Media Dojo

Archive for the ‘MD Company Profiles’ 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.

All too often, the term “media” is larded with the specific baggage of the entertainment industry. I take a more expansionist view of media, along the lines of Marshall McLuhan, one of my intellectual heros.

To me, media is an extension of our nervous system, both in how we think and, more importantly, how we act. Media can entertain, sure. But it also needs to inform. It’s not typical to think of WORD, PDF, or XLS as media. But these file types face similar challenges as other media types in the quest to capture a user’s attention and mental investment to help them achieve a goal.

For a long time, however, the need for enterprise information to connect to the user through design of a decent user interface took second place. Users forced themselves to forget all those hellish rows, columns, macros and other stuff to get to the information underneath.

Nowhere has the importance of information and the impotence of decent UI design been most pronounced than in mobile information. Shrink wrapping poor desktop interfaces to create perfectly horrible mobile interfaces was a time honored tradition until Apple put a match to tons of dry pent-up demand with iPhone.

Now, cloud computing is promising to take mobile information to the next stage. One of the pleasant surprises in doing the research for GigaOm on mobile cloud computing was that it surfaced enterprise media applications that are pushing the envelope as hard as entertainment oriented apps. Through that project, I met Roambi (roaming business intelligence) out of Del Mar, CA. Media Dojo Tear Sheet–Roambi

Romabi is a cloud-based mobile media play for enterprises. I call it a media play because it transforms numeric data into unique visualizations that are specifically designed to be viewed on an iPhone.

I spoke with Roambi CEO Santiago Becerra and his team about data visualization as an application and aesthetic for smartphones, specifically iPhone.

Media Dojo: Please define Data Visualization..

Santiago Becerra: Data visualization tools and applications enhance the user’s comprehension and absorption of information that is presented to them. The goal is to help users consume data in a much more insightful way to where they can derive the meaning of the data more easily.

MD: You and your team started in the business intelligence and data visualization worlds before launching Roambi. What drew you to mobile devices?

SB: We got ahold of the iPhone when it first came out and were quickly impressed that we weren’t holding a phone in our hands but a handheld computer. We were so inspired by the graphical capabilities and power of the phone that we thought it was the perfect platform for data visualization. What we found in our research is that the mobile market was very successful at connecting people to people but not so successful at connecting people to their data, especially their numerical data.

That’s where we saw a need for and a benefit from data visualization tailored to a small screen device. Typically, when data intensive enterprise tools move to a small screen device, they tend to be desktop solutions that have been mashed down to fit into a smaller package. That leaves the user experience completely unusable and unreadable as you try to navigate around. That’s where we saw a need for and a benefit from data visualization tailored to a small screen device.

MD: What about customers? Who is trying this out?

SB: Although our background is business intelligence, our target market is data visualization, which is much larger. It’s about being able to consume any type of numeric data that’s flowing around the organization. Around 80-90 percent of the “stuff” you find in a firm is operational information that flows in PDF, XLS or even in print outs. The mindset is for people on the go who need to access this information much faster, sometimes in more physically challenging circumstances. We’re getting a lot of traction from pharmas with large sales forces who are typically out of the office. They come in and out of offices many times each day.

MD: How does it work in practice?

SB: We have a web publisher that ingests the numeric data, re-formats and interprets it for optimal viewing on the iPhone. The web publisher sits on a server that’s either installed in-house or accessed by the customer as part of a SaaS offer. The user needs to download a free client onto the iPhone for display and storage. We make revenue either through the software licence or the SaaS subscription.

MD: How does Romabi employ cloud computing?

SB: What brought us to the cloud was the tremendous uncertainty about how big and how fast the business in this space would grow. There were no comparable services to gauge our capacity needs. Basically, we were looking for a way to scale quickly. The most flexible option was the cloud. That allows a small company like ours to gain tremendous capacity from day one. Aside from the local code that runs on the iPhone, all the rest is in the cloud. In house we only have our source code for developers. All the production is cloud-based.

