Digital Dealmakers

Jul 31, 2006  •  Post A Comment

The player: Bob Young, founder and CEO of Lulu Enterprises, which includes new online video start-up Lulu.TV.

The play: Lulu.tv is like a co-op for video. The site allows users, who can opt for either a professional account for a small monthly fee or a free account, to upload their videos. For those with professional accounts only, the money goes into a “kitty” and at the end of the month, 80 percent of those dollars are divvied up according to which videos had the most views.

The pitch: Lulu provides a way for video creators to make money, but it’s not ad-supported. The revenue is based on paying an ante and then gambling that the video will be watched a lot and earn some dollars. Lulu adheres to a free-market philosophy. “We will make money if we help you make money,” Mr. Young said. “There is more than one way to be successful and there is more than one model that needs to work … we think there is a real need for a marketplace … Why do we have 19th-century publishers deciding what we should and shouldn’t watch? It shouldn’t be an editor at Random House or an executive at ABC or Sony Music who decides whether your music is good or bad.”

The latest: Daily visitors to Lulu.TV can range from the tens of thousands to the hundreds of thousands. However, during the beta phase of Lulu.TV the site’s traffic grew 100 percent each month from January to June. July is on track to triple June’s traffic. About one in six visits is from a repeat visitor. Finally, the number of RSS feeds has grown about 50 percent each month, while the number of registered users has risen 600 percent in the last six months.

The backstory: Mr. Young founded Lulu in 2002 to provide a service for authors whose books target a smaller niche. Lulu has published books on Havanese dogs and how to program an Xbox, for instance. Lulu only prints a book when it’s ordered, the opposite strategy of the traditional publishing business. The business capitalizes on the long tail. “We are all tail,” Mr. Young said.

The money guys: The business is privately funded by Mr. Young, who fared well in the public offering of his previous business, Red Hat, the Linux operating system builder. He was one of the founders of Red Hat, which went public in 1999. “One of the great pleasures of a start-up executive is I don’t have to be nice to bankers. If we want to go public, then we have to start being nice to Merrill or Goldman,” he said. Another benefit of being privately funded is that Lulu can roll out technology when it’s ready and not to hit an artificial target. Working out of North Carolina also means he doesn’t have to compete with Silicon Valley start-ups for brains and can usually keep talent longer.

Numbers: Lulu is growing by 10 percent each month and has hit more than $1 million in revenue each month. In 2005 the company logged $5 million in revenue, a number that should grow to $15 to $20 million this year. Most of that revenue comes from the book business.

Pros: At first blush, a hacker might think he or she could hammer Lulu.tv with a supercomputer all day to play the same video, thereby ensuring the most views and most dollars. Without providing details, Mr. Young said the site is designed to prevent that sort of scamming.

Cons: Lulu faces a hornet’s nest of competition. The rush is on for new technology companies to monetize online video. Revver.com, Blip.tv and Eefoof.com, for instance, pair video auteurs with advertisers and split the ad dollars. Lulu is one of the first models to operate as a cooperative.

Rights issues: Lulu does not keep any of the rights to the content that runs on the site. The rights remain with the creator. “We aren’t going to bother ABC’s `Desperate Housewives,”‘ Mr. Young said. “We think we are going to enable everyone who thinks they can produce a better `Desperate Housewives.’ If you want to do a funnier `Desperate Housewives,’ you can get it out and if it’s funny, you can get paid.”

Who knew? Mr. Young began his career as a typewriter salesman. Today he collects old office typewriters and calculators. His favorites are a couple of vintage mechanical Curta calculators. He was born in Canada, is married and has three daughters.