Ben Ruedlinger, CINO at Wistia, on the video hosting infrastructure stack

Likewise with something like analytics, there are now numerous generalized analytics tools and combinations of analytics pipelines and databases that we could potentially use. But it's so critical to our value proposition to our customers that we need to have complete control over it. We can't have a situation where we want to do something and we go to a vendor and they say, "Well, we're not going to be able to get to that until Q4 of 2022." That's just not an option.

So the things that are more critical to the value prop user experience that are infrastructure-related, we need to own as much of those as we can. The situations where it's just not feasible for us to own that -- things like the CDNs or general server infrastructure -- we need to work with either one of the big players in the space, so that we can build out our own redundancy, or create that redundancy and resiliency on our own through having multiple players there.

How do you think about being a customer of Mux and also potentially competing with the Mux Video product that they're launching? Have you considered using Mux Video as part of the stack?

Ben: Because of scale and costs, I think Mux Video wouldn't be viable for us. And again, from a business risk perspective, we wouldn't feel like we could outsource pieces that are mission critical for us.

These days, we don't really see folks in that space as particularly competitive with us. That's one of the things about video and how it's progressed. Early on, it was a shoving match for customers and who would get what. The market's really gotten big. There's room for a lot of players, and we have seen some very clear segments emerge. That's why companies entering that space, like Mux or Bitmovin or Cloudflare, don't feel particularly threatening. It feels pretty far removed from what we do.

It's a different game, too, because it runs the risk of getting into that more commoditization space because it's more infrastructure. It's more seen as a cost and part of your COGS number, instead of as an application or platform that the company has on the other side, which is helping generate revenue, and that's where we play today.

I'd love to hear more about how you see this difference between being COGS and being sales and marketing playing out.

Ben: I think those are the two ends of the spectrum. When you're in the COGS bucket, the negotiations on pricing are very different. It's a race to the bottom -- the same sort of things that we do with the CDNs in terms of having multiple providers and leveraging one against the other, trying to keep things generalized so you're not using specific aspects and aren't locked in. That leads to more pricing pressure as time goes on. And as things get easier, there's more of an attitude of, "Well, we can do this. We'll roll our own on AWS."

So you have to really differentiate yourself in that space. You have to have the tool that developers really want to work with because it simplifies their lives. In adjacent spaces, Stripe and Twilio are cases of companies that developers fell in love with because they solved the problem so elegantly for them and made their lives so much easier. We saw that opportunity for video as well, but as we looked at what our competitive advantages were as a company, they were more on the end user experience, ease of use, and being innovative on that side of things, rather than on the back-end and being developer-centric.

On the marketing side, when somebody buys Wistia, a lot of times it is a marketing department and it is as one of the tools in their martech stack, along with maybe HubSpot, Mailchimp or some of the other players that are seen as critical tools in helping accomplish the marketing job. As a result, as long as there's ROI and value being shown there and you're saving people time, helping them get more leads and better ROI on the leads that they are getting, and giving them the data to make better decisions, it becomes much easier to justify whatever the price is. You have to justify the price based on the value you provide, whereas on the COGS side, it's more like: "What is my cost and how do I continue to push that down?" Obviously, people don't want to pay more than they have to on this side. We have the burden of ensuring that we provide continuous value there and help them achieve their goals with respect to marketing.

There's a fuzzy area in between that's like a hybrid of both, which is the learning and development area that I talked about. It's not in the revenue generation pipeline but it is more user-facing and less back-end, so it's kind of a hybrid between those two in terms of still being seen as a cost center and so customers are very price-sensitive and it becomes harder to justify the ROI there. There are companies that have done well in terms of nailing that. Kaltura, which is really big in the education and learning and development space, just went public recently and has really made their business there.

One advantage I would think that you would have with the developer-centric approach is potentially giving people the ability to build crazy custom video experiences, and one might posit that we're moving towards a greater desire for interactive, more short-form video -- like what TikTok is doing -- and maybe more live video. I'm curious how you think about what the future of business video looks like, how Wistia thinks about that, and how you think about responding to these kinds of new desires from the market.

Ben: One of the things that we saw -- and this was probably four or five years ago as well -- was that more and more online tools and applications were starting to trend towards more native video, like building video into their product. We looked at this and said, "Is this something that we should be in? We know this is going to happen."

Let's say you build the new TikTok and you start to get scale on it. Very quickly, the costs start to run away a little bit, and it becomes a more critical part of your business, so you're like, "Okay, now I'm really building a video business here. This is a critical piece of my infrastructure and business risk." Sometimes that will cause companies to bring that closer and more in-house. So there is this question of: How far do people go before they really feel that they need to own that more fully than what an outside vendor can provide?

That said, there are a number of companies that have scaled and continued to use us at very significant scale as the back-end infrastructure. We have multiple customers that literally store millions of videos with us and upload millions of minutes of new video every month. It can be done, but I think there is a challenge there in terms of: How much can you own, in that as the scale goes up, the pricing pressure goes up as well? It becomes difficult because those customers become a bigger and bigger percentage of a company's overall revenue. There ends up being concentrated customer risk there as well, if you do get one of the ones that's a hit. If the pie of the video market were staying the same size or shrinking, I think it would be more of a concern. With the pie growing as much as it is and as much as it has been, it's a little less of a concern at this point.

The other thing is that the more video infrastructure play is a generalized play. You're trying to be a tool that really any developer can use. You're targeting one segment of the market, and they have a particular use case, set of needs, set of customer needs, and way they want to buy and be charge. This is actually not that different from what we're doing. We're focusing on a particular function within the business as well, which is marketing. They have a very different set of needs, and they want to pay and buy in a completely different way. In some ways, it's more alike than it seems at first blush.

How do you see the role of video changing over time within businesses, both in general and within marketing?

Ben: It's increasingly growing in importance, across the business and in marketing as well. I think the original situation was, "Oh yeah, we got a video made, we're going to put it on our website. It'll be great. It'll help us." Now you have whole teams that are responsible for social video. You have companies that are plowing significant portions of their ad budget into making video shows and podcasts -- for instance, what Mailchimp did with Mailchimp Presents. We've talked about it a lot in terms of what we call brand affinity marketing: you can either rent the audience and buy ads on these shows, or you can own the podcast or the show and then have that audience as your own, rather than paying ad fees every month and at the end of the day being left with nothing. Making those investments into more brand content really helps build audience. That's a big movement that's going forward.

Then there are things that are more forward-facing like connected TV, which is basically doing for television what the digital advertising movement did with the web. In terms of advertising, you could put ads in the paper or on radio and reach large general audiences. Digital advertising and what Google and many others have done is allow you to be able to target individual people with demographic constraints to be more efficient with your marketing spend. Up until recently, the same has been true with broadcast TV. You can buy advertising on broadcast TV and reach a very wide swath, but it's very expensive and only the biggest players can do it. With connected TV, we're able to take all of those ad units and break them up and sell them off individually based on demographics and everything else, and make more efficient use -- both for the advertiser as well as the publisher of those ad units -- to really meet the needs of the consumer. That's another area where there's a lot going on.

And live streaming is a big thing. People have become more comfortable -- whether it's companies, businesses, marketing teams -- doing webinars, going live on Facebook, YouTube, or LinkedIn, and having more event-driven type content. This really turned the corner as a result of the pandemic. There were many companies that relied on in-person events as a big part of their marketing strategy, and that overnight went poof. As a result, they had to figure out a plan B. That has in large part driven a much bigger move to live online events, and even hybrid events now as things start coming back.

This is a trend we expect to continue because having a live event is great, but you can greatly increase your reach if you're not constrained by geography. So companies are doing more of these live events and trying to make those connections again, whether it's a casual livestream on their Facebook page, a webinar, or co-marketing with a partner company. There's a lot of space in between there, and it's a space that more and more companies are starting to take advantage of.

Is there anything that we haven't touched on that you feel would be valuable to talk about?

Ben: I think consumers -- whether strictly consumers or buyers at a business -- have come to realize how important video is. They've also started to realize that they need more help and more tools. So much of the video journey is about figuring out how to do this piece and that piece: How do I encode my video? How do I change the aspect ratio to format it for Instagram? There are all these different aspects that come together to create the video, and that goes through distribution and measurement as well. Our perspective is that the time we're at is one where the customer, regardless of the space, is looking for more help doing these things and a more seamless experience across the whole video journey. Where we're really focused now is to help companies -- and specifically marketing teams -- with the end-to-end video experience: everything from creating the video through the whole production process, and through the distribution and analysis and integration with everything else within the martech stack. It's a really big problem.

