Stephen Chao, web entrepreneur, former Fox TV president: Mr. Media Interview, Part 2

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BOB ANDELMAN/Mr. MEDIA: Let’s make you more comfortable, and let’s talk about


ANDELMAN: And I’ll repeat it – How did you get involved in this site?

CHAO: Well, about 2 years ago, I started with my partner, a guy named Mike Goedecke, and we were kind of all very amused, as you probably were, by the advent of pretty decent streaming as it was represented by YouTube, and I guess there’s now 250 other video streaming sites out there, 400. But it really seemed to cause a shift. Namely, “Wow, it’s not a bad experience.”

I don’t know how much you remember what it was like to download a file and play it back and go search for that file if you could — it wasn’t very easy for me, and I’m okay at the computer. And it was a very painful experience. And around that same time, it was the tail end of when cable had said, “Video on demand, it’s the future. You’re going to be able to use your remote control and see anything you want.” And so as that kind of started to fade and then as the idea of streaming video started to happen, it was like, “Wow, there’s really something here that’s very exciting that really augurs toward something new. Who knows what it is?”

I happen to really enjoy YouTube, but I think it has its limitations for me as a television viewer, a media viewer, or an ex-programmer. Once I’ve exhausted the most viewed, most popular kind of sorting mechanisms, I run out of things to do. There’s no further place for me to go. And so Mike and I were kind of at this place looking and really loving streaming video on the Internet, and we said you know, the place that we just always spent our time with or without streaming video is in this strange area of instructional tutorials. We’ve just had this kind of little love affair privately with this category. For example, I happen to have bought six years ago, “Darren’s Dance Grooves,” if you happen to remember that. It was $19.99, and you could learn how to lock, pop, and something or other like ‘N Sync. And I did that for a summer with my kids, and we had some friends who were really good hip-hop choreographers, and we kind of did that. But that’s the kind of thing that I used to do in my spare time because it was video. It was fun and allowed me to get up and do something as opposed to not do something. Like with television, you kind of sit there, and you don’t move. And I just thought this active experience of instructional tutorials was always kind of fun. And obviously, if you’ve done workouts like the “Jane Fonda Workout” or something, everybody’s actually probably tried that once or twice in their life, you go this is kind of fun. You do something. It’s watching TV, but it makes you active. So two years ago, we said, “This is just really great.” Bob, do you ever play Sudoku or anything like that?

ANDELMAN: My daughter does and my wife, too.

CHAO: I see. Well, it’s a strange experience because on the one hand, you’re wasting time. On the other hand, you’re going “This is kind of fun, and maybe my brain’s getting a little bit better than it was before.” So that odd combination of being able to waste time and actually being able to educate yourself or think you’re educating yourself or actually educating yourself is a great experience for me. It’s a really odd sweet spot in my mind where I go, “Gosh, how great, I waste time, and I learn.” And you can take that either way. Again, you can choose to just waste time, or you can choose to really learn something, and you can choose to learn something and do something like dance like Darren or dance like Solja Boy, who does Superman, or you can learn to teach your cat how to poop in the toilet, or you can do anything that you want out there that’s only limited by your imagination. So once we said, “That’s an interesting category,” we said, “We really need to find everything out there.” I’m anticipating probably what your question is. We originally were going to produce a lot of how-to videos because I come from television, Mike comes from advertising, but we started looking around, and we found out there were really odd, eccentric, long-tail things in places that we never believed were possible.

ANDELMAN: You’re thinking of things like, “Make a Cat Hair Cat Toy at Home,” things like that?

