We all stream for iClips
Dec 06, 2000 02:38 PM ET

By Karen Lam, LocalBusiness.com

If 2-week-old Spencer Diamant's father has things his way, the mobile hanging over the crib will have tiny video cameras attached to it, capturing baby's actions for streaming video 24 hours a day.

The proud new father, Michael Diamant, is a true believer in the power of video and he is also the founder of New York-based start-up iClips Inc.

It was the senior Diamant who convinced the company to give broadband-enabled users a free means to send streaming-video e-mails to family and friends. There is a catch to the freebie, though.

The price of free tools
While users are given the tools to save and send their videos, they will have to pay a premium to use more than the free 20 megabytes allotted. And they must buy their own video cameras -- and can do so on the iClips e-commerce site.

But what could be a real eyebrow-raiser for these video junkies is that each video e-mail they send will be sandwiched between two 10-second to 15-second streaming-video advertisements.

Companies have learned through expensive trial-and-error that static banner ads are an ineffective means for branding, Diamant said. "Brand-building is only good with rich media advertising."

Users will find the bit of advertising is a fair trade-off for the free usage of such a dynamic and heavily proliferating medium, he said.

An eBay moment
The idea first sparked in late 1999. "My wife is a big eBay user," he said. "I thought, 'Wouldn't it be cool to show the auctioning items on video?' So I searched for a place where we can store and share to streaming-video files and was disappointed to find that there is no such place for end users."

There were plenty of companies that offered such services to businesses, he said, but at the time, none for consumers.

So he got to the drawing board, pulled together a business plan and an $800,000 seed investment, and incorporated by December.

Over most of the following year, Diamant spent his hours hiring, fund raising and talking to prospective partners who could help move iClips on its way.

The site formally launched in August, the same month he secured its first major institutional round at $4.6 million from Opticality Ventures of Briarcliff Manor, N.Y., and Schoffstall Ventures of Harrisburg, Pa.

Today, Diamant is busy working on a second round. Hadar Pedhazur, founder of Opticality and an iClips board member, is standing by his side, ready to write another check.

According to Diamant, iClips hopes to close that round, at about $15 million, by the second quarter 2000.

Money in the bank
While the business plan is being pitched, iClips has enough money in the bank to last it for awhile, Pedhazur said. "They won't be running out of money next week," he said.

"Without a doubt, if this company continues to show the success they've shown so far, they will require more funds for the momentum," said Pedhazur, whose $30 million fund typically pitches in sums of $1 million to $5 million at a time. "But this is not the kind of company that spends money with wild abandon, which is a testament to their management style."

Pedhazur said Diamant understands the necessary tricks of the trade. In his past lives, Diamant held numerous marketing positions in major corporations, such as Pfizer and Grey Advertising. And in 1993, he successfully launched the interactive agency T3 Media in New York City. Within five years, T3 was ranked among Forrester Research's top 10 agencies.

Proud of its frugality
Unlike many in the dot-com world, iClips does not spend a great deal marketing and promoting to potential users. In that department, it relies on word-of-mouth, or viral marketing, and cobranded efforts with its partnering sites.

The bulk of its advertising dollars are spent in marketing to other dot-com sites through trade shows and events.

IClips has successfully linked its business with two community sites, offering its free services to their membership bases. It made such an agreement with TheGlobe.com in September and the following month signed a similar contract with Homestead.com.

Those relationships will buy more eyeballs for the ads embedded in the video e-mails. Today, iClips has 25,000 registered users, vs. about 600 in mid-September, Diamant said.

He declined to disclose names of potential advertisers, saying only that major announcements about advertising partners will be made within the next few weeks.

Company banking on advertisers
The biggest challenge for the nascent company though, is its reach to advertisers, which comprises its largest revenue model.

"We're part of dozens of companies trying to educate the advertisers," said Diamant. "It's only a matter of time."

As far as timing goes, this is an extremely hard time for companies handling advertising outside of traditional media spaces. For those that survive this year's corrections, the competition will also be thick.

According to Pedhazur, other consumer-based streaming-video companies, such as Popcast.com in Los Angeles, Spotlife.com in San Mateo, Calif., and Earthnoise.com in New York City, are buzzing about adding a similar advertising component to their business models.

Just this week, online advertising guru DoubleClick (Nasdaq: DLCK) announced that for the first time in its five year history, it will be cutting its staff as a response to the dramatic industry slowdown.

"It's tough right now, but there is an interesting twist," Pedhazur said. "The number of major advertisers the Internet attracts is dismal. But the total dollar spent on online advertising continues to grow. More dollars are going to fewer players."

Like Pedhazur, Diamant remains optimistic and believes iClips is prepared to wade out the bleak market.

"There will be a time when video publishing will be the norm," he said. In the meantime, "we are building the platform for as many sites as possible."

Year founded: 1999

Management: Michael Diamant, president and CEO; Nicholas Fiore, vice president of marketing and business development; Edward W. Franklin, vice president and executive producer.

Staff: 35

Investors: Opticality Ventures and Schoffstall Ventures.

Strategic partnerships: Akamai, Homestead and TheGlobe.com.

Revenue: iClips has three models: