This is what ZappoTV will try to do: from 700 000 free users to 550 million paying connected tv’s

The connected tv is the puzzle that bright minds at media groups are trying to crack by throwing cash at it. There is something to be done with the fact that smartphones and tablets lie next to us on the sofa (wifi connected) while we’re watching our tv (wifi connected).

There is money to be made. But how? With recommendation engines? Second screen apps? Everyone is searching, but everyone might just be too late: ZappoTV has been developing a connected TV solution since 2008. It has tested its solution on its free app that has 700 000 users (25 000 new ones added every week), on every television set and home network imaginable.

It also has a money making offering for media groups. Zappo TV is asking media groups 70 cents to register a tv. It estimates the market for connected tv’s at 550 million in 2016. ZappoTV is first in the market by a length. In fact, when they started building their connected tv app, there actually WERE no connected tv’s yet. So ZappoTV has 4 years of knowledge keeping the competition at bay. Now, they’re raising a three to four million dollars to grab the connected market.

Thinking global from day one is all the rage these days. ZappoTV, a Dutch/US startup, was global from day one, since its two cofounders live on opposite sides of the globe: Jan van Ottele lives in Amsterdam, his partner Neal Blaak (feature photo) lives in California.

Jan van Ottele, ZappoTV

Jan van Ottele, ZappoTV

Jan van Ottele: “We knew each other from our previous startup, so for us it was logical to start a new one together. And with our development team in Gdansk (Poland) we truly were a global startup from day one (laughs).

Video + mobile + internet = ZappoTV

Van Ottele and Blaak’s former company Adjustables developed ad technology for video, Van Ottele explains. The ones before that were in mobile and internet. When Van Ottele and Blaak started thinking about something new in 2008, he says “it seemed logical to bring, mobile, internet and video together. Especially because you could already see how important video would become for the internet – there was YouTube, but also thousands of high quality video blogs. The only question was: how the hell will I watch this on my tv?”

“A lot of people would try to solve it by connecting their laptop to their tv, which isn’t very practical. There’s the hassle with cables. And when you do get your laptop connected to the tv set, you’re frustrated because you obviously can’t use the remote.”

“We first thought we’d have to develop a set top box, but then when you look into it, it becomes very clear that it’s not the way to go. Developing a box is just too expensive, you have to dump millions of euros into it, not knowing how you have to price them when they’re in production – and if you’ll ever get them sold.”

“So we said: let’s develop a purely software based solution. We went with the assumption that everyone would have a smartphone or a tablet in his living room and a connected tv. This is a reality today: 60 or 70 percent of the tv sets sold today are connected smart tv’s. All the major brands now have them: Samsung, LG, Sony, Panasonic and Philips. We thought it should be possible to develop a mobile video solution to watch your mobile videos on your tv without installing an app on your tv, which is also kind of a hassle. No: we wanted an app that would just work with your tv. Literally: take your tv out of the box, hang it on the wall, watch the video that you made on your smartphone. That simple.”

ZappoTV wanted to develop an app that would make it possible to find any video on your phone or tablet, and then click a button to watch on the big screen. The solution should work with any video: YouTube videos, stuff that friends post on Facebook, the movies that you took with your smartphone.

550 million connected tv’s

It’s a simple and appealing idea, but getting there took a while, Van Ottele says. But since some time, both the iOS and Android app are available in the Android store and the App store. ZappoTV now has 700 000 users – a number that grows every week with 25 000.

“It’s a big market,” Van Ottele says, giving new meaning to the word understatement. “You’re talking everyone who has a connected tv who also has an Android phone or tablet or anyone with an iPhone or iPad. According to market research, there will be about 550 million households with a connected tv. Counting two people per household, that’s more than a billion people.”

ZappoTV is riding a wave that everyone is scampering to get on – the difference is that they’re ahead of the curve. “We started working on connected tv’s before there even were any. When we started out, you had to buy so called network streamers – a set top box. I think the first connected tv’s only arrived in 2009, from Sony and Samsung. Of course, today it’s booming.”

