Skype co-founders Janus Friis and Niklas Zennstrom are preparing to unveil their latest venture to the public—a video Web site that combines professionally produced TV and video with the interactive tools of the Web.
The Venice Project, as the startup is now known, launched a Web site (www.theveniceproject.com) over the summer and began testing its software on a very limited basis. Only about 100 people are on the system, Friis said in an interview with BusinessWeek.com. The so-called beta test will be expanded dramatically by the middle of November, he said. "By the end of the year, everyone will be able to download it. Hopefully, it's viral and it gains traction," Friis said.
The current code name will be replaced with a new brand, though Friis declined to say what the official name will be. The Venice Project is currently trying to convince a range of small, medium, and large media and TV companies to place their full-length, professionally produced content on the network, although anyone will be able to post video on the network. It's also talking to advertisers and marketers that could place video ads on the network. "People love to watch TV. They love professional storytelling by people who know what they are doing. And people love the Internet, because of the choice and the social qualities. We are trying to bring the best of both worlds together," Friis said.
COOL CAPABILITIES. The existence of the project was first reported on by BusinessWeek.com in July (see BusinessWeek.com, 7/24/06, "Kazaa, Skype, and now 'The Venice Project'"). BusinessWeek.com has since received an exclusive demonstration of how the system works.
To get started, users need to download a piece of software from the Web and install it on their PCs. When they boot up, the software will connect to the Web and open a full-screen window displaying "near high-definition" quality video images.
While the software turns your PC screen into something that looks a lot like your TV, the capabilities go far beyond anything you'll experience in your den. Jiggle your computer mouse, and a variety of tools appear along the edges of the screen, even as the video continues to play. At the bottom of the screen, there are controls like those on a DVD player, including stop, pause, and fast-forward, as well as a search window to find new videos. An image on the left includes a menu of preset channels. And on the right, there's a set of interactive tools that let you share video playlists with friends or family. An image at the top of the screen identifies the channel and the name of the clip you're watching. All of the images can be expanded by clicking on them with a mouse.
PEER-TO-PEER BENEFITS. A few years back, Zennstrom and Janus Friis alienated the global recording industry and created a legal quagmire by creating the Kazaa file-sharing system. The system faced a barrage of lawsuits from the recording industry, which painted Kazaa as a tool for piracy of intellectual property. Their next project, the wildly popular Web phone service Skype, was acquired by eBay (EBAY) last year for $2.6 billion (see BusinessWeek.com, 9/19/05, "Skype's 'Aha!' Experience").
Like Skype, The Venice Project is designed to work within the intellectual property rights system, not against it. Unlike Kazaa, The Venice Project is not a file-sharing system. It's based on peer-to-peer technology, in which the infrastructure comprises user PCs, not central servers. But users don't download video files. The videos are streamed to their computers instead. The encoded bits of data that make up shows stream past the viewer's eyes and disappear. They don't become permanent files on the viewer's computer.
That makes it much more difficult for users to make, distribute, or sell illegal copies of the content that they watch. "This system is designed from the ground up with the content owner, the marketer and the consumer in mind," Friis said. The system does use a series of backup servers to ensure that content is available when people want to see it, though.
PREVENTING "MALWARE" PROBLEMS. Friis promised that The Venice Project would avoid another one of Kazaa's pitfalls. The file-sharing system was notorious for "malware," or unwanted and undetected computer programs that installed themselves on a user's hard drive. That created all sorts of potential problems, from unwanted ads to violations of privacy and security. This time around, "there will be no malware," Friis said. The Venice Project is designed as a vehicle for high-quality video-based ads.
The Venice Project is entering an increasingly crowded and competitive field, though. News Corp. (NWS) said this week that it will make TV shows available directly to viewers over MySpace, the social networking site it acquired last year. And startups from YouTube, to Grouper, VideoEgg, and Veoh have attacked online video as well. "Some of these companies could become very large," said Jay MacDonald, a banker with media banking firm DeSilva & Phillips.
TV'S TURNAROUND. The time seems right for online video, though. Friis said Kazaa tried to work out legitimate deals with music companies, "but we were five years too early." The TV industry is receptive to online video now, just as The Venice Project is hitting the market, Friis said. "The TV industry saw what the music industry went through," Friis said. "There's no question that watching video online has become a mainstream activity," said Jonathan Fram, a partner with Maveron, the venture capital firm that backed VideoEgg (see BusinessWeek.com, 9/27/06, "VideoEgg Gets a Jolt of VC").
Friis and Zennstrom remained committed to Skype and are developing The Venice Project with eBay's support, Friis said. Zennstrom, Skype's CEO, spends little if any time on The Venice Project. Friis, Skype's director of strategy and innovation, spends most of his time on Skype. He has recruited a number of long-standing colleagues, including The Venice Project CEO Fredrik de Wahl. De Wahl is a veteran of another Zennstrom-Friis startup, the software company Joltid.
The Venice Project faces plenty of hurdles. A pack of competitors are eager to aggregate online video. And there are plenty of media companies that are more than willing to take their content directly to consumers, bypassing aggregators altogether. But with access to capital and a stellar record of creating popular Web applications, Zennstrom and Friis could very well help bring TV to the Web.