MD: Last question. I know you work with Saleforce.com with data visualizations. Are there appreciable differences working with a partner who’s already in the cloud versus one who is not?

SB: Historically, we tapped on other vendors APIs such as SAP and went through the same process or inheriting their security model and working from there. However, some things are easier in the cloud. For example, with SalesForce we can access a set of pre-canned templates that are instantly available to any mobile SF user without having to go through our web publisher app. So if a SF user with an iPhone downloads our app and goes to the SF portal, he will see standard SF reports instantly available to download without going through the publisher to convert it. On-premise it’s not as easy. We’ve got to have IT help us with the on-premise data.

Another equally important aspect is the ease with keeping the data up to date via a cloud-based partner. SalesForce is always live and always changing. Rather than uploading and reformatting a XLS file each time it changes, the SF visualization changes with changes in the data.

Over 100 million games installed in 18 months. 40 million monthly players. 9 million daily players. Already profitable. 200+ staff spread around offices in Europe, US and China.

And, by the way, they don’t own a single server.

It’s often the case that when you use the terms “social”  or “cloud-based” to describe a company or a business venture, a lot of people roll their eyes—often for good reason. The bullshit to hard numbers ratio often exposes that you’re dealing with just the marketing phrase.

In the case of Playfish, the numbers speak for themselves. Founded in late 2007 by people with deep roots in the mobile ecosystem (e.g. Nokia, Glu Mobile), Playfish launched to take advantage of Facebook and MySpace as distribution channels for games. For quick overview of the company, check out the MD Tear Sheet.

Earlier this month I spoke with Sebastien de Halleux, Playfish co-founder and COO, as part of a research project for GigaOm Pro. The following is a more extended interview.

Media Dojo: Please define social gaming…

Sebastien de Halleux: Social gaming focuses the value on the interaction between friends via games as opposed to concentrating the value on the product side by selling a copy of a game. So we’re heavy on the idea of a game as a service and the connected nature of social experience as opposed to concentrating the value on the product side of selling a copy of a game.

MD: To state the obvious, then, how do you make money?

SH: From a business model point-of-view, the Playfish model employs micro-transactions during the game as well as in-game advertising.

MD: How does Playfish operate in the cloud?

SH: All of our business and commercial infrastructure runs on the cloud. The company literally only has laptops. We use Amazon S3 for storage, EC2 for computing, and use Cloud Front for content distribution across the fixed and mobile web. We were founded in October 2007, which was the first time you could get an entire company purely in the cloud.

MD: There’s a lot of mobile DNA in the company as well, how do you see social gaming in the mobile space?

SH: Today, there are about 1.5 billion web users worldwide who have access via a laptop or PC versus 3.5 billion mobile users, many of whom have some level of access to the Internet on their mobile device. So there’s already a very strong skew toward mobile computing in general as an access layer, especially outside the US. Social gaming is all about bringing a shared experience to a group of friends, wherever they are, whatever their access preferences might be.

It’s clear that more people are shifting a greater amount of their time from the bigger screen stationary experience to the smaller screen mobile experience via smartphones and netbooks. It’s not a function of us dictating that the user must have a specific device to enjoy a particular kind of content experience. It’s a function of the user choosing the stream that’s most adapted to their lifestyle at any given moment. As a service-based game company, you need to be able to offer a meaningful experience to people regardless of their access device or the social gaming model runs into problems.

MD: How does this work in practice?

SH: We launched an iPhone and iPod Touch version of one of our most popular titles, “Who has the Biggest Brain?” at South by Southwest this past March. It reached number 2 position in the Apple App store in the UK and was a top 5 mobile game in many other countries. The look and feel of the game is the same whether you play on your iPhone or your laptop even though the underlying rendering technology and input method is different. The key similarity is that your friends, who are Facebook friends in this case, are present as part of the experience regardless of whether you’re using your iPhone or a laptop. Moreover, your score and your progress within the game are preserved even if you pause it, change access devices, and re-start.

What’s important for the user is that they no longer think of the device as the platform but much more as the means to connect to the service. For us, the “platform” is the social network.

