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Q&A with Roelof Botha, the Web 2.0 guy at Sequoia Capital

Roelof Botha
Roelof Botha is partner at one of Silicon Valley's more successful venture capital firms, Sequoia Capital. He is the partner who led the investment in video-sharing sensation, YouTube. He is also on the board Insider Pages, Luxim, Meebo and Xoom. He's also former CFO of PayPal. This conversation took place a little more than a month ago, as part of the reporting for front-page stories the Mercury News just ran on YouTube and the industry it is in. Space, as usual, was limited, so we've decided to publish a version of the Botha Q&A transcript here:

Q: Why did you pick this team at YouTube, when there are so many video players out there you could have backed?

A: There weren't that many players when we invested. It is reminiscent of Sequoia's investment in Paypal. Sequoia invested in 1999, and there were a small number of online payment companies at the time. PayPal began to grow quickly about six months after the product launched, and by 2000 there were a flood of competitors.

We [PayPal] continued to expand our lead, enjoying first mover advantage, iterating on that product. You have to run to stay in the same place; it's a little similar here [to YouTube]. The use of service has improved dramatically over the past six months. The founding team, and people who have joined since, have had great ideas.

They are scrappy entrepreneurs, they had it up and running, we saw similar traits to other successful companies...

Q: Can you name a couple of the most salient features that have kept YouTube ahead of the pack?

A: I can point to a couple of individual features that have contributed, but‰¥Ïrarely is there a single feature that makes or breaks one of these services. It is like a piece of art: If it's only 90 percent there, it doesn't look right. Yahoo, Paypal, and Google have done very well -- in each case, it all hangs together as a coherent whole. Competitors come and pick off one or two of features, but they just don't look quite right.

With YouTube, we've seen people copycat the site, but their other nuances don't catch on, don't come together in the same way. It's simplicity, at the end of the day. You don't have to worry about the format of your video recorded. YouTube takes care of all that in the background. I liken it to the iPod: It was two or three years behind the first mp3 players, and if anything, had far fewer features...

Q: With so many players focusing on the market, from Google to Veoh to Guba, what differentiates YouTube going forward?

A: The market is large, and you're likely to see several players. YouTube gives an experience that is quite social and interactive. My observation of the Google product is that it's not as social, doesn't have same sense as community.

Q: Why?

A: Don't know. They've provided download capabilities [editors note; this has since changed, as Google recently announced downloading no longer required; Botha's point above about copycatting confirmed!], and options to purchase content; not sure if their focus is the same. Why did Myspace offer a successful social network? Yahoo [already] had groups, photos, and networking. Myspace just hit a nerve...

[At YouTube], it's a much more interactive experience. Once you get a community going, it sort of has a life of its own, almost. Increasingly, the number of sites that the average person goes to in a day is five or six. Youtube has entered that realm where it is one of the five sites that people want to go to every day. At the end of the day, they take a break, have a laugh, want to be entertained. You get a bit of network affect -- people are uploading video to YouTube because they want it to be displayed. And people want to go to a site that has the most content. You want to put up video where the most people are going...You get a bit of a snowball effect.

Q: Are you still happy with YouTube focusing mainly on user growth, and content to neglect the money-making side of things for now?

No (laughs). This is the tough balancing act that any management team has. How do you improve your infrastructure, how do you build a profitable company? That's a tight rope that all our little companies have to walk. YouTube been generating revenue since last year, and continues to do very well in that regard. Overall, online advertising market is very large. It was a $12.5 billion market in 2005, and is still growing very rapidly.

[Here Roelof cited studies showing the percentage of time consumers allocated to different media -- Internet, television, newspapers, radio -- and the advertising lined up against those. The time spent online is greater than the time spent watching TV, and yet advertising on TV is at least ten times as large as online advertising, he noted. That suggests there's a lot more room for online advertising to keep growing.]

Q: What can YouTube really offer the producers in Hollywood? Is negotiating IP/copyright licensing enough, in exchange for YouTube's ability to promote? Will YouTube need to do more to make money?