As more people use video, some of these problems are going to become more and more clear. Over the past year and a half, I would say we've probably seen more video startups than we did in the past TEN years. They're starting at a scale that is smaller because they're leveraging a lot of the services, like Mux Video and some of the other more infrastructure-based services, so they're not having to spend as much time thinking about the nuts and bolts of video. They're able to have APIs and widgets out of the box that allow them to accomplish relatively high level things.

In some ways, it's much like payments. Implementing payments in a web application in 2008 was an arduous and painful experience. Now with tools like Stripe, a not particularly skilled developer can do it in 15 minutes with very little hassle and actually follow all the rules and compliance and everything else. That's a big change, and it's very similar with video. There are many ways to do video. Many of them are not particularly good in terms of end user experience. The number of times we've seen: "I host a file on my server, and it's an hour and a half long video. And yeah, I'm just serving it through an HTML player." Days later, they wonder, "Why is my web server down?" Well, there are 50 people watching the video with long running connections, and they've essentially killed the server because it's serving huge files. And it's not doing it particularly well because they're all over the world, and the server is in Indianapolis or something like that. So all of these tools allow you to do video tasks right out of the box, correctly the first time.

It's the same thing that we've done at a different layer of the stack for marketers. Marketers aren't particularly well versed in terms of the ins and outs of video and codecs. "Should I be using MP4? Should I be using HLS? What are the differences? How do I do captioning?" All these different aspects of video that just right out of the box work. They don't even have to think about it, and that's the magic. That's where the value comes, because now we have enabled them to do something that before seemed impossible. We think about it as like giving marketers super powers when it comes to video. Being able to drop a form that pops up 15 seconds into your video and captures leads, and then send them directly over to HubSpot, and then send the data associated with what they're viewing into the contact record in HubSpot so that the salesperson can see exactly what they've watched and when they watched it. These are things that ten years ago felt like science fiction to marketers. Now it's become significantly more commonplace and achievable.

Sacra: In a way, it feels like a parallel to Wistia getting started when AWS was just coming out, making it suddenly possible for Wistia to exist hosting files, with Mux being potentially an AWS-like source for video businesses to exist. But Wistia having already built that infrastructure itself over a decade gives you an advantage on gross margin and other things.

Ben: Exactly, and it's also given us some really good perspective. Starting a video business today, you would never think, "Should I roll my own video encoding service?" No way. You couldn't do it. You wouldn't be competitive. You'd get beat to market by the five other people that chose another solution. Just like ten years ago, if you were starting a web service and you said, "Should I get colocated servers in a cage at cogen? Or should I get an AWS account and pay by the hour?" It became very clear. It enables the creation of more experiences more quickly. That's again this acceleration of enabling technologies that enable more technologies on top of them. It's building the tower with these critical components.

At what point, what gets commodified within that tower? You spoke to that with regard to CDNs, and I think potentially the same question is there for companies like Mux and for other ones: What's the commodity? And where is the value created?

Ben: I think the burden on them is to differentiate and to provide things that are either specific to the customers that they serve or cannot be replicated easily by competitors. For instance, Bitmovin had built out a set of technology that -- I forget exactly what it was called, but it was an encoding technology that, when you uploaded the file, it basically split the file into hundreds of pieces, sent them to different encoders on different machines that each encoded that particular segment, then brought them all together, so you could encode a one hour video in five seconds. Having instantly available video encoding has been a competitive advantage for them because video encoding generally takes quite a while. The general rule of thumb is, whatever the length of the video is, that's about how long it takes, within a factor of two, to encode it. So being able to have instantaneous encoding is pretty attractive and a pretty big differentiator.

There are a number of different strategies that companies can pursue in this space to really differentiate their offering, whether it's through ease of use, raw technology, or things that they can do to give price advantages that other competitors can't. But you've got to pick one, or else you do run the risk of falling down the commodity rabbit hole.

This transcript is for information purposes only and does not constitute advice of any type or trade recommendation and should not form the basis of any investment decision. Sacra accepts no liability for the transcript or for any errors, omissions or inaccuracies in respect of it. The views of the experts expressed in the transcript are those of the experts and they are not endorsed by, nor do they represent the opinion of Sacra. Sacra reserves all copyright, intellectual property rights in the transcript. Any modification, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from, or selling any transcript is strictly prohibited.