By: Louis Bedigian for Benzinga
Netflix (NFLX), Hulu and other online streaming video services have completely changed the way consumers enjoy scripted entertainment.
Dan Sahar and Alon Maor saw this transition coming long before consumers realized the future of television might not have anything to do with cable. They understood that broadband networks -- designed primarily for text and images -- would become the primary source of video entertainment.
The two men teamed up and founded Qwilt to develop a next-generation network infrastructure that could support the future of online video entertainment. Maor took the lead as the company's CEO, while Sahar serves as its VP of product marketing.
Both co-founders took some time to share their story.
Tell us how Qwilt came together.
Dan Sahar: The idea was to create a caching function, one that can identify the most consumed video content out there and bring that function very close to where the consumers are. [That way] every neighborhood or small town will have this little caching software piece in their network.
When somebody wants to watch "Daredevil" on Netflix, they can just fetch that content from that little piece of software in their neighborhood, instead of going out to the Internet to do the same thing. If you're getting your video from a very short distance, there's less chance that you're going to run into bottlenecks on the Internet.
It [also] means the operators don't have to continue to scale the network exponentially just by buying more and more routers as they have been doing. You can contain the demand locally and scale the rest of the network very gradually. [This] is a great thing for the operators because broadband is a huge piece of how they make data revenues.
Going forward, that's going to be an even greater piece. You have some operators that are already thinking about moving away from the television side and focusing on broadband. This is a way to make our broadband networks more efficient and make it a great user experience.
It's a something [where] basically everybody wins. The content provider wins, the consumer wins and maybe you have lower broadband bills, if this is a way for the operator to reduce their own internal costs.
I think consumers would scoff at that given the rising fees for Internet and cable services. Is it even a realistic dream that a cable company would say, 'We're gonna pass the savings onto you'?
Sahar: That might be me dreaming as a consumer. I'm not sure they're gonna do that. Definitely, today, if you're looking at ARPU versus cost structure of most of the operators worldwide, you can see that ARPU is on the decline and the costs are on the rise.
Many operators are looking for ways to improve their bottom line. This is definitely a way that they can do that on the broadband side. It definitely helps the operator become more efficient.
Sahar has spoken about how lucky Qwilt has been in that things started happening exactly at the right time for Qwilt. Do you feel this way as well?
Alon Maor: I do. Market timing is crucial to the success of any startup. Many with visionary ideas fail because they are too early and the market is not ready. Others, with great ideas, fail because of poor execution, which makes them too late to take advantage of the market.
Idealab founder Bill Gross recently gave a TED2015 talk and confirmed this in a more systematic study, concluding that timing is the single greatest factor, ranking above execution, business model and funding, in determining the success of a company.
Having said this, I do feel we have an exceptional team that could exploit any number of technology disruptions. Many of us were on the team at P-Cube that created a successful Deep Packet Inspection company that Cisco (CSCO) acquired. If you build a great team, they can solve any number of hard problems.
Consumers almost have an all-you-can-eat freedom with online TV. Data caps and data-only plans could change that if cable companies adjust their pricing. How might that impact Qwilt's business? Does traffic and usage have to remain the same for Qwilt to maintain its success and continue to grow?
Maor: We'll be successful no matter what pricing plans and service offerings the operators bring to market. The transformation, from broadcast TV to Internet TV, is a force of nature and can't be stopped. We are facilitators of this change to be sure, as our software is part of the new architecture that will deliver billions of streams to consumers in [the] future. Our business will not be impacted by changes to operator data plans.
Do you keep an eye on new streaming services and cable offerings? Are you excited when you see new streaming options (such as PS Vue or Xfinity Stream)? I imagine that helps to validate Qwilt's mission.
Maor: Announcements are coming so fast it's hard to keep up. They really all validate our work -- the innovative plans from the new Web companies (like Sling TV) are breaking new ground for streaming services. I love Sling's package. The announcements from the broadcast TV brands, like HBO and CBS about direct-to-consumer services, is further validation.
Finally, the acceleration of high-quality streaming coverage of major live sporting events, like the Super Bowl and the NBA finals, tells us that every aspect of broadcast TV is moving online. We found the “cord cutters of Cleveland" during the NBA Finals and saw a surprising number of fans streaming the game.
This is a once-in-a-lifetime transformation. It's great to be part of history in this way.
What concerns you most about the streaming industry? Is it content? Technology? Consolidation? Infrastructure? Or something else entirely?
Maor: This is why we started the company. At inflection points like this, there is a need for industry collaboration and rapid innovation. The streaming ecosystem is an excellent example of this need.
