Media Dojo

Archive for the ‘Cloud-based video’ Category

It can’t be a bad day when you close a $25 million round.

YuMe, a video advertising technology player, announced a third round of funding today. Led by Menlo Ventures and featuring its original clutch of investors (Khosla Ventures, Accel, BV Capital, DAG Ventures), a round this size in a difficult economy is solid validation that online video advertising has gone mainstream.

I caught up with Jayant Kadambi, co-founder and President of YuMe, just before they made their announcement. For a quick overview of the company, check out the Media Dojo Tear Sheet–YuMe.

Media Dojo: YuMe has been in the online video space since 2004, which makes you almost a senior citizen. How have the conversations you’ve had with publishers and advertisers about online video monetization evolved over time?

Jayant Kadambi: We started in late 2004, pre-YouTube. In one of our early pitches we characterized ourselves as a company at the intersection of Silicon Valley, Madison Avenue and Bollywood. In 2005 and 2006 we built a video ad platform in order to handle the monetization of video as it spread across web sites and live streaming, HD downloads, smartphones and iPhones, apps, IPTV, Roku boxes, and so forth. Basically, you needed a SaaS type platform to manage all of that complexity from the monetization perspective. So we spent two years working on the ad platform. And then we got a little lucky because YouTube just took off near the end of 2005. All of a sudden people were writing about how video was cool and people were migrating from old to new media. At the same time in 2005/2006, almost none of the big TV advertisers seemed interested in moving beyond getting their feet wet with online video. By 2007/2008, there were people running experiments and there were a lot of questions you might recall about whether pre-rolls were the right ad format, whether they were a nuisance or a necessity. People didn’t know what ad formats to use and what would be the best. There were no standards and so forth. In 2009, we saw people dive in with both feet. From last year, we got scale on both the publisher and the advertiser side. If you look at our video ad metrics reports over the past few months, it’s all TV advertisers buying audiences and trying to reach them efficiently at scale online.

MD: What surprised you along the way?

JK: The cool thing about the stretch from 2004-2009 is that when you look back in time at advertising spending from big advertisers since the 60s, it pretty much matches the advertising spending online that we have on page two of our latest report. The top spending categories remain auto, CPG, entertainment—-more or less the same ad guys are diving into the new medium as they were when soap operas first showed up.

MD: What about this year? Do you see a shift in video publisher and advertiser attitudes?

JK: The emphasis in 2010 is revolving around conversion. We’re seeing that the big brands advertising on TV are looking to advertise the same way online. They’re trying to reach their audiences on safe, well lit, premium content. Instead display and search people looking for clicks/ROI and performance based stuff, the brand guys are looking for contextual relevancy. In online video, they’re looking to reach 18-43 year males who watch a set of dramas to where you know the user behavior because you observed them watch bunch of videos. So the conversation we’re having with the media sales guys are what audience do you want to reach? It’s no longer an issue of explaining online video or why it’s cool. And the conversations we have on the publisher side is that publishers want to take their video, convert it into different formats and get it everywhere. They want to increase their user base. And when they increase that footprint, they want to know if they can monetize it on the iPhone, Android or a Roku Box. Brands and publishers have no problem going transmedia when they believe that the aggregation of content is safe.

MD: So, an alternate definition of “premium content” is that it’s immunized against porn, spam, racist or similar stuff. A publisher’s video site has a shot record to show brands so to speak…

JK: Exactly. That’s why Hulu does well. Everyone knows that Hulu has three types of content. ABC, NBC, and Fox. They know there’s no porn mixed in. Historically, ad networks for brands have had an oily reputation. We have been very careful to cultivate an image of being a short form version of Hulu. We’ve aggregated a set of premium content. It’s safe. And you don’t care as an advertiser where you are included because you know it won’t embarrass you. There’s a cogent argument to say that the recession has accelerated a flight of brand money from print, TV, and display to online video. It’s not a bad place to be when the tide is rising.

MD: Let’s talk new online video ad formats. Until recently, choosing among pre-rolls, post-rolls and overlays was about as appetizing as choosing from the chicken, the fish or the veggie on a cross-country flight. How are you adding more interactivity and performance to video ads?

JK: Last month, we launched something called Triple Play. Basically, it’s about adding different calls-to-action after the pre-roll runs. For example, the viewer can be presented with the opportunity to watch additional videos, learn more about a product, sign–up for promotional offers, or even visit a brand’s Facebook fan page. We are pitching Triple Play to ad agencies wanting to do certain things in video ad units that will show to their clients that there is activity and engagement by the user. If you follow the news, you hear the line “we only want to pay when there’s engagement” or we want to know how much the customer is engaged etc. The cool thing is that there’s a mouse, there’s video and you can have the user do things if it makes sense. You can poll them. Give them free stickers, win a prize or a lot of stuff based on the technical nature of video sitting in that player. Triple play gives the agency the ability to dive into it afterward. It’s good for the studios in that after you’ve seen a 15 sec trailer, you can click on a 2min version and go watch it. We’re using Triple Play and a clutch of over 20 video ad formats to put the advertisement in a video player in front of the customer after they’ve clicked on it and indicated, “yes I want to watch the video”. This is in contrast to putting that video ad in a banner below the fold on autoplay that you often see in a lot of display media.

MD: What’s your business model?

JK: We make money two ways. We take ad $ from the agencies and the brands. It’s a standard ad network model in that sense. We take a percent and spread the rest across our publishers according to the goals of the campaign. For the hosted app software, the model is license based. The video ad management and serving platform is called ACE . The video ad management is licensed according to a cost per impression basis or we barter it for inventory. We have a flexible model to where the publisher or agency picks what they want. If they want to pay us $10K per month for unlimited serving, they’re welcome to do that. Once people get really big, they like that kind of deal.

MD: Last question, what’s your crystal ball for the online video ad business in 2010?

JK: There’s no silver bullet video format out there if that’s what you mean. We regularly put out video ad metrics reports to show both publishers and brands what’s working and what doesn’t work. Our general attitude toward both sides regarding ad formats is they will know best what will work for a campaign and what their customers needs are. Run whatever you want and let’s go see what works. And what works may be different from client to client. Kids respond differently to different ad units than adults. The cool thing about online video is that we can give finely granulated targeting to the customer that then documents the performance of an ad unit. Over time we may figure out that power rolls may work better for people who watch sports while Triple Play works better for entertainment trailers. We won’t make sweeping statements because we think this stuff is complicated. The reason media is fragmenting isn’t 100% because of new devices. It’s fragmenting because people will make different choices under different circumstances.

Mobile app stores are in the midst of an algae bloom. Gartner is throwing out (throwing up?) numbers suggesting 4.5 billion downloads in 2010, $6.2 billion in global revenue, and 82% of all apps being free to the consumer. A multi-billion $ paid market off 18% of the available inventory would get most anyone hot under the collar.

That said, the new opportunities have created nearly as many headaches. Remember the giant pain in the ass just to format mobile content for multiple devices? Well, you can blow that figure up by several orders of magnitude once you kick in all the new engagement models with various calls-to-action. Then, think about the various app store policies for uploading, approval and distribution. Make no mistake. This is a much better world than the days when deck placement made or broke companies. At the same time, we’re playing for real money now.

We spoke with Goldspot Media, one of the newer players out there trying to bring some order to the app store chaos on behalf of creatives in publishing and marketing shops. Goldspot offers a web-based drag and drop studio called miApp that enables that fabled write once/distribute everywhere on any device for any app store. For the one-pager on Goldspot’s corporate vital stats, check out the MD Tear Sheet_Goldspot Media.

I caught up with Srini Dharmaji, Goldspot’s founder and CEO, just before taking off for Europe to talk about how this model plays out in the realm of mobile video advertising.

Media Dojo: What’s the end-game for Goldspot Media?

Srini Dharmaji: What we are trying to take to market is a video ad network for mobile applications, focusing strictly on mobile apps across the board for smartphone platforms. Our main objective is to enable mobile applications to do more than just work on display oriented mobile content pages. We are launching an ad network that is focused on delivering in-app mobile video advertisements.

MD: How does this work in practice?

SD: The idea is that so far video adverts were being rendered only as video content. The ad is spliced into the content stream in whatever sequence the publisher and marketer agree. This is part of the paradigm of manipulating pages of content but it does very little to add to the experience of a mobile video application. We’ve come up with some mobile app native formats, such as that the video ad will play while the application is starting up. So while the page is loading the video ad is overlaid on top. The app publisher might also split some of the screen real estate in which part of it is used to render the ad while the video application is displaying the content or asking the user to take some kind of action. The key thing here is how well and fast you render the mobile video ad.

MD: Staying on the business side before we dive under the hood, how are you taking this to market?

SD: Publishers, brands and agency creatives join the video advertising network and part of that includes access to the drag and drop design studio called miApp. We give them a set of APIs that unlocks the interactive assets they want to add to their original video content. The content originators then use the studio to add pre/post/mid rolls, in-stream ads, shrink & surround ads, overlays, animated Gifs, ad bugs and so forth to their source content. The two points to remember is that A.) control over everything from concept to deployment can stay with the creative person and B.) once they’ve decided on what they want, they can one-click deploy to any smartphone device across all app stores.

MD: Fair enough, now let’s talk performance. How do you make your video ads work better than what’s on offer from the usual suspects like an Admob or Millenial Media?

