Startup Review

Jumpcut Case Study: Blueprint for a product acquisition

written by Jay Parkhill, posted on February 18th, 2007

Why profiled on Startup Review

Jumpcut is an online community for video creators. Jumpcut provides free video editing tools that let consumers upload short video segments and edit them online to add music and effects. Its Flash-based tools attracted immediate attention in the blogosphere and from consumers, resulting in the company’s acquisition by Yahoo! approximately six months after launch.

Because of its short operating history, Jumpcut makes an interesting study of the launch phase of a business without considering subsequent growth. The company (the business’s legal name was MiraVida Media, Inc. prior to the acquisition) worked very quickly to develop its product and build a team, and was then acquired before the product had time to make more than an early dent in the market.

Jumpcut’s founders met in June 2005 and agreed to start working together almost immediately. They formed the company in September of that year, raised approximately $1M from a group of angel investors and early-stage VCs and launched an alpha product to a group of 500 users in January 2006. They followed up with the commercial release of the product in April 2006 and built the company to 15 people before selling to Yahoo! at the end of September 2006.

Interview conducted: Mike Folgner, co-founder

Key success factors

Team synergy

The company’s two founders had never met before June 2005. On determining that they had complementary skills, they decided to make a one-month trial of working together. Ryan Cunningham did the technical work while Mike Folgner performed market analysis and developed the business plan. Both agreed that if the relationship did not work out, Folgner would take ownership of whatever had been created during the “test phase”.

Folgner told me that this period was very useful to both founders in evaluating the business’s potential. The two found that they could work together effectively and formalized the business shortly thereafter.

Following this start, Folgner told me that their emphasis in building the team was on finding people with valuable skills, but it was equally important to assemble a group of complementary personalities. To find such people, the founders relied heavily on their existing networks of contacts and had a policy only to hire people they knew personally or came highly recommended both for business skills and personality fit.

I found this a little ironic: the founders had no prior relationship, but only hired people they or others close to them knew well. The founders “got lucky” in finding one another, but realized they could not rely on serendipity for other staffing decisions.

Targeted niche

The founders had experience with online media (Cunningham was a veteran of Macromedia and Folgner worked at OpenTV) and saw the emergence of the online video market. They perceived that other nascent businesses had focused on sharing media, but had few or no tools to permit users to easily edit video. At the same time, they saw ever-increasing numbers of digital cameras and phones that could shoot video clips and predicted that the amount of “casual video” footage would continue to grow. Desktop-based video editing tools were (and still are) complex and time-consuming systems not well suited to address this new market. The founders believed that all of these factors pointed to an unfilled niche for an online service to edit and store short video clips.

Technical merits

Jumpcut’s website and editing tools are impressive and easily demonstrable. I was amazed by how smoothly Jumpcut worked, and how effectively it removed complexity from the user experience. Simplicity comes at the expense of sophistication and fine-tuning of video content, but for many purposes Jumpcut may provide a happier result for casual video authors more interested in sharing than sophisticated editing.

Launch strategy

Use of the blogosphere

Jumpcut illustrates the relative ease of garnering publicity through the blogosphere rather than traditional media. Folgner told me that the company reached out to a broad group of traditional media and blog outlets. Of these, no traditional media companies (including the New York Times and San Jose Mercury News) covered the company’s launch, but bloggers (principally Techcrunch) did profile the company and brought Jumpcut its first important boost in traffic.

Folgner attributed Jumpcut’s success in reaching out to the blogger community to: (i) articulating well the niche filled by the product, (ii) waiting to release the product until it was well-developed and “showed” well, and (iii) making in-person presentations to influential bloggers.

Interestingly, he also said that the company got a spike in traffic from this publicity, but that it was short-lived. Consumers read about the product and visited the site to check it out, but most did not return. Many of these visitors also never made it past the home page. Thus, launch publicity brought the company a small group of new users, but did not make the business by any stretch. Folgner emphasized that no one factor led to the company’s success, but efforts in a number of areas seemed to increase traffic and visibility.

“Tuning” the home page

The company has worked continually to improve its clickthrough rate from the home page. Early versions of the home page emphasized sharing of content to a greater extent. The company realized that its greatest differentiator from other video sites was its editing tools, and over time the home page came to feature those more prominently.

Focus on viral feature development
Another key factor, and one that has been important to many companies profiled on Startup Review, is the extent to which it was able to promote viral distribution of content. Embedded players on blogs and social network profile pages, and “send to a friend” buttons next to videos both helped to drive traffic and increase the company’s visibility.

Distribution deals

The third important factor was Jumpcut’s ability to partner with established media companies. Jumpcut cut deals with Warner Bros. and Fox Films to use clips from those companies’ film libraries in promotions and clip-editing contests. These deals drove traffic to the site, but more important, they improved the company’s visibility and standing with other potential partners, including Yahoo!.

Exit analysis

Jumpcut’s initial financing, together with the later distribution deals, gave it enough cash to operate into the fall of 2006. In the middle of 2006, they began to discuss options with a number of venture firms and potential acquirors. The company received offers from several firms regarding a larger investment round, and acquisition interest from multiple companies. In the end, the Board decided that the valuations being offered were not compelling enough to continue as a standalone business. On the other hand, Yahoo!’s model of allowing its acquired businesses to operate with substantial independence (such as with Flickr and del.icio.us) was very attractive. Terms of the deal have not been disclosed but are rumored to be something less than $10M.

Food for thought

Jumpcut was clearly acquired for its team, technology and its product, rather than for traffic, revenue or any other component of its business. Big internet companies, especially Yahoo!, Google and Fox, have made a number of similar acquisition in the past couple of years and are eager to find talented people and high-quality products that they can scoop up at low valuations. When faced with such an environment, every startup must consider a number of questions, including: (i) whether the product is robust enough to stand on its own, or whether it needs to be augmented significantly before it can generate revenue and support a company; and (ii) whether the company’s competitive environment will allow it enough time to find a revenue model (if one isn’t clear at the outset).

In addition, the Board needs to conduct an economic analysis to determine whether the return to be generated by an early sale will provide sufficient value to the investors and the team for capital and sweat equity invested. This point can be complicated because an early exit might be a great result for the founders, but less so for professional investors.

References and further reading

Online Video Sites: Breeding Like Rabbits, Tech Crunch, April 5, 2006
Review of Jumpcut’s launch and initial version of the product

Yahoo acquires video editing co., Jumpcut, Venture Beat, September 27, 2006
Discussion of Yahoo! acquisition

Circuits; Camera. Action. Edit. Now, Await Reviews, New York Times, June 15, 2006
Comparison of online video editors (payment required for complete articles)

Mix And Edit Media Online With Jumpcut, Vibetechnology.com, November 4, 2006
In –depth review of Jumpcut’s editing tools.

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