Joost was a hot start-up when it launched. If you’re familiar with Hulu, Joost was Hulu before Hulu existed. Joost launched in 2006 as a premier online video service that aggregated and streamed premium video online. It quickly struck partnership agreements with media companies including CBS and Viacom.
It raised $45 million in funding from top-tier venture capital firms such as Sequoia Capital and Index Ventures. It also generated incredible buzz. It was what everyone was waiting for—a service that allowed people to watch high-quality content online rather than on a television set. It also had successful celebrity founders, Niklas Zennström and Janus Friis, who started Skype and just a year earlier sold it to eBay for $2.6 billion.
Incredibly, just three years after Joost launched, in mid-2009, it failed. It remained in business by licensing its technology to cable, satellite, and other Web sites, but laid off the majority of its employees and set its original vision aside. What went wrong for this firm after what appeared to be such a successful and promising beginning?
Several things went wrong with Joost. The most obvious problems are that the firm grew too big too fast, and never behaved like a start-up. From day one, according to technology blogger Om Malik, it felt more like a large company than a small company, with all the bureaucratic trappings that large companies have. It was also based in multiple geographic locations—New York, London, and the Netherlands. Maintaining a good communication flow across multiple locations is difficult for all firms—
particularly new ones. Joost also may have suffered from too much hype too soon. Start-ups rarely launch perfect products or services; they often have to adjust based on customer feedback. Joost had many people eagerly awaiting its release—250,000 people signed up for the beta version of the site alone. However, lots of people quickly became upset with some early technical hiccups.
Buzz can quickly turn into buzz kill when a hyped-up company fails to deliver on its promises.
But Joost’s most critical mistakes dealt with subtle aspects of its business model. Its core strategy wasn’t focused. Instead of building an online service that streamed sporting events, for example, it built an online service to stream any content—from sporting events to television shows to full-length movies. In terms of customer interface, rather than being a browser-based service, like YouTube was at the time, it asked its customers to download a clunky piece of software. It was also slow to fix technical problems, an error that frustrated its users. Joost’s biggest problems, however, resulted in the way it configured its partnership network.
First, in a rush to sign up partners, some observers feel that Joost signed unfavorable deals giving it little ad inventory to sell to generate revenue. The weakness of these agreements may have done Joost in when Hulu came along.
Joost was blindsided by Hulu, which was backed by NBC, Universal, News Corp, and Disney. Hulu was better than Joost on almost all metrics. It was browser-based rather than requiring a download, had more premium content than Joost did, and because of the richness of its premium content, could sell more ads and pass along more revenue to its content providers. When Joost’s partners compared what they could get from Joost versus Hulu, many abandoned Joost for Hulu.

Questions for Critical Thinking
1. In regard to putting together an effective business model, what are the lessons you can learn from Joost’s failure?
2. What do you think was Joost’s single biggest mistake?
3. Spend some time looking at Hulu. Describe the four components (core strategy, strategic resources, partnership network, and customer interface) of Hulu’s business model. Evaluate Hulu’s model. To what degree is Hulu vulnerable to being blindsided by a start-up in its space, similar to how Joost was blindsided by Hulu?
4. One point made in the feature is that Joost grew too big too fast, and never acted like a start-up. In what ways can growing too big too fast and not acting like a start-up hinder a start-up firm?