OVPs Need A Lot Of Cash To Scale, Ooyala’s Latest Funding Now Totals $42M

While there are lots of online video platforms (OVP) in the industry, just like in the CDN space, only a couple of vendors control the vast majority of the market share. The primary reason for this is that it takes companies burning through a ton of cash before any OVP can achieve the scale they need in their business to generate enough revenue to be cash flow positive. With Ooyala’s latest round of funding in the amount of $22M, the company has now raised $42M in just over three years. Ooyala’s biggest competitor and market share leader Brightcove has also had to raise a lot of money over the years and their total funding has been $99M to date.

While not every OVP provider needs to be in the top two or two in the industry based on revenue, I think many folks downplay exactly how difficult it is to get into the OVP or CDN business. I constantly hear people say that they can just put out a bunch of boxes on the Internet and become a CDN. The reality is, it’s not the hardware that makes the CDN, it’s the software that runs it and the services that run over it. In the same light I’ve heard some say that they could build their own OVP to the same feature or scale as a Brightcove or Ooyala and it would only take them 12-18 months. Of course if that was true, then many content owners would be making the investment to build their own OVP, but they aren’t. Just like you don’t see any content owners aside from a few major players like Apple and Microsoft building out their own CDNs.

There is a lot of talk in the industry about how OVPs and CDNs are commoditized. I use that word all the time except that I’m not talking about the service, I’m talking technology. Video components like encoding, storage and delivery are completely commoditized but it’s the services and applications built on top of these technologies that isn’t. Today cars are a commodity yet there is a difference in how they perform. OVPs and CDNs are no different. It’s that scalability, performance, reach and functionality that truly sets them apart.

While I keep hearing people talking about the OVPs and CDNs as if one vendor has to beat out
another, the important thing to remember is that the market can sustain
more than one major player. If you look at the CDN space, a handful of
vendors controls most of the market. In the OVP space, the same is true.
In fact, in just about every vertical in this industry, only a handful
of vendors tend to own 75% of the market they focus on. Some need more
capital than others to get to scale depending on their offering, but no
OVP can expect to ever do tens of millions of revenue a year without first having to invest at least that much into the business.