To say that the digital video space is in its infancy sounds illogical. Hasn’t YouTube been around for more than a decade?
Indeed, the world’s most popular video-sharing site celebrated its tenth birthday in February of this year.
Watching YouTube on a mobile device, however, is a relatively new experience. And mobile, together with programmatic advertising, are two of the three biggest drivers of the nascent space.
The other? That would be video’s stellar performance as an advertising medium. Video ads, notes a report from BI Intelligence, have an average click-through rate of 1.84%, the highest click-through rate of all digital ad formats.
This, says the study, is the reason online video ad revenue will reach nearly $5 billion in 2016, nearly double the $2.8 billion figure it posted in 2013.
Vancouver-based SoMedia Networks (TSXV:VID) believes the digital video space is set for a sea-change. The company is poised to move digital video production out of the dark ages of mom and pop-based solutions into a scalable and reliable solution for content production. It’s an idea that calls to mind what blog creator WordPress did for the production of websites and it has huge implications: video advertising, once the domain of monster brands with monster Madison Avenue budgets, will suddenly be within reach of small and medium sized business, an untapped market large enough to impact the overall growth of digital video for years to come.
Cantech Letter sat down with SoMedia co-CEO George Fleming to talk about the company’s opportunity.
George, can you tell us a bit about the history of SoMedia Networks?
I started SoMedia in 2006. I think you could characterize the development of SoMedia as a long incremental pivot or as I prefer to describe it – we followed our nose. We initially focused on the aggregation of blog content in verticals like investments, health and greentech, and then developed a network of city focused sites across Canada and the US. This led to the aggregation of podcasts and then video content and once we got started in video it led us to the production of citizen video journalism content.
If you recall YouTube was started in 2005 and when Google bought it in 2006 everyone thought user generated content was going to be a huge commercial opportunity. Then came the copyright infringement lawsuits and concerns about quality. By 2007 businesses and media started to give up on the revenue potential of user generated content. However what became apparent was there was significant demand for reliable, professional video content production that was only going to get bigger as time went on. The problem was, and still is today, that no scalable and reliable solution existed for the production of that content. Video is produced by creatives using a hands on process which makes it like every other creative process – outcomes are variable, costs are variable, quality is variable.
We decided that we should shift our focus to solving this very large problem around the scalability of business video content production. So by the end of 2007 we had developed our first video production platform and went through several iterations of the technology through 2008 and 2009. During the Vancouver Olympics we launched a video news production platform and produced news content about Vancouver for broadcasters like NBC, CBS, and Global. By 2011 we had added systems that allowed internet marketing companies and agencies to resell our production services. Since then we have continued to expand our network of clients and resellers, have grown our creative network to over 3700 across North America, integrated with 20 leading SaaS platforms, and continued to evolve our video production capabilities and technologies to provide scale, volume and reach to every market in North America.
If you believe everything is driven by economics, as I do, you’ll agree with me that the emerging demand for video content for advertising is being driven by fundamental economic fact that video ads perform better than other forms of advertising.
There is a ton of momentum around video advertising right now. Why do you think it has taken so long to become mainstream?
The evolution of video advertising has taken a similar path to the overall adoption of online video as a marketing tool. Initially its only large corporations with large budgets who get involved. It takes large budgets because the cost of producing video content is high and the technologies for delivering and managing video content are still being developed. An analogy would be the development of HTML. Back in the late ’90’s and early 2000’s websites were built by hand by people who had expertise in HTML, CSS and then Java, and Flash etc. Eventually the market reached a critical mass where it made sense to create systems for the generation of HTML which then led to website templates all the way to today where you can build a website for free using SaaS platforms. Video has been taking a similar path although the move from hands on to process and systems driven production has been slower to develop due to the fact that video production is reliant on humans and always will be. Affordability has also been a barrier. SMB customers can’t afford to spend $10,000, $20,000 or more on video ad production. SoMedia has been focused on solving this problem for several years.
However, if you believe everything is driven by economics, as I do, you’ll agree with me that the emerging demand for video content for advertising is being driven by the fundamental economic fact that video ads perform better than other forms of advertising. In fact it outperforms in lead generation, sales conversion and user retention by many multiples. For instance Google just informed us that in their experience video ads outperform banner ads by 27X. Economics like that are attracting a lot of attention.
Of course, we also have to discuss the massive growth in the use of video on mobile devices as another key driver. Mobile users don’t want to read content as much as they like to watch it. Couple that with the way Google organizes search results by location and proximity to the user, and every business large and small needs to be found online. If video advertising outperforms all other forms of advertising by such a large margin it’s a no-brainer. If you use video for marketing and advertising you drive more business and make more money.