CHAO: Ah, that would be “Clip of the Day,” yeah. Like that or “How to Taxidermy a Mouse or a Squirrel.” Those would be things that Mike and I would never choose to spend $600 to produce and edit and post up onto our site, but those were the things that were just endlessly long tail fascinating. So we quickly decided that we would be silly to try to out-produce the Internet, the web, the collective imagination of production that exists on the Internet across the whole world because the likelihood is somebody’s doing it interestingly and well. So we said, “Let’s search and index absolutely every single how-to in the solar system, and that’s what we’ll present.” So instead of saying we’re going to be a walled garden that’s going to make 2,000 a year or whatever number of videos we thought that we could do, we said our particular fascination would be to index and search everything. And so that’s really the definition of what we do. There’s certainly other sites out there who are how-to sites, and they’re making great how-to videos, but there isn’t any other site out there that searches and indexes every single thing, this walled garden, that walled garden, that walled garden, and more. So we cover the entire world of how-to. If it’s a how-to that’s free, we have it indexed, and we’re just really trying to create the perfect.

We’re just really trying to create perfect information in this niche space of how-to for the user. That’s really what our goal is, and we’re about to hit 100,000 videos indexed. Sometime this month we’re going to do that. And it’s onward and upward.

ANDELMAN: I have to say that, and it’s on the hot videos today if people listening want to check it out, the one that made me laugh out loud, probably not surprisingly, was “Make People Naked with Photoshop,” and it’s just amazing.

CHAO: It’s kind of weird. I have to tell you that one I look at practically everyday because it cycles up into the hot algorithm. It’s not something that I have ever showcased in “Pick of the Day.” It’s not something that we’ve editorially pushed or featured forward. It is something that people have found, and they keep viewing that darn video. It’s just amazing to me. So this is part of it which is what I love about, well, it’s true of TV, but what I love about the web and video experience on the web, you’ve got your Nielsen ratings right there. The Google Analytics is going to tell you how many people watched that video that you just cited today or in the last 30 days and the amount of time they spent on it and if they exited. So from a programming standpoint, it’s kind of thrilling to be able to program something and just watch it happen like make a toy out of cat hair, which is the featured “Pick of the Day.” I’ll be able to see what people thought right away. I can go to Google Analytics right now and find out the answer. It’s amazing.

ANDELMAN: Some of them are very funny. I have a question that came from the web chat. I’m going to paraphrase this a little bit.

CHAO: Sure.

ANDELMAN: Coll wants to know if there had ever been a time that you didn’t know how to do something, and how did you eventually find the solution? And I guess that would be before

CHAO: That’s a good question. I’m a guy who’s got kids, and I’m from New Hampshire. A potato gun is something that is really a phenomenon from farms. So if you’re raised on a farm, you know how to build a potato gun. The potato gun is a very simple concept. It’s PVC pipe that you stick a potato into, and it’s got a chamber. You stick hairspray into it, and you ignite it with a barbecue lighter, and it shoots out a potato at 200 to 300 miles an hour. And it’s kind of a thing that farm kids do. I was raised in rural New Hampshire. It’s what you do. It’s not akin to NRA gunmanship. It’s just kind of a toy that you build that’s very fast and could be very damaging, but it’s kind of a toy that you build when you’re 13 or 14. So the answer to your question is when I was 13 or 14, there was barely television, but there certainly wasn’t Internet video, and there certainly wasn’t a robust kind of DVD tutorial market of DVDs for sale. So I had to go and track down friends who knew about the potato gun because while I’d seen it demonstrated, I didn’t know how to build it, and I had to do it the old-fashioned way. I had to call friends and say, “Hey, who’s built a potato gun?” And then I had to go to the dad, and the dad would tell me how to do it. And that is the normal process in life. On the other hand, these days you could look up potato gun on, and you’d have an answer and not have to go ask the dad, I suppose.

ANDELMAN: Eric Smith in the web chat has a question: “With the advent of so many video-centric web sites, both entertainment and now how-to sites, how do you plan on marketing your site so that it stands out from the crowd?”

CHAO: Eric, that’s a very good question. It’s kind of the challenge in the next year for me.

ANDELMAN: Well, your first answer, of course, is “I’m going to go on Mr. Media and have a live conversation.”

