What Went Wrong at Veoh?

Veoh is shutting down and about to file for bankruptcy, despite raising ample funding and having solid search and recommendation technology. The site had also procured a decent audience, with more unique users than Hulu up until about a year ago, when Hulu launched an ad blitz following Super Bowl XLIII.

In a phone call with NewTeeVee, Veoh founder Dmitry Shapiro placed a lot of blame on the Universal Music Group copyright infringement suit, as well as the broader macro-economic situation. The UMG lawsuit might have limited its strategic opportunities or scared off new investors, but Veoh made a number of missteps before its final demise. Here are a few:

Raising too much money

Veoh raised $70 million, including a $30 million round that it brought on after it was clear that the company was having problems. Compare that to Blip.tv, which was founded around the same time and has raised a total of $8.5 million over the last five years.

Getting too big too fast

One of the traps of raising a bunch of money is having to justify it to your shareholders — and that frequently involves spending too much, too fast. According to MediaMemo, Veoh was spending up to $4 million a month on bloated staff and infrastructure costs. In other words, like Joost, it wasn’t acting — or spending its cash — like a startup. The company had about 120 employees at one point, which it cut down to 20 before finally closing down shop this week, but the bigger costs came in bandwidth and infrastructure bills, which it couldn’t really avoid.

No strategic focus

In his requiem for Veoh, Shapiro writes that Veoh “was launched in September of 2005 with a bold goal: To make it possible for anyone with a video camera and a computer to broadcast video to the world.” That might have been the plan at the start, but Veoh tried a number of things over its short lifespan: it tried to attract independent producers with an ad split, tried to bring in premium content and even at one point attempted to fund production of its own content before finally focusing on its Video Compass search and discovery technology.

Requiring a client download

When Veoh launched its long-form video service, VeohTV, it made the viewing experience available only through a downloadable application (and later a browser plugin), which optimized viewing through peer-to-peer distribution. As with Joost, that hampered adoption, especially as Veoh’s peers — like Hulu and YouTube — emphasized in-browser video delivered through Adobe (s ADBE) Flash. On the phone, Shapiro said this was likely the biggest mistake the company made: “We probably could have had a lot more traction at the time if we had streamed,” he said, but without cash to pay for bandwidth costs, it would have been difficult to get off the ground without the P2P client.

Turning its back on its users

The biggest indicator that Veoh was in trouble came in the summer of 2008, when it blocked access to videos on its site to all but 33 international markets. The explanation was basically that Veoh wasn’t able to monetize videos in those markets, so it was limiting costs from serving them there. But it upset a number of users from around the world who had come to rely on the site for interesting video content.

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