NewCo
Live the moment. Share the moment.
Business Case
Version History
Version / Authored By / Date / Description of Changes Made /1.0 / Name / 12/20/10 / Initial draft for review
Table of Contents
Executive Summary 2
Opportunity Overview 3
Market Situation and Analysis 5
Customer Review 7
Financial Summary 8
Product Plan and Execution Summary 11
Risks/Issues/Assumptions 13
Conclusion and Next Steps 14
Exhibit A: NewCo Concept Screens 15
Exhibit B: Key Competitors 17
Exhibit C: Anticipated Advertising Units 21
Exhibit D: Preliminary Go-to-Market Plan 23
Executive Summary
NewCo is a new business opportunity in the emerging market of connected photo frames. This market is in the early stages, but promises to become a large segment of the overall photo frame market that we estimate to be a $1.6B segment by 2014 based on GigaOM’s recent data. We propose to offer a unique web-based photo frame product line that leverages the fast growth of home networks and smartphones.
NewCo will be positioned as a product to capture and share life’s special moments - the immediacy mobile photos combined with the emotional power and entertainment value photo frames. NewCo enables users to connect with friends in new ways, and creates a vast network of people who will share special moments. Users can ______.
From a product perspective, our consumer research shows that we have clear insight into a compelling and differentiated offering focused on; 1) ______2) ______. The primary threats will come from startups such as ______. Today, Company X is focused on professionally produced content and B2B Live Streaming services. Company Y has repositioned themselves as ______, and Company Z is struggling to find focus.
This business case will show that Planning Innovations has an excellent opportunity to enter this market with a beta product in Q4, 2011 and full V1 product in Q1, 2012. We estimate that the V1 product will require 11 developers through 2011 (ramping from six in Q1). Preliminary financials shows that a $3M 2011 investment will generate US baseline revenue, primarily from advertising and sponsorships, of $28M by 2014 with a five-year NPV of $30M. There is also substantial upside to be obtained from international markets, premium service offerings, and partnerships.
This program is “shovel-ready” with a clear product direction and development staffing plan. We are looking for a decision to move forward with initial hiring, redeployment of internal staff or contractor funding estimated at $250K for Q1.
Opportunity Overview
NewCo is a unique service opportunity that leverages clear consumer trends in ______, ______, and ______.
The Consumer Proposition
NewCo is focused on (customer value statement).
Imagine, that with NewCo...
· You can (primary use case)
· You can (primary use case)
· You can (primary use case)
· (primary use case)
.
Key elements of NewCo include:
1) (Key product attribute)
2) (Key product attribute)
3) (Key product attribute)
4) (Key product attribute)
The Target Market
There are two key target markets for NewCo. 1) ______, and 2) ______. We expect this will favor a younger audience initially, and broaden as the service grows. The broadcaster segment is key to driving content and viewership.
Our customer research identified the broadcaster segment as follows:
Age Demographic: 25-34
Facebook use: Daily viewing, 3+ updates per week
Smartphone: Touch screen smart phone with a 3-5MP camera
Broadcast to Family/Friends: Weighted to Females
Broadcast to Everyone: Weighted to Males
Not coincidentally, this is the same demographic that has the highest adoption of high end smart phones, focus primarily on iPhone and Android devices. We estimate this segment to currently be approximately 12M in the US today, and growing rapidly. Expanding the age range from the early adopter 25-34 demographic, this market is projected to grow to over 80M in the US by 2014. Combined iPhone and Android handset shipments are projected at 390M worldwide in 2014.
The key attribute of a smart phone required to drive interest in a service like NewCo is a high quality camera. A clear mental step occurs when a consumer gets a smart phone with a camera they consider “good enough” to replace their point and shoot. The acceptable quality bar is right around 3-5 MP. Once that mental step occurs, consumers start looking for new ways to use their phone camera, and NewCo is a natural fit that delivers a unique experience. This is part of the reason early market entrants found themselves having to re-trench; Two years ago, consumers weren’t ready for sharing live video from their phones, because the devices hadn’t enabled very many to make that mental step. Today, the market is ready.
