The Billions of Unbundling YouTube - by Ariel Renous
What This Is About
MasterClass reached a $2.7B valuation in six years. Calm is a $2B business.
Hyper-growth unicorns make the frontpage of TechCrunch every day. Yet there is something peculiar to MasterClass or Calm’s story. Successful tech companies are typically SaaS, marketplaces, dev tools, etc. But what do Calm and Masterclass sell? Content. They are media companies.
Isn’t that insane? Think about it, have we ever seen media companies rise this high and this fast? How is this possible?
As software continues to eat the world, media companies can now generate venture returns. This piece is about why it’s happening, and how to make it happen again. Let’s dive in!
Make Content People Want
The YC golden rule in startups is: Make Something People Want. Find a problem, hire engineers, and build a superior solution people would rush to.
Yet it always strikes me how much, when thinking about problems, people come up with product ideas. What if people don’t want new products or services? What if the something people want is content?
Too many companies sell atoms and bits, too few sell pixels and hertz.
Calm and Masterclass solve the same problem
As far apart as they may seem, Calm and MasterClass have the exact same value proposition:
- Calm is helping people find the right premium mindfulness content. Instead of spending hours scrolling through YouTube to find quality meditations, Calm users can now listen to a curated list of premium, professionally-produced audio meditations.
- MasterClass is helping people find the right premium inspiration content. Instead of spending hours scrolling through YouTube to find quality speeches and instructors, MasterClass users can now watch a curated list of premium, professionally-produced video masterclasses.
Both companies provide answers to the same question: how do I quickly find the best meditation content? How do I quickly find the best inspiration content?
The right content might exist somewhere for free on YouTube, customers are still paying *not* to have to look for it.
MasterClass did not invent the masterclass. YouTube is flooded with interviews and speeches of the world’s greatests that anyone can access for free! Yet people pay them $150 per year, why?
This is the essence of what those new media companies do: they curate premium content.
Want to build the next MasterClass? Unbundle YouTube.
In case you missed it: what’s unbundling? Unbundling is a business strategy where a company focuses on the needs of a subset of a larger market to get early traction. For any large horizontal platforms, there are opportunities to go vertical.
Now back to YouTube: what makes YouTube a land of unbundling opportunities?
- YouTube is massive. Around 1 billion hours of video are watched on YouTube every single day.
- YouTube is a video marketplace. It connects creators to viewers. The platform is home to thousands of niches. This makes it a great unbundling candidate.
- Video data on YouTube is public. You know how many people watched, liked, subscribed or commented on a video.
The Playbook to Unbundle YouTube: Premiumization and Curation.
The MasterClass Playbook to unbundle Youtube fits in two words: premiumization and curation.
MasterClass built their business by taking a niche (inspiration and motivation videos) out of Youtube, making their own original content and charging a monthly subscription fee.
They did not build a tool for course creators. Nor did they create a course marketplace. They simply made their own professional in-house content.
Their playbook in a nutshell is: premium content, on a curated platform.
Calm and MasterClass proved premium curated content is a billion dollar solution to some problems. The golden question then is: to what problem?
The Premiumization and Curation Playbook Applied - Examples of Audio/Video Startups:
The premiumization and curation playbook is not an abstract theory. Many startups are currently executing in Calm or MasterClass’ footsteps. Here are some examples:
Video Startups (Masterclass for X):
- Craftsy is MasterClass for quilting, sewing and knitting. Interestingly, they soon entered the ecommerce space, by selling sewing kits to their users. They sold for $230m to NBCUniversal in six years.
- DIY: MasterClass for kids activities like magic, origami, painting, drawing etc. The company was started by Zach Klein, Vimeo’s co-founder. They recently launched DIY TV, entering the streaming world! Bold move.
- Creative Live: MasterClass for creative activities. Sold last year to Fiverr.