A. Youtube will experiment with a variety of different advertising revenues...The company is generating revenue, though not yet at the point of profitability. It is one of the top 25 global Internet destinations, by both page views and reach. It has north of six million people visiting per day...over 30 million videos a day, a million videos an hour, and over 300 vidoes a second. Figure that out in terms of bandwidth the company is pushing...

We have launched a producer program, in last two weeks [editors note, this now means about two months ago], where you apply to post videos longer than ten minutes, where we do extra verification, make sure copyright is actually clear. A lot of videos I tape are two-minute videos, but there are young budding producers our there, and we want to accommodate them.

Q: What about the questions still surrounding YouTube's hosting of copyrighted content, from the music that plays on the videos, to concert clips of Greenday to Madonna?

A: The company has been very proactive, working with copyright owners to remove content when we find it uploaded, and it has actually garnered a lot of good-will with copyright owners. We don't want to be viewed as aggressive or antagonistic, because I don't think we are.

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"YouTube was founded in February 2005 by Chad Hurley (CEO), Steve Chen (CTO), and Jawed Karim (advisor) who were all early employees of PayPal" (Wikipedia).

Sure looks like being a PayPal alum provides a unique competitive advantage over other less-connected "scrappy entrepreneurs". Especially in paying those $1M/mo bandwidth bills (Forbes, "Your Tube, Whose Dime?", 4/28/06).

Maybe you should check out Wikipedia and Forbes Matt, before you make up your Q&A list. You missed the obvious. :-)

VC Watcher on June 1, 2006 11:34 AM
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That's a fair pot-shot, VC Watcher: I often absent-mindedly omit information/context that I should really include for readers. So yes, in this case I probably should have mentioned that this is a former PayPal guy who backed former PayPal employees. However, I've met these guys, and they are young and, in my view, scrappy. I don't want to sound apologetic here, but Sequoia's not going to back you just because you knew one of their partners. But true, if you *do* know one of their partners, and they respect you and trust you, sure, you have an unfair advantage.

Matt Marshall on June 1, 2006 1:39 PM
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According to the linked article on Mercury News YouTube only has 12.5 Million Unique visitors a month. Conversly, one of our video sharing sites (http://videos.streetfire.net) has only 4 million unique visitors a month (according to our Server logs on Unique cookied visitors). I don't understand how YouTube's Alexa ranking is as high as it is with such a low unique visitor ranking..unless this is a misprint. StreetFire has a 3 month average Alexa reach of 221 and YouTube's reach is 17,870. With only 3 times the monthly visitors how can their Alexa "reach per million" be 80 times higher?

Am I just misreading something here, but this seams very off?

Adam on June 1, 2006 10:08 PM
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Adam, good points. I went and checked with our reporter, and with YouTube, and here's what I got:

The 12.5M uniques was April's number and April's numbers dipped from March -- and they dipped for just about everyone, except Myspace. Nielsen/Netratings weren't willing to release May numbers last weekend, when the Merc was closing the story.

So Nielsen/Netratings are slow to publish, and we are now in June, and the most recent figures we can print are April, which itself was a weak month. YouTube‰¥ús folks tell us they are ‰¥þconfident‰¥ÿ the numbers will have exponentially risen since April (view count has increased by 20M videos, they say). So we will have to wait until May figures are out to see if there‰¥ús a better correlation with Alexa. Finally, as I‰¥úm sure you‰¥úre aware, Alexa numbers aren‰¥út that reliable either.

Matt Marshall on June 2, 2006 5:23 PM
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I really enjoyed your article on Web 2.0! We are hosting an event called The New New Internet: Web 2.0 for business on September 20th in the Washington DC area. Michael Arrington, Stowe Boyd, and Dion Hinchcliffe are all supporting our efforts to make this conference a success as we help establish the East Coast as a viable participant in Web 2.0 developments. Please take a moment to visit our site: www.thenewnewinternet.com. We would love for you to be there!

Suzanne Coffin


Suzanne on August 11, 2006 8:48 AM
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