MD: What needs improving for the user to forget or not care about the access device they use to play one of your games?

SH: The iPhone is a revolutionary mobile media device but has atrocious connectivity once you get away from a Wi-Fi connection. It’s typically a use case never to assume 100% connectivity to a mobile cloud service. Managing this duality of being based in the cloud, but needing to maintain availability to the end user on questionable infrastructure is a huge technical and design challenge. Practically, this means that we still need to have the user download a client application into their device, mostly to handle the lack of bandwidth plus the frequent interruption of mobile connectivity. You often need to push updates to the client in order to update the service, which isn’t a good experience. So one of the milestones we want to see is the day when you can run a game in a mobile experience using Flash or something comparable to the web development model instead of needing a specific mobile client. That will require a big jump in mobile connectivity.

MD: What about on the cloud computing side? What needs to happen to take it to the next level?

SH: In terms of the cloud industry ecosystem, there are several forces in play. First, we are reaching a scale with 40 million monthly accesses to where we start to have increasing leverage as buyers of cloud services. When we started, AWS was the only credible provider. They’re still a close partner. But I think the market needs more mature options among different cloud providers, especially across geographies. At the moment, we’re very happy with our current partner but I think it’s important for the cloud industry to stay competitive. The second thing is more cloud specific services for businesses like ours. For example, our business depends heavily on micro-transactions. But it’s not uncommon for certain online payment providers to require a static IP address, which is a contradiction in a cloud environment. How to design a cloud-native billing layer is still pretty open territory. The next one would be cloud enabling layers, the tools that enable a company like our to manage and optimize the operational aspects of running a cloud-based business. Sure, there are companies focusing on this problem but many are tied to existing cloud providers. We’re like to see more cloud agnostic tool providers.

MD: Last question, how do you see games pushing cloud computing forward?

SH: Games will help cloud computing progress because of the sheer scale of demand it puts on the infrastructure. We’re probably one of the largest AWS Cloud Front customers because we need to push huge Flash files all over the Internet. This is a demand level you don’t see as much with business applications. The demand for game services will play a big role in developing cloud infrastructure, and especially tailoring it for low latency, efficient distribution and always-on connectivity. Latency and performance is everything if you’re offering games for multi-player experience.

To date, my idea of a “serious game” revolved around a pool table, money and a shot of straight liquor. PC-based or web-based games seemed more appropriate for the kids or geeks. It’s stereotypical, I know, but supported by years of anecdotal evidence.

However, I’m changing my view of games after a trip over to Breakaway Ltd. in Hunt Valley Maryland. At the end of May, the Knight Center for Specialized Journalism bussed us over there to hear about serious games. We learned that the Pentagon as well as healthcare institutions like Texas A&M took games very serious indeed. For a quick one pager on Breakaway, check out the Media Dojo Tear Sheet—Breakaway Ltd.

The problem is thus: how do you enable people to tinker with real concepts based on real situations—but without real consequences? Just as product engineers take great pains to stress their inventions to the breaking point before deploying them in the field, many of those who play for the highest stakes (war fighters and healthcare) are looking hard at game-based simulations to help them test-drive strategies or ideas before they go live.

I followed up with Breakaway CEO Doug Whatley this week to discuss how serious games might impact the cloud if, as we both agree, it’s a category that’s likely to diffuse beyond the defense and healthcare communities to other industry sectors.

Media Dojo: First, tell me how games chew up computing resources

Doug Whatley: Part of the reason that games are so cutting edge is that people often need to buy the latest and greatest machines to play the latest and greatest video games. So the best games always have a very high machine spec compared to the installed base. Since serious games are coming out of modeling and simulation, they fit naturally for the military because they were already training people in flight simulators or something similar. And for medicine, the fact that they have this very expensive, sophisticated dummy attached to a PC meant that medical customers were accustomed to buying a lot of equipment as well. The issue now for serious games is that if they’re to move beyond military or healthcare to become a regular part of training and education, the client hardware issue grows in importance. Often, you don’t find anything other than really old machines throughout government and the civil sectors. If you go into your local fire station, they’re likely to have a really old PC. So the ability for us to deliver them the latest training (or not) via a game simulation is more of an issue of them not having the equipment to run the software.