By turning video production into a systemized process we are able to control quality, costs, outcomes and timelines. It lets us operate at scale in any location and in any volume.
Let’s break down how SoMedia works. How do your source your labour, how are they vetted, and how do you maintain quality throughout the process?
We utilize a contract workforce of over 3700 video production professionals from across North America. We’ve built the network over several years and continue to recruit constantly. We use sites like Craigslist and Kijiji, and social media like Facebook, Twitter, and LinkedIn, plus film school and college job boards to attract potential contractors. We rank and rate these people by skill level, education and experience giving them a rating from 1 to 4 with 4 being the equivalent of a professional videographer. We continue to rate them internally as they do work for us by more detailed criteria and customer feedback.
We maintain quality throughout the process first of all by the way we developed our system. Instead of a traditional video production process where the person who shows up with a camera has creative control over the production, we gather creative information from the client at the beginning of the process and our platform turns that into production requirements and assignments that lay out every aspect of the project. In our model when a videographer shows up at one of our jobs they are following specific instructions and act more like a content gatherer. Of course there are also several quality control gates and checkpoints throughout the production process. By turning video production into a systemized process we are able to control quality, costs, outcomes and timelines. It lets us operate at scale in any location and in any volume
What, exactly, does SoMedia replace? Who loses if you win?
SoMedia has been created to disrupt the traditional video production business. The tens of thousands of small, local video production companies that exist across North America who operate as creative driven businesses producing content by hand. Certainly the winners are the clients who are able to treat video as any other marketing tool that can be simply and easily ordered, where outcomes are predetermined, timelines guaranteed, and costs reduced significantly.
How large of a network have you built to date?
Our creative network is currently grown to over 3700. Our reseller network is over 4000.
How large do you think your network can grow?
Fundamental growth in the knowledge of the video production processes started after the launch of YouTube. Since then almost every high school offers a film and video production class to grade 11 and 12 students, most colleges and universities offer full programs or at least elective courses and the number of film schools has grown during the same period. In other words there are hundreds of thousands of people who know how to frame a shot and handle audio. Add to that the fact that the cost of video equipment has collapsed. Today a videographer can equip themselves with a high quality prosumer kit for less than $2000.
Our network of partners and resellers is currently over 4000. We can easily identify over 85,000 companies in North America who provide internet marketing and website design services
In the end, we are a solution for companies who have been early adopters of video marketing who are bumping up against the lack of scalability of video production or ballooning budgets as they strive to continue increasing their use of video.
Who is your target end user? Which markets benefit the most from SoMedia?
Pretty much any corporate user of video content for marketing is a potential client of SoMedia. Our clients are mostly companies that provide internet marketing and website design services to small to medium size businesses. We produce content for their end clients but our relationships are with the agency or internet marketing company. We also deal with the marketing departments of large corporations and their digital agencies. Because we have focused on the scalability of video production we are also an enabler of large SaaS platforms focused on internet marketing and sales management who need to provide video marketing services to their users – video marketing starts with production. In the end we are a solution for two groups of companies: The first are those who have been early adopters of video marketing who are bumping up against the lack of scalability of video production, or budgets that are ballooning as they strive to continue increasing their use of video. We are also a solution – probably more so – to the much larger segment of businesses who have not started using video as a marketing or advertising tool due to the complexity, cost and creative nature of video production.
Isn’t the toughest part of this business going to be marketing? It’s one thing to have built out a network, but how do potential customers find out about you?
Yes, like most other emerging companies marketing our services has been the hardest part of going to market. When you are providing a service that no one has heard of before it requires a massive amount of education just to sign up clients. We believe we helped ourselves significantly last year through the integration with 20 different SaaS marketing platforms like Eloqua, Marketo and Exact Target. These integrations allow us to move towards more of a demand generation and content marketing approach which will allow us to expand our marketing footprint. We also believe that we’ve simply been around long enough now to be recognized as a leader in the video space. Timing is everything and the groundswell of demand for video production services seems to be putting us in the right place at the right time with the only solution in the market that solves issues around scalability.
With Google/YouTube searching for revenue, Facebook aggressively focusing on video and video advertising and Twitter adding video and video advertising there are massive opportunities for us to leverage our first mover advantage.