SD: The difference is that the big ad networks stream the video ads from the network. We place the ads on the device using what we call opportunistic downloads. So when the device is connected to Wi-Fi for example, we download all the campaigns that are running for the month. So that ads are sitting on the device ready to go. If you look at the latency improvement by using this method and our APIs, by the time an Admob video ad is rendered by Tap Tap or some other mobile video game, you need to wait between 10-15 sec depending on the bandwidth. In the time it takes for Admob to pull the stream from the cloud, Goldspot will have already played the ad.

If you look at it from a marketing standpoint, the big networks are taking a high quality video ad from a brand and re-encoding it to play for different bit rates depending on whether the device is tuned for an EDGE, 3G or Wi-Fi network. I’m not sure if I’m a brand and I’ve just spent many tens of thousands on creating that high quality video ad that I want a technology limitation to butcher the quality of my ad. That is something we believe is a big negative as far as rendering ads as it’s done today.

MD: For the moment, let’s take the secular growth of mobile media and advertising as given, where will the new markets and new devices arise?

SD: Rather than talk about specific devices, let’s look at the more broad use case in which you have networked devices which aren’t mobile phones. If you think about something like iPod Touch, which has sold many more units than iPhone, it’s not always in contact with a Wi-Fi network. Chances are the demographic playing the game might be a good candidate for an advertiser but s/he’s not connected to the network. What do you do? Because we’re able to render and download adverts to pre-cache them on the device while connected to Wi-Fi, we can then show the adverts when the user is offline. There are already some standards brewing for offline decoding on the advertising content for networked devices that deal with sporadic connectivity. We think that’s a major growth area.

MD: Certainly a lot of moving parts. Last question then. How do you define success?

SD: All the publishers care about is show me the money. All the brands care about is show me the engagement. You’re dealing with two different animals here. The way I define success is make the whole ecosystem happy and sustainable.

This year’s U.S. Open Tennis men’s final saw Juan Martin del Potro stun number 1 ranked Roger Federer in a four hour, five set drama. Potro’s first victory in a major tournament denied Federer a sixth consecutive U.S. Open title and provided tennis fans one of the most riveting finishes in recent memory. Aside from the buzz courtside and on television, the 2009 U.S. Open also broke new ground for live video streaming. Here are a few stats from the 2009 tournament which went from August 31 until September 13:

Live Match Streaming on USOpen.org:

• There were nearly 14 million (13,891,115) activated streams on USOpen.org.
• More than 2.5 million hours of live streaming were viewed (2,531,236 hours).
• 157 matches were streamed live.
• The interactive media console to access live streaming was launched 3.8 million times over the course of the tournament.
• The average length of stay on the media console was two hours and forty-five minutes.

While the 300 hours total video content of the 2009 U.S. Open tournament doesn’t match the 2200 hours of online video content connected with the 2008 Beijing Games, the U.S. Open tournament is among the single sport leaders in online video streaming. Behind the scenes, there was a clutch of online video companies that brought everything together. I spoke recently with Darcy Lorincz, CEO of Origin Digital about the U.S. Open as well as how they’re using Microsoft Azure to support their video encoding/transcoding efforts. For more info on Origin Digital, check out the Media Dojo Tear Sheet.

Media Dojo: First, let’s start off with the DNA of the company

Darcy Lorincz: We’ve been in the business of media processing for over a decade. The original company was started in 97 and called Live On Line. We spun out Origin Digital in October 2006 and were acquired by Accenture in May 2008. Where we concentrate is in encoding and transcoding, heavy lifting of video, audio and image assets. We started out like most video companies by racking and stacking boxes against customer workflows. Historically in the encoding and transcoding business, you put a box against a job and when the job is over you wonder where it’s going to be used next.

MD: Is that how you got into cloud computing?

DL: Well, it was a little more complicated. The whole game here is efficiency—in the hardware, in the workflow, in the delivery, in the people. At the first level of efficiency, you’re mainly talking about automating how you ingest video content and assign resources against it. So we built an automation layer that helped us get away from a lot of the bespoke operating systems for all the devices we needed to support. After you automate how you take in video content as a file or as physical media, the next level up is virtualizing the resources. This gave us the ability to load more customer jobs onto the same machines to boost utilization from the typical 10-20% level all the way to nearly 60% before we brought in more resources. Cloud computing is the third layer up in which we’re now bringing elastic resources into our data centers. When the automation layer detects that we’re running close to our internal capacity, it starts pulling compute resources directly from Azure depending on the specs of a given customer job. It might be that if a customer service level agreement (SLA) states that we’ve got to encode a job for X number of formats within a hour, we might spin up 200-300 Azure instances to crunch it in parallel. If the SLA says we’ve got 10 hours to do the same job, we’ll spin up 20-30 to run longer. But the beauty of cloud computing in general is that ability to dimension resources against a business relationship more than a technology constraint.