MD: Does Cloud Computing solve this problem?

DW: The appeal about cloud computing is that someone can sign on over the web and play the latest training game in the cloud without having to upgrade their local PC. That’s the perfect world. But in all areas of storage, processing and bandwidth, the resources in the cloud are being pulled pretty hard for games. The amount of data necessary for a lot of these simulations can be very large. Whether it’s the military or Homeland Security with their terrain databases, all of the DBs backing up that information are very large and all that data needs to be stored somewhere. If you have satellite images and other earth sensing data, it adds up pretty quick. To show people details of an actual city, that’s many GB of data. So the data storage and having a centralized location to keep that up to date is very useful. But because there’s so much data the throughput is very important as well. And the fact that you’re doing very sophisticated physics based simulations against those environments means that the processing is really getting hammered.

MD: What are the holes that need to be filled by cloud providers to drive adoption by game publishers like Breakaway?

DW: One of the biggest holes for adoption of cloud by games makers is the virtualization of certain kinds of hardware like 3D accelerators. It goes back to the processing needed in the cloud to where the web-based user experience mimics what you’d find if they had a latest version machine. There’s just not enough availability of virtualized hardware based in the cloud to really make game-based simulation a broad-based offering.

Another thing is that right now the cloud service providers are focused on the e-retailer market rather than the application vendor or Service Oriented Architecture (SOA) market. Cloud providers need to step it up on the app vendor side as opposed to just expanding my sales capacity. Every cloud vendor has a riff talking about your web site getting mentioned on Good Morning America followed by a huge traffic spike. That variable burst capacity is great. But what if I’m an app service vendor and I’m pushing your cloud that hard all the time? It’s a different situation.

MD: Let’s imagine the cloud vendors are able to virtualize hardware better and provide an app-centric as opposed to website-centric service offer. How would that change your business of using game technology for simulations, modeling and training?

DW: What cloud-based delivery enables me to do is change my business to a subscription model. For example, if I create a fire training application, and allow firemen throughout the world to subscribe to my training service, that gives me such global reach that it completely changes my business economics. Right now, I’m out there trying to sell applications in a box and get people to buy them and go install them. With a cloud-based approach, I can switch to a more subscription based model. That’s actually what my customers want. That’s how the training budgets are paid for now. This goes back to the modeling and simulation versus training. It’s very common for companies or government employees to say, “I’m willing to pay $9.95 per person per month to have all my people trained in all these different areas”. That’s how they’re naturally inclined to purchase versus now where I have to convince them to buy in a different way.

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.

The Mariners were practicing today at Safeco Field where Amazon Web Services held a developer and start-up afternoon. Adam Selipsky and Matt Tavis of AWS covered the business layer as well as what was under the hood. Four customers gave their perspective about how they use AWS. Trains passed by as did the occasional crack of a bat to add background music to the presos.

I came away from the afternoon thinking that cloud computing has shifted into 3rd gear. We’re not yet at freeway speeds but it is clear that a lot of the theory is being hammered into practical application. Adam and Matt’s job is to solidify the current AWS story. Given that I’ve seen Werner Vogels recite the AWS lineage on numerous occasions, I can’t say that I heard anything new. Paradoxically, that makes me feel good. It suggests that AWS is in the midst of the tedious though critical task of truly productizing the offer. It’s easy for snarky analysts to harp about cloud computing being another form of time sharing, something we’ve had since the 1960s. But while it’s one thing to understand what something is, it’s quite a different challenge to make that something work at scale. Kind of like the physicist who can model a fastball. Very good, professor. Now, hit the sucker when it’s thrown at you at 96mph. Thus, I’m not particularly fussed when I hear AWS repeat its basic story with some incremental additions thrown in. Indeed, I’d say their success measure by 2015 is to become as boring and crucial as the power companies they seek to emulate.