Along with 17 other founding members, we started the Streaming Video Alliance (SVA) last fall to get the industry together and create the architecture needed to scale online video for the future.
In reflecting on this transformation, it's remarkable that a group of very smart people from across the streaming industry are planning to evolve the Internet to support TV, both on-demand and live, on a scale that is unimaginable. A few years ago, I bet few would have thought this kind of evolution would be possible.
Qwilt has a long list of investors, including Accel Partners, Innovation Endeavors, Redpoint Ventures, Bessemer Venture Partners and Disrupt-ive. Tell us how you attracted such an impressive lineup.
Sahar: We did a seed round. Two of the other co-founders, they're kind of like a legacy in Qwilt. Our chairman, Yuval [Shahar], he was the CEO of P-Cube. He came in as both a co-founder and our first angel investor along with Giora Yaron. He was the chairman of Mercury Interactive, which was acquired by Hewlett-Packard (HPQ) for over $4 billion several years ago. He's done many, many companies in Israel and in the US.
He and Yuval came as co-founders of Qwilt and as angel investors. This really helped us, especially at the initial stage, to attract investors.
Following our seed round, we raised our Series A from two very prominent venture capital firms in Silicon Valley. One was Accel. Accel was the first VC investor in Facebook (FB). They were actually investors in both Kagoor and P-Cube. We were very fortunate to have them and Redpoint, [which] was an early investor in Netflix.
We brought in Bessemer later on in our Series C. Marker joined our Series B. This Series D, which we just closed, we also brought in Disrupt-ive, which is a late-stage firm. [Another investor is] Innovation Endeavors, which is Eric Schmidt's VC fund. Finally, Cisco actually came on as a strategic investor as well.
There are great minds on our Board and I think they help to this day, challenging the company and basically creating the strategic direction that we think, thus far, is working out really well.
The journey never ends. You can't stand still -- you have to keep moving and looking for opportunities to grow.
If you want to take the company from "zero" to "hopefully an IPO," that suggests you're thinking about going public.
Maor: My goals are simple. I want to build a great company filled with exceptional people who are driven by our mutual goal to make great products that help usher in this new age of streaming.
Sahar: The vision from the beginning was [that] we wanted to build a self-sustained company, one that can actually make an impact and create a real disruption. You have to choose what you want to disrupt. Uber is disrupting the taxi business. Netflix is disrupting television. What we're looking to disrupt is the way that our broadband networks and mobile networks are built.
The market opportunity for that, we feel, is tremendous. There [are] billions of dollars being spent today. We know for sure that we have a much more efficient way to do that.
Now to build a self-sustainable company, you have to do a lot of things well. You have to have things turn out in your favor. You can execute perfectly, but if you're too early or too late. Things can go not exactly your way. We feel our timing is excellent. We feel like a lot of things are happening at exactly the right time.
Maor: Along the way, as is almost always the case with technology startups, we need to address funding to scale our operation and liquidity to reward shareholders. The sequence is usually (1) team, (2) product, (3) customers, (4) revenue and (5) profitability.
As the company scales and passes through these milestones, funding can come through various sources: venture [capital], private equity and public markets through an IPO. I keep focused on the long-term goal of building a great company. The rest of the steps are a means to an end.
Sahar: Obviously in this market, when you sell to the operators, there's a dynamic of the number of customers [being] relatively small. How many operators are there worldwide compared to, say, an enterprise market where you have hundreds of thousands of customers? This market is a smaller number of target customers, but [they deliver] very large deals. You're basically dependent on closing the very large operators and I would say we are mid-journey in doing that.
We've had success in landing Tier 1 operators in every continent, but we definitely want to do more than that. As a business, it's about being able to have, if you do plan for an IPO, to have a very predictable run rate and a predictable revenue stream that you can take out to the public market. We're definitely not there yet.
Many companies that have the opportunity to IPO, they wait and stay private longer. I think we're definitely a few years from the point where we can think more seriously about that. But you have to set a goal for yourself, whatever you do. This is where our goal is at.
We're about a five-year-old company. We've executed great in five years. Now it's how we can execute in the next 10 years. We feel we have a great team to do that, [but] not everything you control yourself. We believe the opportunity is there.
Startups are known for getting acquired, but there are times when startups do the acquiring. Are there any firms Qwilt has looked at as a possible M&A target?
Maor: It's possible that another startup may have just the right technology to satisfy a specific requirement that would otherwise be a development task for us. But, given much of the technology we are creating is new, I think it is unlikely that we'd find such a company. So, for now, we're really focused on building this ourselves.