MD: What about the U.S. Open tournament?

DL: Two years ago, most broadcasters only cared about linear programming of video to your television. They still care about that but now want to guarantee what happens on your second and third screens because there are viable options for them to monetize their media in all of those mediums now. It’s real dollars now not funny money. So they need to figure how to scale that, how to maintain quality. Live events like the U.S. Open are a massive issue because you have these huge spikes in interest and activity. With typical professional sporting events, you might get 1-2m online and mobile viewers showing up. We had 13 million digital viewers over the course of two weeks with this tournament.

MD: You mentioned mobile video a couple of times. How big is that getting? Where do you see it going?

DL: 2009 has definitely been a huge growth year for mobile video. I don’t have exact stats but it’s been at least 10 fold growth from 2008 for sure. From a pure bit traffic POV, mobile growth doesn’t compare to online video. But it’s arguably more significant because mobile video is growing so fast from a base where we never saw that kind of consumption before. Mobile growth isn’t simply smarter devices. It’s also smarter consumers. Additionally, content owners are a lot more savvy about the mobile medium perhaps because of some lessons learned in online video beforehand. So they’re presenting you with content that’s optimized for mobile as opposed to content that’s been shrinkwrapped for mobile. It’s becoming a one click experience rather than the consumer needing to hack through various carrier decks to find something.

MD: Last question. Where is the opportunity going forward in online video in terms of new customers and new money?

DL: It’s true that we started mainly in the media & entertainment vertical. However, M&E isn’t where the majority of opportunity is today. The real opportunity is in enterprises using video as a storytelling medium for their internal and external corporate communications. Our customer base are the Fortune 500 companies. Video evolution is a big issue in that market. How does the marketing department, HR and other corporate arms use the new medium to create a more interactive experience for their constituents whether they are employees, partners in the value chain or even consumers? While enterprise customers need to be sophisticated in creating and positioning their messages, they shouldn’t need to worry about distribution. So we see our position and advantage with cloud computing as being able to put resources against that massive need. Enterprise clients can dump their video into our automation system and it just gets published and distributed where it needs to go in all the formats and bit rates that the people on the other end need to have. In that sense, we’re like a head end for enterprise video.

Online video is huge in terms of users. Online video is more huge in terms of usage.

So where’s the money?

That seems to be a standard story line these days in both general press and on blogs. Everyone spouts off about whether online video will overtake TV, when and how. The inserted bias to these stories is that online video is a mathematical function of television, as conceived and organized by the television industry. By definition, if the image moves or is animated, it must be either film or television. But that’s a lot like benchmarking an Indy car against horse drawn carriages because both have wheels, need a road or a track, and are used by people for transportation. You can figure where the logic is leading….

So, it was a breath of fresh air for me to speak again with Sean Knapp, co-founder and CTO of Ooyala regarding a new project the video platform service provider is doing with Wheels TV and eBay Motors. For more corporate info on Ooyala, here’s the Media Dojo Tear Sheet–ooyala.

Ooyala is working with Wheels TV to market test POV (pre-owned vehicle) reviews on eBay Motors.  It’s a new, video-based consumer shopping service for people looking for pre-owned vehicles. Each five minute POV video review contains road tests, walk-arounds and data addressing reliability, safety and fuel economy information related to about 200 make/model/year automobiles for sale on the eBay Motors site.  The POV Reviews are produced in cooperation with J. D. Power and Associates.  JDPower.com’s Power Circle ratings suggest trends in overall dependability, performance and quality on every vehicle. POV reviews also include mileage estimates from the Environmental Protection Agency and crash test videos (yeah buddy!!!) from both the Insurance Institute for Highway Safety and the National Highway Transportation Safety Administration.

Naturally, viewers can share the videos across their personal networks.

Here’s some sample videos:

BMW 3 Series

Ford Mustang

Honda Pilot

The primary benefit to the buyer is that video can crunch several hours of research on the make/model of a given automobile into about five minutes. Translated, the videos give the buyer quick, effective talking points for persuading their significant other around the dinner table that it’s the JD Power *safety* rating that makes the BMW 3 Series a smart buy, rather than the kick-ass pick-up and handling, not to mention the fire-engine red color and awesome trim.

I spoke with Sean about how Ooyala is handling the video demand, especially from the viewpoint of analytics.

Media Dojo: What kind of analytics will eBay Motors get with these video streams?

Sean Knapp: They’re basically getting the full suite from us ranging from geographical breakdown, to the unique user base to how many uniques they’re getting on a daily, weekly and monthly basis. They’re also getting behavioral analytics that pinpoint which particular part of the video people watch, what’s the abandonment rate, who’s skipping ahead. Then, they can start looking across video to compare the acquisition/retention curves for the Ford Mustang versus the GMC Envoy on the site. Finally, eBay Motors is using our API to pull in data that they’ll crunch using their proprietary in-house analytics systems.