To me, the customers provided the more exciting content. Jeff Lawson, Twilio’s CEO, spoke about how they offer telephony as a web service using multiple cloud providers, not just AWS. Strip out the black magic, and Twilio is about making telephony app development accessible to web developers. So if your expertise isn’t SIP, 3GPP or some other exotic telecommunications protocol, no worries. You can add various telecom services to your web app using traditional web standards and tools. Cloud infrastructure, much of which is AWS, enables Twilio to split its internal world into three large domains, continents if you will. There’s a DEV zone in which Twilio’s staff developers access a simple, powerful API that has only five blocks for building voice mail systems, IVR, PBX, click-to-call and other telecom services. Then there’s a STAGE zone that lets the developer test the app. Then there’s a PROD zone which is the only cluster that touches external customers (e.g. web developers). Media providers and marketers need to take note that branded comms is a huge future growth and community building area. Nearly every marketer I know bleats about how they’re fed up with using page views as a negotiating currency for media buys. They want more engagement (whatever the hell that is) from consumers. Nothing seems more engaging than a direct conversation, either between a brand and a consumer or consumers communicating in the context of a branded environment. I can’t say that Twilio solves the engagement problem (let alone how to use telephony as an ad currency). But you don’t get more guts level customer dialog than when it’s spoken instead of written so something is bound to shake out. Cloud now makes it far more likely that a savvy web developer will catch lightning in a bottle by using telephony in a new way. Watch this space.

However, you can bet that serving up telephony or other latency-sensitive applications beg for more robust testing. John or Jane Q Public won’t be thinking, “oh well, the app’s still in BETA. They’ll get it right with the next rev.” Far more likely, ordinary people will think “this sucks!” and move on when they encounter a communications or media app that is late in delivering the goods. Enter SOASTA, which uses the cloud to be an Underwriters Laboratory equivalent for websites and web based apps. They remind me of those demo guys who bring down city office buildings with explosives except SOASTA’s job is to stress test major web sites for latency issues. A case in point is Intuit. Many remember April 15, 2007 when Turbotax melted at 1015pm, not the company’s best day. The problem, however, is that to get a proper test, you need to simulate a proper load. SOASTA uses AWS and other providers to simulate massive traffic loads (eg. 300,000 simultaneous users) in various combinations without the need to construct a separate test facility. According to SOASTA’s CEO Tom Lunibos, the dirty little secret of most Web 2.0 apps (1.0 for that matter) is that they were lit without having done more than cursory load testing. The idea was that you got it out there, had it melt, apologized to the users with some cute stick figure with a hard hat, and fixed your latency problem. Mainstream adoption and recessions are curing that stunt pronto. Tom  declared (rightly) that latency can be measured as lost sales. Outages in 1998 that were reported in PC Magazine of Information Week now grace the front pages of the New York Times and Wall Street Journal. Bottom line for media providers (especially gaming companies) is that latency is money. So blow up your pre-launch site. You’ll be glad you did.

Don’t want to get too long so I’ll follow up with Melodeo (cloud-based music serving) and Zumobi (mobile applications as marketing) in a separate post.

Jokes are among the oldest and most effective forms of human communication. From etchings made by a bored Centurion on Hadrian’s Wall (“A Roman and a Greek were debating in the Forum one day….”) to the latest YouTube postings, the ability to take in communication, make it your own, and pass it along strums a deep cord within people—if it’s done well.

That’s one of key benchmarks for a newer breed of service providers using cloud computing to change how outbound communications via email and text are done by organizations to reach their customers and partners. I spoke with Dale McCrory, a top product manager at Exact Target out of Indianapolis. Earlier this month, Exact Target raised a whopping $70m VC round in the midst of economic turmoil. More about the company here: Media Dojo Tear Sheet: Exacttarget

I found that many of the social rules we’ve learned over time about context, consent and content of a good joke go a long way toward making the social value of it work. What cloud computing does, it allow the infrastructure to respond in tune with what a savvy marketer would like to do.