CHAO: That is absolutely correct! There’s no way to get around the fact that the best publicity and the best marketing is actually non-paid marketing. It just has the most integrity to it. It’s the fastest. It’s the most credible. It’s your default choice. Even if you had a billion dollars, you wouldn’t say, “I want to spend a billion dollars.” You want to say, “I want to create a really good product that people pass around, that people want to write about.”

So to answer your question, Eric, the first stop is to be able to get to the chatter class, which are people like Bob or The New York Times or BoingBoing or whatever it is, the people who control the media. And now the great thing is the media is more diffused. It’s not just The New York Times and The Wall Street Journal. There’s a number of influential people out there like BoingBoing, like Mr. Media, etc., etc.

The first trick or task is really to, of course, make a good product. And the second thing is to really work on issues of publicity and press and spread the word that way. As an example, there was a New York Times piece on January 31, and then that one was picked up by BoingBoing the next day, and a press release followed. So that’s really the start of it. And then there are all these tools. You could buy links, you can buy traffic, you can create stunts that get publicity, you can have a very smart advisor like Todd Beck and then he’ll help you figure it out, you can write to blogs, you can make playlists for the person who runs Technorati. So I guess the choice, because there’s a lot of ways that you can pay for traffic and marketing, the choice is really to talk to the people through the different media, whether it’s blogs or hard copy in old media, and get the word out. That’s probably the best way.

ANDELMAN: What’s the start-up investment dollar-wise between you and your partners? And I know you have a venture capital firm that’s behind you.

CHAO: Right.

ANDELMAN: How much are we talking, Stephen?

CHAO: Okay. Well, I won’t disclose the amount that the venture capital firm put in only just cause I choose not to. But I will tell you that never having previously invested in a start-up Internet site, I thought it was really kind of interesting. Namely, we had spent approximately $500,000 to start up the site. Now that means we had two full-time programmers going probably for a year. We had really researched the world of how-to. Before we opened up, we had found tens of thousands of videos on 600 to 700 different servers. So in terms of walled gardens, we had sourced 600 to 700 walled gardens who really had true expertise in how-to. So we had kind of done our market research, and we really had kind of really well done our programming, our coding, and stuff like that. This was before we had a marketing plan. This was before we actually launched it live without password. We did launch it under our own funds. It was before we bought all the traditional kind of things that cost money like E & O insurance and stuff like that and heavy legal stuff that you need to do to be properly protected.

We spent half a million dollars to start up the business. We had not marketed. We had not done all of the things to be entirely street legal, but the great thing about that is, while that is a lot of money, it’s not a lot of money considering the fact that you can, if you build a smart business model, you can scale up, and the sky’s the limit. It’s the kind of really wonderful thing about the media, which is that if you build it properly, your ability to scale is kind of unlimited, and the Internet is a form of the media or certainly this particular So the answer is probably a little bit more than it takes to open a restaurant or a dry cleaner but less than it costs to open a brick and mortar business by a country mile. It’s really been a fascinating process. It’s not horribly expensive to start an Internet business, which is why there are so many competitors out there cause the barriers to entry, at least in terms of capital, are pretty small.

ANDELMAN: I have to say I was stunned to hear that you had spent $500,000, pre-launch. That’s astounding to me.

CHAO: Astounding a lot or little?

ANDELMAN: It sounds like a lot.

CHAO: It is a lot.

ANDELMAN: It is a lot. I think if somebody invested $5,000 in Mr. Media, we’d probably own Microsoft. So if you guys are looking to invest further…

CHAO: To speak to that point, $500,000 in truth is more than most entrepreneurs will invest. I think that the standard number that you hear is anywhere between $150,000 and $300,000. We decided to go over that only because we were extremely picky about certain things, and we went through fully three redesigns, soup-to-nuts redesign, before we were ready to open it. There’s some pickiness to what we did that we didn’t have to spend that much. But again, in the scheme of things, we’re pretty happy with the product, and we’re very happy with the wonderhowto product. So we’ll see what happens, but we just said, “That’s the threshold. We’re going to spend that much money before, and we’ll spend as much as we need to be really happy that when we’re ready to open, it’s a full representation of who we are.”

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