MD: Are online video analytics going the way of other digital analytics in becoming more performance-based as opposed to just exposure-based?

SK: How we monetize content isn’t based as much on the number of impressions anymore. The issue is that over the next few years there’s going to be a 10-30X increase in overall video content served even though there will be only a 2-3X increase  in the number of viewers. So what users are doing with video becomes the key metric to track as opposed to just who is being exposed to video. What video content are users accessing? How are they consuming that content? How are they responding to advertising?

MD: Granted the need for better analytics, are publishers really becoming more sophisticated about using video?

SK: On average, people are getting more sophisticated on the buy side. Publishers are looking more closely not just at how consumers are consuming their content but how the publishers are monetizing that content. Over the course of the past six to nine months, we’ve gone from supporting  2 or 3 ad networks to supporting 12-15 different ad servers and ad networks plugged in to our platform. Publishers are getting away from saying just “How do I get video into my site” more to “How do I refine the video on my site? Which knobs should I turn to get people to consume it? How do I extract value from that consumption?”

MD: Obviously, eBay Motors has a clean benchmark for monetizing the content (e.g. brokering sales). What about other sites that aren’t squarely in the e-commerce bullseye? What trends are you noticing in terms of their ability to monetize video content?

SK: In terms of monetization, there’s no silver bullet. There’s some value in a video CPM and some value in a CPC. But it all eventually falls under the umbrella of some kind of Cost Per Action. We think the better players will be those who carve up a broader publishing base into finely sliced niches against which people can advertise. Auto is a good category in which there are numerous niches for targeting that can be aggregated into a bigger media buy. But to get to that place, you’re going to need to see the larger video platforms get into closer collaboration with the larger ad networks. Everyone needs to help create a larger media buy ecosystem. To get the best exposure, brands can’t just dip into the top 100 sites of a given category, but need to get into the top 100,000 sites. This means that a lot of mid tier publishers using video will need to offer more sophisticated analytics to get that business but it’s not likely that they’re able to build that in house. That’s where the large video platforms like us come along.

MD: Last question. How much cloud computing horsepower have you added to keep up with demand since we spoke last spring?

SK: We’re seeing anywhere from 30-40% growth on the low end per month to over 100% growth in certain months. It depends on the metric you chose whether it’s GB ingested, video hours served, video users reached. We’ve been able to scale things through good partnerships with our Content Delivery Network (CDN). We also have a very good distributed computing team in house. We built our transcoding and storage applications to site on top of cloud infrastructure from day one. Today when you upload a 2hr length full movie to us, it will hit anywhere from 10-100 different encoding machines operating in parallel. We can now encode a HD quality 2hr movies substantially faster than real time by operating in parallel on cloud infrastructure.

The last company to present during last week’s AWS event was Zumobi. Spun out of Microsoft Research in 2006, Zumobi is betting on superphones such as iPhone, Android and Palm Pre as platforms for mobile application-based advertising. According to John SanGiovanni, Zumobi co-founder and VP of Product Design, superphones sport full fidelity browsers, robust SDKs, 3G speeds, as well as GPS capability. Given superphones’ capacity for high-end processing and rendering, branded mobile applications rather than display banners constitute the most important mobile advertising inventory.

Zumobi got its first taste of cloud computing with AWS through the 2008 Summer Olympics. Lenovo and Intel were the main sponsors for branded mobile apps that needed to stay in synch with the evolving action in Beijing in terms of updating scores and provoding other context tual information. With the large amount of stored data that needed to be accessed rapidly, Zumobi started out with Amazon S3 as its primary data store for the Olympics. That experience led to the next branded project which was working on the Xbox 360 launch for Microsoft. For that project, Zumobi tried out EC2 for the first time. They also worked on their own back-end to tune some of their internal load balancing systems to accommodate the Amazon infrastructure. Then came work with American Idol which pushed the AWS partnership harder as scale and speed requirements co-mingled. By that time, roughly 7-9 months ago, Zumobi decided to port nearly all of its operational infrastructure over to AWS.

Aside from the evolution of the Zumobi/AWS relationship, John focused on how to parse some of the blizzard of iPhone and other superphone statistics spit out by the research industry and the media. There may well be over 1 billion apps downloaded from the iPhone app store. But the vast majority of these are “transient” apps (e.g. beer sloshing and fart sounds), meaning that they live isolated on the mobile device for a limited period of time and then are uninstalled. There is very little scope for network interaction.

Zumobi places its future on mobile applications in which there is a strong content anchor. By that, John meant that there is a recurring, refreshing dose of content that keeps the app active and conversing with a network service. Hence, a branded app from REI that allows a skier to source snow conditions on selected resorts fits the criteria. Zumobi partners heavily with media companies to get rich recurring content to fuel the app, drive the engagement with the user, and increase the value of the mobile app to a potential sponsor.

