Thursday, October 27, 2016, 11:28 AM ET|Posted by Will Richmond
Online video is booming. But that doesn’t mean all industry initiatives will succeed. Two examples in just the past two days illustrate the point. Yesterday Verizon announced it was acquiring Vessel for an undisclosed amount in what appears to be a straightforward asset purchase and talent acquisition. And on Tuesday, Google Fiber announced that it was stopping all expansion into new markets. Both companies’ leaders, Jason Kilar at Vessel and Craig Barratt at Google Access, will be departing their positions.
While the two companies operate in distinct segments of the market - Vessel in content and Google Fiber in infrastructure - both were bets on new business models and consumer demand that do not seem to have panned out.
Vessel, co-founded by Kilar, a former Amazon executive who was the well-respected first CEO of Hulu, was attempting to create a subscription service for early window access to YouTube content. When Vessel first launched, less than two years ago, in December, 2014, I described it as a “huge willingness-to-pay test case.” Would YouTube super-fans be willing to pay $2.99/mo, while still seeing ads, to gain early access to their favorite performers’ videos? If they were, it would be a significant leap forward in monetizing online video content and potentially challenge YouTube’s supremacy.
Vessel raised $132.5 million from savvy investors including Benchmark, Comcast Ventures, Bezos Expeditions, IVP and Greylock and had a first-class management team. But not long after Vessel launched, YouTube introduced YouTube Red, its own subscription service, for $10/month. Though I doubt YouTube Red was lighting the world on fire, within a few months, Vessel had dropped the ads in its paid service too, doubling down on subscriptions only.
Vessel’s performance has always been a closely guarded secret, but with Vessel announcing that it will be “sunsetting” its service and providing subscribers refunds, the obvious conclusion is that demand didn’t meet expectations. While YouTube content has become progressively stronger, it is not yet strong enough to sustain a standalone, early access subscription business. Even with some original content, I suspect YouTube will come to the same conclusion with YouTube Red as well.
Meanwhile, Tuesday’s announcement that Google Fiber will be “pausing operations” in “potential Fiber cities” and cutting 9% of its workforce shows that the economics and demand for Google Fiber’s 1 gigabit per second broadband service and next-gen TV service also have not shaped up as planned. Google invested hundreds of millions of dollars into Google Fiber building out new “Fiberhoods” in 8 cities around the country. Unfortunately, at the end of 2015 the company only had 53K TV subscribers, though likely more for broadband. Now the company is investigating wireless delivery using technology from Webpass, a company it acquired a few months ago.
As I wrote back in July, 2012, Google Fiber was in trouble from the start, because it was out of synch with the realities of typical consumer technology adoption. While there was undoubtedly a sliver of early adopters who craved 1 gigabit broadband, mainstream users would not be attracted because existing broadband services were both good enough and easily packaged by incumbent providers. In the 4 years since, broadband speeds have continued to improve (likely with Google Fiber’s prodding) such that most people can now stream Netflix, Hulu, Amazon, etc. to their TVs just fine.
To be fair, Google Fiber just may have been ahead of its time. When everyone is streaming 4K, VR and other super data-intensive apps, 1 gigabit may be necessary, but we are a long way off from that day. And broadband ISPs continue to invest in their networks to meet demand anyway.
The demise of Vessel and Google Fiber show that business models are still in flux in online video and that the vast majority of viewers are actually quite practical in their spending. While it’s bold to be visionary, it’s also quite risky.
- Google Fiber is Out of Synch With Realities of Typical Consumer Technology Adoption
- Vessel is a Huge Willingness-To-Pay Test Case With Broad Ramifications
- VideoNuze Podcast #266: Vessel Looks Great, But Will It Succeed? Facebook Ups Its Video Game
- No Surprise, Google Fiber is Falling Short of Expectations