Animoto: The No-Infrastructure Startup

Jason Hsiao

Brad Jefferson

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Jefferson: In the first month it grew to 25,000 users. During that month, we were playing with lots of different viral hooks Facebook offers you for messaging and creating interaction with friends. In April, we stumbled upon the right combination of making this system viral. Within one week's time, we grew from 25,000 users to 700,000 users. In order to support that kind of rapid growth, the number of servers required to create these Animoto videos scaled from 50 to 5,000 in the same period. If we actually had servers in our own serving room or if we were using a hosting provider, it's impossible to have 50 physical servers and grow it to 5,000 servers in that period of time. It's insane. Assuming that a processor costs $400, 5,000 processors would be about $2 million. That would have meant taking venture capital for at least $2 million and we would have lost a lot of equity in the company.

What other services do you outsource?

Jefferson: We use Amazon Web Services for all IT infrastructures like processing, storage, bandwidth and queuing. We use PayPal and Google Checkout for billing/payment and outsource our DVD creation to another vendor. We also use SaaS services for things like e-mail (Google Domains) and Sales Force Automation (Salesforce.com).

So how much infrastructure do you actually have?

Hsiao: The only real asset we have in our office, and the biggest thing we bought recently, was a fancy espresso machine. We have our own personal computers, but no servers and no technical infrastructure.

That lets you focus on product and innovation instead of housekeeping?

Hsiao: Exactly. We're afforded the luxury of focusing on what were actually good at, which is video creation. We don't want to spend a good chunk of our time maintaining a bunch of servers, adding servers, fixing broken ones and so on. Our product is so processor intensive because we're rendering all of these videos from scratch. Quite honestly, a company like ours could not have existed a couple of years ago without cloud computing. The way we use processors is all over the place -- usually we're using around 50 and sometimes it jumps to 5,000 or 8,000. There's no possible way we could handle the variances of our processor usage without quickly digging ourselves into a multimillion dollar hole.

So what's your business model?

Jefferson: We explored advertising as an option and it just didn't work. We decided that we would make a freemium model, which allows people to get a taste of the Animoto service for free. You can create a 30-second video for free but if you want to create a longer video it's $3 per video or $30 a year for as many extended length videos as you like. You can upgrade one of your videos to DVD quality for $5. For $20 we'll send you the DVD. In June, we launched another service called Animoto for Business. In May, Amazon invested some money, along with family and friends.

Have you been profitable?

Jefferson: Not yet. We're actually going through the process of figuring out where we want the future to take us, whether we stay the course or bring in a little bit more capital to lever up the business. We feel like we have great competitive advantage right now so there's a desire to move quickly to capitalize on our position in the market.