The issue brought up by superphones is that now, the bar is raised for recurring content to include video, real-time data, images all of which point to massive scalability issues with a mobile app. “In order for us to build a network of superphone applications, having a flexible data center is absolutely imperative”, he says. In concrete terms, John said that going wholesale with AWS has eliminated fixed costs (as a matter of course) , and save around 80% in variable costs. Along with the costs savings , SanGiovanni notes that Quality of Service, Quality Assurance, and geo-location functions have been greatly improved.

Of cource, whether this is a match made in heaven will be decided once Zumobi launches a major app right as AWS has a hiccup. I’ll be curious to see how the company plans for disaster recovery having put so many eggs into the same basket. That said, the fact that AWS was able to produce a clean example of a customer putting their operational destiny on the line is worth noting.

Time for the second installment of last week’s Amazon Web Services (AWS) meeting for local start-ups in Seattle. Rounding out the four customers presenting last Thursday were two Seattle-based media plays, nuTsie and Zumobi.

First up was Bob Wise, VP of Engineering of nuTsie, (www.nutsie.com), which allows people to port their iTunes play list across web and mobile platforms, including Blackberry and iPhone.  Basically, nuTsie takes a user’s existing iTunes library and rolls it into a streaming service much like Pandora. They don’t use the actual music in the library but the meta data about the songs and/or a playlist to create a super customized experience anytime, anywhere. If it seems a little disjointed there is method to the madness. Music licensing remains a mess even after a decade of industry tinkering. Like Pandora, Melodeo must make all its music streaming DCMA compliant so legally nuTsie is considering web radio rather than a a formal music distribution service.  The primary outlets are streaming for the web and for mobile phones. The business model is based on advertising for web streaming and subscriptions mobile phones.

For plumbing, Melodeo uses Amazon S3 to store and serve up the audio files (several TB in aggregate) that stream via a Flash player. The web-based nuTsie service gets about 10 million page views per month with about 10,000 hours of streaming music content served up each day between the web and mobile components. Both the streaming service and the mobile play are hosted on AWS. Bob said that for a typical load, it takes about 40 EC2 instances (think 40 virtual servers) that are about evenly split between large and small instances with one extra large instance for the main database. If you do a back of the envelope calculation it works out to roughly $10-15 per hour for pure compute capacity. Remember that nuTsie is also paying for data and certain transfer bandwidth charges.

source: http://aws.amazon.com/ec2/#pricing

One aspect of Bob’s presentation I liked was how he illustrated the effect of business forces on technical design. Chris Anderson of Wired fame used music as exhibit A of his Long Tail hypothesis. Bob said that in his experience the long tail might be long but it’s also thin as fishing line. Basically, this means that ultimately the number of music plays instead of the number of music tracks is what makes or breaks the business. Given the fact that the action stays with a relatively small number of tracks, nuTsie uses Amazon S3 as a content delivery network (CDN). If it sounds strange to use a data storage service to serve up content, take a look at charging. With many other CDNs in the market, a business is charged according to how much data sits at the edge node plus the transfer bandwidth to the end user. Thus, the key cost point is how much you get charged for keeping music tracks in storage which aren’t being played very much. Sticking several TB of music data out there on various edge nodes is an expensive way to do things. If you look at parking data similar to parking cars, loading rarely played music or video on an edge node is a bit like using a parking meter or a temporary lot whereas oft-played content needs the equivalent of a monthly reserved space. It’s an imperfect comparison I know. However, it’s decently clear that some of the heavy lifting for media providers is to figure how thick is the head of their demand model and how thin is the tail. Otherwise, it’s money out the door, cloud or not.

Andrew Heyward speaks fluent television, having been President of CBS News from 1996-2005. He’s also highly conversant in cloud computing. A senior advisor to Marketspace LLC, Andrew co-wrote with Marketspace Chairman Jeffrey Rayport a public policy study on cloud computing, sponsored by Google, which argued that there are eight fundamental elements for “enabling” the cloud to realize its full potential. While policy-makers can play a supportive role, the cloud, like the roll-out of the Internet before it, is taking shape on its own, in ways largely mediated by market forces.

[Editor's note: http://www.marketspaceadvisory.com/cloud/]

The big issue, however, isn’t policy so much as cui bono? Deciding who benefits and who pays in a cloud-based environment won’t be announced in a press release announcing a policy initiative. It’ll require similar block-and-tackle work to build an ecosystem as we saw in Internet circa 1995-2005. The paper lays that out on page 4 of the executive summary:

“Despite such an exhaustive array of benefits and the already high rates of consumer adoption, the cloud remains in its early stage of development. To become the next computing paradigm – democratizing computing resources for the masses – the cloud will demand an ecosystem. That ecosystem will go far beyond the obvious examples of providers of cloud services (operators of data centers) and their customers (individuals and organizations). It will require sustained innovation from digital device manufacturers, bandwidth providers (cable cos. and telcos), and content companies (media, content and software makers, among others).”