Media Dojo: Tell me about Exact Target and its DNA

Dale McCrory: We’re a SaaS-based one-to-one communications provider for companies wanting to reach their customers. We started as SaaS marketing to send out messages, primarily via email. We’ve now expanded our footprint to other one to one communications mediums like SMS.

MD: Where does cloud computing fit into that?

DM: There’s a portion of the cloud that allows a marketer to upload files that contain the email addresses that constitute their opt-in customer base. Our service connects to a back-end database on the customer premise. The data goes into the cloud at that point in time.

MD: So what problem are you solving?

DM: We enable marketers of all sizes to deliver direct communication (email, SMS, voicemail) to their customers and have all the tracking and analysis tied back to their goals and projections. We also have a content management landing page so people can build websites in our system. The main problem we’re attacking is that if you can’t find a way to quickly organize, personalize, send and track your marketing communications, it quickly defaults to spam in the customer’s mind. Aside from working the logistics of ensuring the right message to the right person in the right context, we also help our customers maintain their legal compliance with legislation such as the Canned Spam Act.

MD: So where is email marketing going as a business process? As an “art” form?

DM: It used to be only about the message: its content, its delivery, its tracking back to goals and outcomes. That’s still important but we’re also seeing email as a vehicle for allowing the consumer to repurpose good content across social channels. So it’s a customer being able to say, “the content of this email is important or funny enough for me to want to forward and display it on my Facebook wall”. Being able to facilitate that interaction while maintaining the essence of the message is crucial because now you’re introducing your content to people who weren’t experienced it before.

Secondly, it’s the ability within an email to actually change images on the fly. An example would be that you have a coupon that goes out via email that after three days you want that coupon offer to change into something else if it hasn’t yet been opened. We can do that with technology called Live Content.

MD: What cost areas are you attacking with cloud computing?

DM: If you look at a traditional web hosting today, if a SME marketer chooses to build a web presence that relies on regular email communication, most web hosts throttle back emails to about 100 per hour. The reason that most hosting companies limit you to about 100 is that there is a something called an IP address reputation. All spam collectors look at an IP address and ask whether the volume is too great. If the email volume exceeds a certain threshold, the host will start blocking everything coming from that IP address. The hosting providers have to do that because they have their own IP reputation to maintain with other hosting providers and peers. The individual host might have 500 customers sending email through that one IP address and if any one of those exceeds that threshold they can end up punishing the rest of them. So there’s a huge cost to doing that.

Take it up to the enterprise level and imagine that you need to send out 200K emails for a legitimate reason on a particular business morning. if your business is going to make money by getting those 200K emails out that particular morning and you’re on a system that can’t send out those messages fast enough, so it takes you 8 hrs to get those 200K emails out, you’ve lost money. By using the cloud, you’re able to get out your message and not worry about whether you put enough hardware to solve the problem. You’ll also need someone monitoring your IP address to ensure that not only do the sends go through, you’re also complying with your opt-in/opt-out lists. According to the Canned Spam act, you have to process someone within 36 hours who wants to unsubscribe. If you don’t meet that request, then you’re in violation of the law.

MD: Last question, what new things does cloud computing enable you to do from a communications point-of-view?

DM: One thing the cloud enables is for us to become a hub for data. It enables us to interact with other cloud providers, for example Salesforce.com. You can mix data from SF such as support data or it might be sales prospecting data, combine it with the rest of your email marketing data, and do advanced segmentations by bringing together all these disparate sources in to a single system. A key cloud advantage is that you need to bring multiple systems together in a standard way and you need to have the scale to do that.

Another aspect is that having the same communications platform on the cloud allows the customer to explore different messaging types such as SMS without leaving the basic system. So the marketer might want to know the customer’s communication preference, which might change depending on the type of message or even the time of day. It might be better to send a SMS instead of an email to let a customer know that their pre-ordered item is now in stock. That would be a huge undertaking if you needed separate systems.