It’s the unfair advantage of 4 years of building and testing that guarantees Van Ottele’s sleep quality today, he admits. “When I did other startups, I often worried that the competition would overtake us, or copy us. This time, I’m less concerned.”

“We don’t make any money from those 700 000 apps that we give away for free, but we learn a lot from them. It’s not easy to predict how a certain tv set will react to a certain type of video – it’s a spaghetti of codecs, brands and sets. Changes everyday, too. Last week, LG changed its firmware – we don’t know why they did it. Only that it made our app stop working (laughs). Of course we fix that in a couple of days: we can fix these things on the server side without the need to re-submit an app.”

“So it’s not something anyone will copy overnight, even with a team of very smart developers. We built this product for over three years, with six developers, full time. It will cost you at least two years to get to where we are today, because you need to test it with hundreds of thousands of users to know if it will work. Every home network is different, every iOS, every release of the iPad is different. Good luck copying all that.”

Now that the testing is done, it’s time to start making money. For that, ZappoTV is targeting media groups and content owners who built apps for their users (and which media group hasn’t?).

Suppose you are a content owner and one of your users is watching a video on his iPhone his home network, that also has a connected tv in it. A small icon on the iPhone will make it clear that the user can also watch this particular video on the big screen – with a simple tap on the icon.

When first connecting a tv, however, the user will have to register the tv set – and that’s where ZappoTV makes its money. “For every tv that we register, we ask a licensing fee of 70 cents. The content owner can choose for himself whether he wants to charge his users or not – it doesn’t matter to us.”

Smaller content owners can just download the SDK themselves – meaning there’s no sales cost for ZappoTV. The bigger players, not surprisingly, require more bells and whistles. “A very large player asked us to implement a feature that would show the video on the large screen in a different resolution than on the small screen. Because they think the difference between the iPhone resolution and the TV resolution is too big. So we’re working on that now. It’s also something that Airplay doesn’t offer, so for us it’s just more differentiation.

ZappoTV has signed contracts with “a few major content owners”, Van Ottele says. One app was subbmitted to Apple’s App Store and is currently waiting for approval.

A real, honest to goodness, over the top, video on demand system

There’s also some wider ranging impact of a solution like ZappoTV, says Van Ottele. “The market for video on demand is obviously broken. You could build a great video on demand system today with ZappoTV. You choose an installment of an HBO series on your smarphone, and you can view it on your tv. That easy. In the current market, you can’t build that solution. Because of DRM issues. That’s a bad situation for everyone: for the content owner, but also for consumer.”

“So I think that might be a real second screen killer product that we can offer: real on demand tv, easily accessible via your second screen, but watchable on your tv. Today, content owners have to pay cable operators just to reach their consumers – for no other reason than cable being the unique gateway to the consumer.”

“That monopoly is finished the day you can bring real, over the top video. The consumer would pay less, but the content owner would keep more of the money that the consumer pays. Everybody wins. Except the cable operator – they would become data pipes overnight. ” So, he adds cheerfully, that’s exactly what ZappoTV is now talking about with some major content owners.

Building a better war chest

Since 2008, ZappoTV has been in seeding mode. “We invested quite some of our own money in it, and we also had backing from angel investors. The problem is that the market is so huge, and it grows so quickly, that we need a bigger war chest. We want to raise between 3 or 4 million dollars by mid 2013. By that time, we want to show a nice client list, so that we can do the round at a decent valuation. ”

ZappoTV has “everything”, says Van Ottele: “A huge market. It’s B2C, which means it will be adopted very quickly. And the barriers to entry for competitors are considerable.” It sounds like ZappoTV might become a bona fide home run, I say. “It might be,” says Van Ottele.

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About the author

Raf Weverbergh

Editor of whiteboard. Raf Weverbergh was a magazine journalist whose work appeared in magazines like Rolling Stone, Playboy, Mail on Sunday, Publico and South China Morning Post. He is the co-founder of FINN, a corporate communications agency where he advises startups and multinationals on their PR and Mustr, the easiest media database for PR professionals. You can contact him on Twitter, Linkedin or Skype (rafweverbergh).

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