I spoke with Andrew about the potential implications as they might apply to the cable television industry.

Media Dojo: Who was the intended audience for the paper?

Andrew Heyward: The paper was intended for an interested lay audience. That’s why it spent a lot of time looking at what was standing in the way of adoption of cloud computing, what could accelerate its adoption, and what are the policy implications. So, the final audience was policy makers on Capitol Hill.

MD: How does the money flow in today’s cable television industry?

AH: The simplest taxonomy is that a studio creates a show and sells it to a cable channel like TNT as part of the line-up. The channel is carried on cable systems owned by companies like Comcast, which pays fees back to the channel, who pays the studio. Of course, it’s a lot more complicated when you factor in revenue shares from advertising, but that’s essentially the historic structure.

MD: What is changing with professional video content?

AH: Professional video now comes in multiple flavors. You have video that was created from the start for online consumption, like the “programs” on Blip.tv. Then you have video that was created for traditional distribution that ends up online in a parallel life on a site like Hulu. An emerging consumption trend is that people have become used to an online experience and now want similar features with professional video such as the ability to share, the ability to tag, to comment or interact in numerous ways. This is common on the web but still primitive or non-existent in traditional video environments like cable or especially broadcast television.

MD: How does the maturation of online video affect the today’s television industry?

AH: The biggest change is that long form online video has become a legitimate competitor to traditional distribution. That means the TV business must successfully navigate two countervailing ideas. The business was built on aggregating audiences through scarce distribution channels based on compelling content that wasn’t available elsewhere. So television distributors could charge those viewers directly through subscription fees or indirectly through advertising in order to fund the ecosystem.

To the degree that online video becomes a separate major source of entertainment and information; it stands the chance of disintermediating the distributors which are the broadcast, cable and satellite networks. At that point, the cable provider will ask why it’s paying for something that people are going to download for free anyway. Here’s where the Internet is a great disruptor because it allows content creators to bypass these filters/barriers to production and then distribution.

While this is happening on the industry side, on the demand side you have people wanting to become their own media programmers. That trend is coupled with growing consumer expectations that content is going to be available online and they’re going to be able to do things with it. So professional content creators are wrestling with the dilemma that they need to make video available to customers how they want it and when they want it. But in the short term, they must try to do that without jeopardizing or cannibalizing the traditional business model that is based on exclusivity and scarcity.

MD: Where does cloud computing fit into this matrix?

AH: Cloud services can help companies that have dramatic demand cycles by allowing them to “rent” extra computing capacity only when they need it. But the real innovation is that the cost of distribution is coming down to virtually nothing.

[Editor's note: I've posted several times my belief that the game changer from cloud computing is far lower costs for HD-level video production/distribution combined with the ability to make video streams as interactive as any other form of Internet content. Speaking with Andrew I thought that cloud computing will unmistakably surface whether the true competitive advantage of today's big video players is based on their control over the creation of compelling content or their control (now slipping) over content distribution. I'm not looking for a press release to announce when we cross that line. I'm listening for an "A-List" video content creator like a Spielberg to publicly state that it's more important for their work to debut online than on screen or on TV. It hasn't happened. But it's a matter of time.]

When I first heard that ooyala means cradle in Telugu (a South India language), I thought about that creepy flick with Rebecca De Mornay who quotes a riff from the 19th century poet William Ross Wallace, For the hand that rocks the cradle is the hand that rules the world.

Fortunately, ooyala’s CTO Sean Knapp isn’t as good looking nor as psychotic as Ms. De Mornay was in that film. That’s probably a good thing for video content players like AOL/Bebo, Armani, Joost, Electronic Arts and Glam who trust ooyala with managing and helping monetize their video assets on the cloud.  Sean co-founded ooyala with fellow Google and Stanford alumni Bismarck Lepe and his brother Belsasar Lepe. For a quick run-down on the company, check out the one pager. MD Tear Sheet on ooyala

Sean and I discussed the ooyala’s DNA, how it uses Amazon’s cloud, the trend toward clickable interactive video for clients such as Armani, as well as take-aways for marketers about what is possible here and now with interactive online video.

Media Dojo: What lit the spark for starting ooyala?

Sean Knapp: The original catalyst that Bismarck approached me to solve was how do we build a high level video destination site that would monetize better than with pre/post rolls, in-stream ads or overlays. We looked at it and noticed that we had a good bit of computer vision expertise in the company. We felt that if we could use computer vision techniques to mark up a video and make various elements clickable, we could make them more interactive and engaging, which would monetize better in the end. It’s the difference between having a banner ad and having AdWords where users were proactively engaging with the content and looking for more information.