Promotional Opportunities
NewCo also has tremendous targeted promotion opportunities to high-value demographics. Leveraging the envisioned NewCo video discovery tools we can provide direct premium promotion opportunities for live events (such as holiday celebrations, sports, music festivals) and advertisers from Red Bull to American Airlines. Geo targeting also has tremendous local, as well as national, and even global sponsorship opportunities for hotels, restaurant chains, and other location-oriented businesses.
Market Situation and Analysis
There are several key market trends driving the NewCo opportunity. As with many opportunities, we are faced with a market window. Our window will be based primarily on the adoption of higher end smart phones with high quality cameras. As our consumer research shows, this is the most significant trend that will drive success of NewCo. We see a clear step-function in consumer interest and usage of video when they receive an iOS or Android-class phone.
Key trends include:
1) Significant growth in high-end smart phones – Nielsen has projected an over 100% increase in smart phone penetration from 2009 to 2010.
2) Increase in live video adoption – GigaOm (9/10) estimates that live video viewing – professional and UGC will increase at an annual rate of 46% over the next 5 years.
3) Deployment of 4G services – we expect the deployment of 4G services will provide additional opportunities with carriers and consumers looking for differentiated features.
These trends indicate clear new market potential in both live video viewing (GigaOM estimates this to be a $1.6B advertising market based by 2014) and in mobile video apps and mobile advertising. All trends support the potential success of NewCo.
Key Competitors
There are several significant competitors in the live video market including one well-funded player (Company X – $87M in funding) and several smaller players (Company Y, Company Z , Stickam, others). Large companies have not entered this market yet, but Company Q has indicated it intends to enter live video focused on professional content and events, as opposed to UGC content. While Company Q could certainly enter the live video UGC market (and we anticipate they will at some point), we believe NewCo, being a targeted live video experience, will still have a significant advantage. Table 1 provides an overview of key competitors.
Table 1: Top 3 Competitor Overview (Details in Appendix B include a positioning diagram)
Company X
- Founded 6/2006
- Funding: $87.7M VC / Focused on professional content streaming (Ad supported) and pay for use B2B live streaming services. / Low/Medium – Company X is moving away from UGC and unlikely to re-enter in a strong way. / Monthly unique reports vary widely from 5-50M mo. uniques, but growth is clear
Company Y
- Founded 2006
- Funding: $8.5M VC / Focused on video chat to be the ‘Facetime” for Android phones. / Medium – not focused on UGC, but could turn their attention back to this – unlikely without significant funding / Mo. uniques est. at 3.5M (8/10). Active distribution on T-Mobile/Sprint handsets.
Company Z
- Founded 2007
- Funding: Angel, some VC – not announced / Focused on webcam-like long-form live video. Generally poor web experience and execution. Ad revenue model. / Low – have gained some momentum, but unlikely to capture major growth without significant new funding and refocusing / Significant growth even with their poor experience and limited available video.
The live video broadcast market is still in early stages and the pioneers shown in Table 1 all initially attempted a larger UGC focus. However, since traction in this market required a large base of high quality video-enabled mobile phones, they were not able to continue this focus and have moved into other positions. E.g. Company X is now focused almost exclusively on professional content and B2B service offerings, and Company Y is positioned as the video chat service for Android phones similar to iPhone’s FaceTime. While Company Z still has a UGC focus, their position is getting eroded with poor video browsing and an over-emphasis on long-form web-cam video, which our customer research confirmed is not compelling. Company Z ’s positioning statements were also universally disliked in focus group testing.
NewCo has several attributes that make it a unique and sustainable service:
1) (Unique product attribute 1)
2) (Unique product attribute 2)
3) (Unique product attribute 3)
4) (Unique product attribute 4)
5) Etc.
Customer Review
To determine if NewCo was unique and to refine our concept and value proposition, we conducted customer research with our target market of users that had smart phones and were heavy users of Facebook. Our preliminary research included eight interviews of target customers in Seattle and two college campus focus groups at the University of Washington.
