Ex-colleagues, chilly competition
In August 2004, two entrepreneurs were having drinks at the bar at Rialto, the Harvard Square restaurant, following a board meeting.
Hilmi Ozguc was the chief executive of Maven Networks Inc., a Cambridge company pioneering Internet video delivery, and Jeremy Allaire was a "technologist-in-residence" at the Cambridge venture capital firm General Catalyst, Maven's original backer. Allaire had been a member of Maven's board for about six months, and before that he was an adviser to the company.
Ozguc wasn't stunned - just mildly surprised - when Allaire told him he was planning to leave the Maven board to start his own video company. Before long, Allaire had raised $5.5 million from General Catalyst and California-based Accel Partners, two venture firms that had invested in Maven. Allaire told Ozguc he didn't expect his new company, eventually dubbed Brightcove Inc., to compete head-to-head with Maven, and he even licensed some of Maven's technology.
"They had complete visibility into what I was doing and what the business plan was," Allaire says of Maven.
But, "Hilmi always felt that the two companies would wind up competing with each other," says one of Maven's investors. And the feelings between the two entrepreneurs can't be all that warm. When I asked Allaire whether he has had much interaction with Ozguc since leaving the company's board, he replied, "None at all."
Ozguc concedes, "We've spoken very little. On a personal level, I think he's a swell guy, and I can afford to be that way because we're beating his pants off in most of the sales situations we're in."
The story of Maven Networks and Brightcove, two companies that have helped shape the way media firms distribute video online, is one of unbridled competitiveness: two entrepreneurs who were once on the same team now duking it out.
Brightcove, by virtue of having raised $82 million in funding, is one of the highest-profile tech start-ups in Boston (Maven has banked $27 million). The big question is which one will wind up with the sweetest finish - either an acquisition by a big player like Microsoft or Google, or a public offering.
Maven started in 2002, and while Ozguc saw the Internet developing into a way to deliver video - not just text, pictures, and sound - the company's strategy didn't involve playing videos inside a browser. Instead, Maven created a downloadable application that enabled users to "subscribe" to a particular channel, and have new videos delivered automatically to their computer. Twentieth Century Fox used the technology to send promotional clips to movie fans, and BMW used it to pepper car buffs with videos.
When Maven unveiled its product in 2003, Allaire posted a blog entry praising Maven's ability to deliver DVD-quality video at low cost, and said he was "struck by how smart the team was." (He joined the company's board in March 2004.) But though Maven persuaded about a million people to download the software, Ozguc began to realize "consumers had no compelling reason to fire up the application every morning to see what's on."
When Allaire left Maven's board to start Brightcove, he licensed some of Maven's technology and in return gave Maven a piece of equity in his start-up. His plan was to build an online marketplace for all sorts of video content that could be watched in a Web browser, without special software. As the chief technical officer of Macromedia Inc., he'd helped promote the Flash format, which became the dominant standard for online video, used by sites like YouTube.
And while Allaire as a public speaker is no Steve Jobs, he and his company started racking up media mentions, in publications like The Wall Street Journal, Wired Magazine, Newsweek, and the New York Times. But a lot of the coverage ran months before Brightcove's site was open for business. (The New York Times Co., owner of The Boston Globe, later invested in Brightcove, and the Globe uses the service to publish video content.)
"They were good at the sizzle, and had very little steak," Ozguc says. "We had steak, but weren't good at sizzle."
Maven also had to execute a major shift, adjusting its technical infrastructure to deliver video to a browser, without requiring the software download. That shift wasn't completed until last year.
Brightcove attracted one very big name to its board: Barry Diller, former head of Paramount Pictures and founder of the Fox Network. "His Rolodex is invaluable," Allaire says. "He can introduce you to any CEO of any media company."
As the Maven and Brightcove offerings became more alike, the companies started competing for the same customers, who pay them based on how many videos are viewed. Maven counts Fox News as a customer; Brightcove can claim the Fox Network, FX, and several other divisions of Fox. While Hearst's newspapers use Brightcove, the company's magazine division uses Maven.
Maven's "positioning, messaging, and product looks a lot like Brightcove," says Allaire. "That's a little bit frustrating." Ozguc claims that Maven is winning 70 percent of the accounts that the company competes for; Allaire says his company's main competition isn't Maven, but prospective customers trying to build their own systems for publishing video.
When the two companies kept bumping into each other on sales calls, they realized something needed to be done about the original deal that had given Maven a stake in Brightcove. By early this year, a settlement had disentangled the two. It called for selling off Maven's equity stake and ensuring that Brightcove was no longer using any Maven technology.
Last week, Brightcove unveiled a new product called Brightcove Show, which is designed to deliver full-length TV shows or movies at DVD-quality or high-definition. The new product is a direct response to another start-up, Joost, which has recently outdone Brightcove in the buzz department. Tomorrow, Maven will unveil enhancements to its ability to insert ads into video content. The company is also unveiling the Internet TV Advertising Forum, a new consortium it has formed along with companies like Ogilvy and DoubleClick. Brightcove hasn't yet been invited to join, Ozguc says.
Some think that both Maven and Brightcove could turn out to be winners. But getting to a good payday will be tougher for Brightcove, which has raised three times as much money as Maven. Venture capitalist Todd Dagres estimates the current "best case" acquisition price for the companies might be "in the $300 million range, if things go well."
That's a far cry from YouTube's $1.65 billion price tag, paid by Google last year. "Selling to enterprises is slightly less risky than what YouTube did, since you don't have to build a brand," Dagres says. "But I'd argue that you're going to see less upside as a result."
Innovation Economy is a weekly column that focuses on entrepreneurship, technology, and venture capital in New England. Scott Kirsner can be reached at kirsner@pobox.com. 