MD: So where do Amazon’s cloud services come in?

SK: The original idea was to build an interactive video destination site. What ended up happening along the way true to Google engineering form was that we needed to solve a lot of different related problems. The first technical problem to solve was ingestion, or how will be take content into the system very easily from our content owners. So we starting building Backlot along with storage and video encoding services. But as a three man team, it didn’t make sense to start trying to build a network storage system even though we knew we needed one to store a lot of video content. It didn’t make sense to start building racks of servers when it was possible to buy instances of Amazon EC2. I could draw a lot of parallels between what we could buy from Amazon compared to the tools we used when we were at Google. From Amazon, we bought S3 storage services. At Google, we used GSS. We buy EC2 from Amazon. We used Google Borg for much the same thing. Basically, using cloud services made it much easier to grow quickly. Our goal is to help content owners successfully upload, distribute and monetize their video content online. The fact that it’s running mainly on the cloud is great but it’s not the ultimate value proposition. The cloud is simply the enabler that helps us innovate faster.

MD: Let’s define interactive video, what do you mean by it?

SK: Our goal is to make online video clickable. We want to find the points in a video stream where people might want to interact with a piece of content. Perhaps they’re attracted to the particular hat Halle Berry is wearing in Swordfish. They want to find out about that hat and maybe where to buy it. You might have an informational video where it’s even more important for people to be able to click on various items to expand an explanation. So the trick to making video interactive is two fold. First you need to populate it with targets that people can click if they want or skip. Those targets need to be discoverable at the points where people are likely to want something extra in their content. Then you need to link those targets to something else, maybe the latest stats for a college hoops player during March Madness, or maybe an e-commerce link so you can find a jersey or something like that.

MD: ooyala was recently involved in helping Armani create an interactive online fashion show. What happened with that?

SK:We got connected to Armani through an Italian online design shop called Shadow. They had used our technology and APIs previously for work they’d done for an Italian professional soccer team. They’d heard about our push into interactive video. So when Shadow got the contract to build Armani’s online fashion show, they pitched the idea of making the video clickable and Armani went for it.

[editor's note: go here to play with it-- http://www.emporioarmani.com/index.asp?ssp=1&tskay=3FD17CD7 ]

Basically, you choose whether you want to see the men or women’s line. As the models parade on the cat walk, you can mouse over their clothes to get a link to that look in the Armani catalog. It’s a pretty straight forward e-commerce implementation. The main point is that it’s entirely up to the user regarding when they want to engage closer to a transaction. No overlays or interstitials are involved. Just watch the video and when you see something you like, you take action.

From a marketing standpoint, interactive video is about increasing the overall engagement time for the user—but on their terms. Most users like to operate on the assumption they are in control so when they feel like their being interrupted or pushed in a particular direction, they tend to bail fairly quickly.

MD: All well and good—what are the potential gotchas with interactive video?

SK: One of the things that we’re finding is that interactive video doesn’t really work as an out-of-the-box solution. There’s not a default user experience that you can monetize immediately and predictably. We’ve found that every implementation has been custom built because everyone’s content is different. What will trigger user engagement in a fashion show is different than a sports event or a comedy or a drama or even an instructional video. So it’s important for content owners to be sophisticated about envisioning how interactivity can enrich the user’s experience, and by extension, lead to better chances at monetization. What happens, the different calls to action, and what is engaging depends very much on the content itself.

MD: Last question, where’s the money in all this?

SK: We’ve concentrated on the bread and butter issues to get to this point with ooyala. Longer term we see the value proposition expanding to look at how to monetize situations involving different users in different context. For example, if you’re running ads or pay-per-view, being able to dynamically price a view of a video direct to the user or direct to the advertiser could be huge. Should this stream price at 0.05 or 0.15? Well, the answer depends on the user, their specific context, and which ad inventory is available at that precise moment. We’ve all got access to much the same ad inventory. But it’s about who will get higher interaction and engagement because they’re showing the right ads to the right users at the right time. Optimizing at the margin to make milk out of that last 15-20% of possible revenue is the difference between a Yahoo! and a Google.

[Editor's hat tip to Alexa Lee for setting this up]

OK…one of the first trial balloons at the intersection of cloud computing and media. Basic gist is that cloud computing will be the technology medium that flips media and advertising from a mass market business to a direct to consumer business. Cloud-based systems do so by changing the economics and performance of high end video production, syndication and ad serving. Cloud-native video will change the value consumers place on ALL forms of video content, just like simple HTML and blogging software changed the value consumers placed on ALL forms of text-based content. This will rock professional video producers/broadcasters/marketers even more than than their print-based counterparts.

AdWeek Column on Media and Advertising’s Killer Cloud