Key Learning
Our findings provided clear direction to product feature priorities that will create a compelling, unique service offering. One key insight is that there is a clear mental step that occurs with consumers who have a smartphone with a high quality camera. This explains why current competitors were not successful in UGC and also what makes a service like NewCo compelling. This group was consistently able to suggest uses for the app, whereas consumers with more basic smart phones that did not have quality cameras had not yet started to think of their phones as their primary photo or video recording device.
Some other learning included:
· (Compelling learning item 1)
· (Compelling learning item 2)
· (Compelling learning item 3)
· (Compelling learning item 4)
· (Compelling learning item 5)
· (Compelling learning item 6)
This learning is being incorporated into the next round of concepts and customer research.
Financial Summary
The primary revenue model for NewCo is advertising; banner ads, sponsored events, sponsored discovery results, post-roll video ads, and in-video ads. These are described further in Appendix C. A key assumption is that we can capture a minimum of $1 annually per average monthly unique (similar to Rhapsody). However, be believe there is large upside potential based on other metrics. E.g. Company Q analysts estimate that they capture about $2 annually per average monthly unique worldwide and higher in key regions such as the US at $4-$5 per unique. NewCo targeted video ads and sponsorships should be able to capture much of this once scale is reached. For baseline estimates, we modeled NewCo initially at $1 per unique growing to $1.25 by year 2.
Other benchmarks we used to provide the baseline forecast include:
· Company X ramped to 5 Million monthly uniques in 3 years, at mid 2009 – we used a growth pattern similar to Company X as a baseline, estimating 5M monthly unique users by the end of Year 1, based on the overall live streaming market growth.
· A consistent growth in iPhone/Android video enabled devices – iSupply reports >25% annual growth leading to about 80 Million of these devices in the US by 2014.
We also made two important revenue share assumptions:
· To gain distribution deals with carriers, we expect to offer 30% of ad revenue to carriers who agree to offer NewCo as a native application, estimated to be 33% of our base by Year 2.
· To entice high-profile broadcasters, we will enable a shared revenue model with broadcasters for in-video ads at 30% starting in Year 2.
Other expense assumptions include:
· Estimated dev costs of $3M over the first five quarters from Q1, 2011 to Q1, 2012
· Marketing launch expenses of $1.5M over three quarters starting in Q4, 2011
Based on five year estimates with investment as year 0, we project cash flow breakeven by the end of year 1 with net revenue of $49M with OPEX of $18M by Year 4. This yields a 4-Year NPV of just under $30M at a discount rate of 13.3% and a 4-Year IRR of 87%.
A small percentage of upside for premium apps is included in the model. There is also significant upside internationally (E.g. MusicManager captures significant revenue from Japan, UK, and FIGS regions) that is not included in the financials shown.
Preliminary forecasts are shown in Table 2 and are being reviewed by the finance team
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Planning Innovations Confidential
Notes:
1) US only model – significant upside in years 3, 4 and beyond with international deployment
2) Assumes moderate growth in advertising revenue from $1.00 to $1.25 per monthly unique by Year 2
3) Assumes distribution of 33% through carrier relationships in 2013 to 2015 with 30% revenue share to carrier
Table 2: NewCo Five-year Financial Estimates
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Planning Innovations Confidential
Product Plan and Execution Summary
The objective of the first version of NewCo is to provide a unique and compelling experience while keeping it simple. To achieve these milestones and produce a compelling end-to-end service, the project scope would be highly targeted to the core customer experience. The streaming video itself will be standardized to H.264/AAC delivered over Apple’s HTTP Live Streaming. This removes the need for heavy back end streaming or file conversion infrastructure, allowing us to do all necessary encoding on the handset. Handset side encoding means lower upload bandwidth for the carriers. This also restricts the app to higher end iPhone and Android devices, which matches our target broadcaster demographic. We would leverage Facebook connect for user accounts to lessen the barrier to entry for consumers.