprises as customers.

FierceOnlineVideo: Any specific hurdles that you, as a smaller company face, aside from recognition in the marketplace?

McCluskey: Yes, I think there are. If you look at larger companies, given their scale, I'm fairly sure that what they're getting in terms of their SEO spending and marketing will be infinitely better than we will get. Being smaller, I think you have to be much more targeted in terms of what you're trying to do. Brightcove can afford to spread their online marketing spend across every sector imaginable. We need to be very focused on what we're doing.

But being smaller can act in our favor as well, the larger an organization becomes, the more you lose your agility, so in a perfect world, we'd be living in that balance where you've maybe got 60 or 70 staff and you maintain your agility while actually continuing to have the scale that you need to spend your money effectively.

FierceOnlineVideo: In a nutshell, what's ahead for vzaar?

McCluskey: I don't think that it's going to take an awful lot, at the rate we're growing, for us to be considered a competitor. At the beginning of this conversation you said our profile was quite low, but if I look at our (search engine) rankings, we have been rocketing up; in the last few months, we're starting to get very much the same visibility online as some of the other middle rank competitors. That takes awhile for that to translate into any real brand traction, but I think it's happening.

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