- Outlier: MasterClass for college education. Cinematic college courses led by world-class professors. Like EdX but with in-house content. They interview up to 200 teachers for each class before picking the best pedagogue and building a course around him/her. Founded by Aaron Rasmussen, MasterClass’ co-founder.
- YesChef: MasterClass for cooking. Cooking lessons from the world’s best chefs. Still relatively stealth but love the idea.
Audio Startups (Calm for X):
- Glorify: Calm for Christians. Guided meditations and Bible audio passages. They just raised $40m from A16Z.
- Dipsea: Calm for Sex. Female-focused short sex audio stories. Raised $13m. Other cool companies in that space are Emjoy and Femtasy.
- Insight Timer: Calm with meditations guided by creators and celebrities. 6 millions downloads.
More (early) MasterClass/Calm for X startups:
Why are MasterClass and Calm worth so much?
Want a crazy stat? When MasterClass raised their last round of funding at a $2.7B valuation, they only had 90 classes on the platform. That’s $30 million in valuation per class!
But don’t be fooled: if VCs are pouring millions into these companies, it’s because the economics are truly world-class. Think about it:
- They sell non-perishable content. A chess masterclass from Gary Kasparov will still be relevant in 10 years.
- Content is produced in-house, keeping costs under control.
- Content production grows linearly, user-base grows exponentially. Once your content library is large enough, you can slow down content production and pour money into customer acquisition.
- No supply chain issues. No returns. No misfits. Just easy to distribute video and audio.
Those are amazing businesses. After product-market fit, costs stay low and margins soar sky-high.
(This is not perfectly true - you can expect your CAC to rise over time and acquisition to be very challenging - but let’s keep it simple!)
Why not enter this business
- This is not a business you can bootstrap: you need funding. Superior content wins. More specifically, your content needs to stand out from what’s on YouTube. So you need money. If you cannot attract external capital or are not willing to give up some equity, this business is not for you.
- It’s a creative business. To succeed, your tech needs to be good, but your content has to be world-class. When DIY.org launched, they hired a Chief Creative Office, not a CTO.
- You need to feel, at least a little bit, the burning flame of passion. This will be a tauntingly difficult business to build if you dislike your niche. (This is personal advice but I know at least one person who disagrees: Calm’s founder reportedly never did a single meditation before starting the app).
- This piece leaves aside the big video streaming platforms like Netflix and Disney+. Those are of course stellar businesses, but not the ones you and I can start. Even with lots of money (Hi, Quibi!).
- None of the companies mentioned in this piece are public companies. There are some chances public investors view Calm and MasterClass very differently from their private counterparts. TBD.
- There are so many cultural/geographic opportunities here that it is almost painful to think about it.
- An interesting adjacent model is selling content B2B, or even B2G: Mystery Science was selling K-12 science videos to schools and recently sold to Discovery for $130m.
- Another interesting model is to sell hardware that plays your content: Lunii is selling a no-screen speaker for kids + audio stories. Sell cheap hardware and make money on the recurring revenue, like Nespresso.
- There is also a pick-and-shovel play here: Uscreen is building a tool for anyone to be able to build their own Masterclass-like streaming platform, Mindist is building a tool for anyone to be able to build their own Calm-like app.
- Where is Web3? I don’t know - I’m still in Web2 but need to grow up.
How do I quickly find the right course? Meditation? Audio book? How-to video? True crime story? Yoga class? Professional community?
In a world of content abundance, those questions have grown into billion-dollar opportunities.
Iconic companies have now paved the way, showing tremendous success in becoming the default go-to destination for each of these problems. They proved world-class curated education content unlocks substantial economic value.
Unlike five years ago, users are now willing to pay for curated quality content. Producers have an edge, curators can win big. And it’s only the beginning!
I hope you enjoyed this piece! A big thanks to Thomas Owadenko, Hugo Amsellem, Maxime Eyraud, Roy Wellner, and my dad for the feedback on this piece. I love to hear from other founders, investors and creators interested in that space. Let's talk! Best way to reach out is Twitter or email (firstname.lastname@example.org).