What SoMedia Networks is trying to accomplish reminds me of what WordPress did to website creation. The space was populated with localized hobbyists whose rates could vary wildly. WordPress standardized the process and won the space by providing a better and more transparent product. Does this comparison ring true to you?
Yes, as I discussed earlier the evolution of HTML development and the evolution of video production are following similar paths. The only difference is that eventually HTML development was turned into a fully SaaS solution where humans didn’t have to be involved. For now anyway quality video content production will require humans. That creates unique problems of scalability that we have solved through the management of crowds. In fact we call it Crowdsourced Workforce Management.
Another analogy that many people use to describe us is that we’re the Uber of video. In many ways it’s a pretty accurate depiction. In Ubers model the drivers are vetted and screened for quality and experience by Uber, and they provide their own vehicles. Uber handles all of the client interaction, payments and customer service through their SaaS front end. The user doesn’t have a relationship with the driver and in fact don’t know them at all except for the fact that Uber sent them. In our model we handle the client and creative interaction through our SaaS front end. We also handle all payments and customer service. We contract with video production professionals who we vet and rate. The video production professionals provide their own equipment and our clients don’t know or have a relationship with them. We have a network across North America so we can provide service anywhere which I guess is where we have a leg up on Uber since it’s being blocked in some markets like Vancouver.
How well do you think this scales? What numbers should investors watch for? client wins? The size of your network?
We’ve spent many years and millions of dollars developing a system and model that was designed from the beginning to handle massive volume. We’ve spent the last three years battle testing the platform, selling and producing thousands of videos. Because our platform relies on a distributed crowd of video creatives who come together on a project basis we are not constrained by the ability to handle large numbers of projects nor are we constrained by the size of the workforce. We expect to be able to handle thousands, even tens of thousands of videos per month.
As the demand for video advertising and marketing solutions grows we expect to continue developing relationships with large platforms who have hundreds of thousands, or millions of businesses as clients. As I mentioned before, the fundamental fact is if you use video for marketing and advertising you drive more business and make more money.
Do you feel you have a first mover advantage? What if a large player were to enter the space, does that worry you?
Yes, we believe we have the first mover advantage. The closest direct competition we have are video production creative market places where users can post a video production job and have video production companies and videographers bid on them. It’s a great way to discover a local video production professional but not a solution if you need videos shot in volume, with consistent quality or in many markets at the same time. We also believe it’s not easy for a competitor to catch up to us. We aren’t just a technology company whose technology can be copied. To figure this out we had to marry technology with a system for managing a crowd of specialized workers who execute on specific directions we’ve provided them unique to each project. Our Crowdsource Workforce Management model is an evolution of crowdsourcing and creative marketplaces that allows us to manage large numbers of people on a project by project basis. We don’t believe a large competitor can easily figure out both the technology and the crowdsource management issues in the near term and we don’t think smaller competitors have the ability to move fast enough now that we’ve been doing this for as long as we have. There’s a benefit of being the first mover and we believe we have a significant head start and moats built around the business.
We’ve only scratched the surface of the demand for video marketing and advertising and we intend to maintain our leadership position in the market.
Ben Pickering came on as co-CEO in 2013. What does he bring to the table?
Ben was born and raised in Silicon Valley. He worked at Yahoo! for many years after completing his MBA at Stanford and has spent his whole professional life dealing with internet marketing and advertising. He brings a US perspective and a network of relationships across the largest internet companies. As the demand for video marketing and advertising takes off his experience and relationships are helping us to move faster and more effectively.
What do you want to accomplish in the next 12-18 months?
We intend to take advantage of being the first mover in scalable video production to position ourselves as the leader in video advertising content production. That means partnering with large advertising platforms and a wide range of agencies and internet marketing companies who are delivering video advertising services. With Google/Youtube searching for revenue, Facebook aggressively focusing on video and video advertising and Twitter adding video and video advertising there are massive opportunities for us to leverage our first mover advantage. We also intend to leverage the 20 SaaS platform integrations we completed during the second half of 2014 to expand our marketing focus on video marketing solutions to include demand generation and content marketing. Another major initiative is the development of a video news and branded content production platform designed to serve online media and provide agencies with a branded content and native advertising solution that is affordable and scalable, and of course we intend to continue growing our network of 4000 agency and internet marketing partners who resell our services. We hope this includes expansion into Europe.
We’ve only scratched the surface of the demand for video marketing and advertising and we intend to maintain our leadership position in the market.
Disclosure: SoMedia is an annual sponsor of Cantech Letter.
Below: SoMedia Partner Success Story – Leonardo Agency