The downfall of Veoh Inc.

With You Tube dominating the online vedio market and the economic downturn, the online video store, Veoh Inc, files for bankruptcy under chapter 7. Veoh is a revolutionary online video service that gave users the power to easily discover, watch, and personalize their entertainment viewing experience. Started in September 2005, the Internet video pioneer grew to a business with a run rate of $12 million and an audience of more than 28 million users per month. Nevertheless, its financial success and $70 million in capital from investors such as Intel, Time Warner, and Goldman Sachs were not enough. Online video sharing site Veoh Inc, filed bankruptcy, blaming the economic recession and the two year legal battle with the recording company Universal music group over the copyright infringement issue.
In the words of CEO of Veoh Inc, Dmitry Shapiro, “Unfortunately, great vision, a passionate team, tens of millions of users, millions in revenues and victory in court were not enough” "The distraction of the legal battles, and the challenges of the broader macro-economic climate have led to our Chapter 7 bankruptcy."
There are several reasons which led to the eventual downfall of this startup company which was flooded with the investment.
One of the primary reason for the downfall is the several copyright infringement lawsuits against the online video sharing site. In September 2009, a federal judge tossed out the music company's copyright-infringement suit, ruling that Veoh had met the requirements of the Digital Millennium Copyright Act in trying to keep illegally uploaded material off the site. Universal maintains Veoh hasn't done enough and has appealed the ruling.But It was both financially draining and distracting, and it choked off the ability for any significant strategic deals. In August 2008, Veoh prevailed in a similar case against adult entertainment company Io Group, which sued the site in 2006 for copyright infringement. A federal judge disagreed and dismissed the case, ruling that Veoh had made a good faith effort to remove Io content. During the legal fight, Veoh banned adult content from the site. Veoh is not the only online portal facing this issue. Google is currently having a legal battle with Viacom which filed $1bn lawsuit in federal court against Youtube in march 2007.
Another major reason is with Youtube dominating the online video market, Veoh and other web video providers have had to slug it out for what’s left. Other online video startups that have fallen include Instant media.
In addition, entertainment companies formed their own video sites, making it even more difficult for companies like Veoh to survive. One such company is Hulu, joint venture between News Corp and NBC universal owned by Comcast.
Major analyst have predicted that the only few companies will be successful in building a profitable company around online video sharing. Even Google has acknowledged that it is still finding a business model to sustain Youtube’s operation.
Now at the downfall of such a well funded startup, what are the learning’s from this failure.
Lets do an external analysis first:
The site, which had tried for years to carve out a niche by offering both user-generated content and professional shows, was eclipsed by rivals like Google Inc.'s (GOOG) YouTube and Apple Inc.'s (AAPL) iTunes. Veoh said it attracted more than 28 million unique users per month world-wide. Though it’s a blue ocean strategy at the startup, it could not able to create a unique and distinctive value proposition.
1. Competitor: Though at the start the competition was minimum, the competition gradually increased and many of the entertainment firms entered into this area. Many copied the same model,
2. Threat of substitute: Low.
3. Threat of supplier: Very high due to copyright infringement laws.
4. Threat of buyers: Buyers were actually advertisers. As internet advertising is becoming more popular there are many options for the advertisers.
5. Entry barrier: Without a strong network the entry barrier is very low for such a business model. Hence the business itself becomes very unattractive.
The investment of $70 million was not utilized properly either because of many lawsuits or loose company policy. At good times it spent lot of money without investing strategically for the growth of the business though the online users base was increasing. It failed to create a sustainable business model (though none of the online video sharing site has one). All these factors led to the evaporation of $70 million of investor’s money.