Editor’s note: Bernard Moon is co-founder and CEO of Vidquik, a new web conferencing and sales solutions platform, and co-founder of SparkLabs, a recently launched startup accelerator in Seoul, Korea. Follow him on Twitter.
I met Qik co-founder Ramu Sunkara through the University of Wisconsin-Madison alumni network while seeking advice for Vidquik. Listening to his story about Qik’s voyage from its founding in 2006 in Ramu’s garage to being acquired by Skype in January 2011 for $150 million was inspiring, so I decided to interview him for everyone building the next new thing. We met in his garage — “Suite G” — in Los Altos, Calif., where Qik was founded.
Bernard: How did Qik get started?
Ramu: We started the company in this garage in 2006. Three of us started this company, Bhaskar Roy, Nikolay Abkairov and myself. They worked with me at Oracle and we would say, “I want to see what you see now” so we decided to do something in video. We had three founders, and then the fourth founder was Vijay Tella. Vijay gave us seed capital, worked with us from the start and joined full-time after Series B was closed in March 2008.
YouTube was just starting out, so I said let’s figure out what we can do in video. Nikolay was in Moscow, Bhaskar was in Santa Clara and we would use my garage in Los Altos to meet. We wanted to see what Nikolay was seeing in Moscow or vice versa, so the first thing we prototyped was live video from PCs to any web site. You log into a website and see what the other person is now streaming.
Bhaskar was very good in marketing. Nikolay’s expertise was in technology, Vijay was exceptional in strategy and built another startup — Tibco — and I had both the mixture of product, technology and go-to market. Above all we had a trust between us before we started out.
Once we took the first round of funding, we saw that the PC market was too crowded. We said we needed to get out of that market. Our investors funded us expecting us to build a PC-based video-streaming product for the MySpace community.
Bernard: How much did you raise initially?
Ramu: Our Series A was $900K. After we took the funding, we all got together and agreed that the PC space was crowded and we had to move to mobile. Most of the founding team was excited to jump into mobile, and we told our investors we’re going mobile and that’s how we pivoted in 2007.
We built live-streaming technology and applied it to the mobile space. Mobile networks are disparate and the bandwidths keep changing. We built the IP so our product could understand all the real-time variants in the network. This was much more suited for the mobile world than the desktop broadband world.
What we realized in 2007 was there was only one Nokia phone on the market with a front-facing camera. Most smartphones had only a back camera, and the networks weren’t there yet. So we said, “Let’s enable people to stream with you from the back camera of the phone.” Remember there was no iPhone or Android at that time.
We started to think of a name for the product and Bhaskar did some research and came up with “Qik,” which means instantaneous. We all agreed, so our name became “Qik.” We bought the Qik domain for $5,500 and that was our marketing budget.
Bernard: How did you launch your product?
Ramu: Well, we were three guys and none of us had a mobile background. But we did have a product, so we let the customers download the app from our website. This was pre-App Store days. Previously, all the mobile app companies were going and lining up to pitch the wireless carriers. We decided that we didn’t want to go to the mobile operators (AT&T, Verizon, Sprint, etc.) to distribute Qik. This played to our advantage. We didn’t spend any time talking to a wireless carrier and put the app on the Qik website for Nokia users to find it and download it.
Bernard: How did you market to those initial users?
Ramu: One of our early beta users went to the Apple Store in Burlingame, Calif., and presented to a gentleman called Robert Scoble. Scoble said, “I can stream live video to the Internet using my cell phone?” The Qik user took his cell phone and streamed Scoble live. He saw himself on the monitors in the Apple Store. On Dec 17, 2007, he announced to the world that he could stream live video from the phone. This was how the product got launched.
It was made clear to everyone that if you wanted to break news, you should use Qik to do so. You press a button on the phone and you are live on the Internet.
Bernard: And you guys were the first ones?
Ramu: Yeah, we were the first ones. There were a couple of companies trying to talk about it but they didn’t have a product. At the Consumer Electronics Show, several media outlets wrote about us. BBC first covered us in the World Economic Forum and said, “This is how we’ll connect the world to us.” From BBC to the World Economic Forum to global media and blogging sites, we rolled out to the world in less that six weeks!
When the word went out that Friday, we actually ran out of money. Our data center was at capacity because people were downloading the product from the website and streaming video. I knew Marc Benioff since he and I worked together at Oracle, so I immediately reached out to him via our mutual friend. Then Marc Andreessen and Ben Horowitz sent me an email: “Hey let’s talk.”
That Monday, I closed a round for $3 million, our Series B, and gave them the valuation a little later. They gave me the money. This sort of thing can only happen in Silicon Valley, i.e. just a demo and no pitch!
Bernard: So what happened next and what did you do with the $3 million?
Ramu: News was spreading all over the world about our disruptive technology. Senators in the U.S. started using it, the Prime Minister of Singapore, and Congressman John Culberson from Austin, Texas. The buzz just went around and around. The buzz got us, too. We were spending $90,000 a month before Series B and we ramped up the expenses to half a million a month. We grew the team and operations and then we ran out of money.
Along the way we won every single award given to a mobile company in 2008. The Wall Street Journal named us a “Top 10 Mobile Application”; Variety Magazine gave us the “Top 10 Innovators Award”; so on and so forth. When the iPhone 3G was announced, it couldn’t do video then. People were jail-breaking iPhones to install Qik. Then we launched the Qik product for iPhone about 24 hours ahead of any of the competitors. So that 24 hours made a big difference.
We kept our edge up. When there was an opportunity we just jumped at it. That’s how we beat the competition with the iPhone phenomenon. We took the market by storm in 2008, but in October, we ran out of money. We burned through it really fast — we had absolutely no money in the bank. This is when I learned the value of having a great mentor during times of crisis. Such people are God-sent because they have been through the process before. They can really help you. For me, this was Ben Horowitz.
When we ran out of money, in 2008, that’s when I borrowed $200,000 every month for eight months and kept the company going. We had a very good team. We didn’t lose a single person despite the financial turmoil. They were focused and stayed with the original product evolution map. Ben was critical in keeping us balanced and helped weather the storm.
Bernard: Wow, they all stayed with Qik during this period?
Ramu: Yes, they all stuck it through. We had a phenomenal product but hadn’t found a revenue model yet. Venture Funds was trying to give us money earlier in summer 2008. This was because the product was getting so much free publicity. I didn’t take any money then. People were giving us 4x term sheets in August and I was saying, “No, no, no. We’ll build the product further, get more users and we’ll close later.” Then the market collapsed in late fall 2008. So the lesson I learned was you should take money when it’s given to you.
Bernard: True. So true. What was your mindset during this time? Because that’s pretty admirable. You believe in your product and company, but as each month went by there must have been doubts creeping in.
Ramu: Yes. It made us think hard and focus on revenue. The reason we didn’t get funding for nine months was because the product, which won so many awards in 2008, still didn’t have a revenue model. No one was funding us because every investor in the financial crisis wanted to see the revenue model. This forced us to think — where could the revenue come from? This led us towards a premium model and distribution revenues with partners. We figured out both in 2009.
Bernard: Is that when you focused on doing the distribution deals with the wireless carriers?
Ramu: Yeah. That’s when we focused on distribution deals with carriers. The first deal was Sprint, the next deal was T-Mobile, and the next was ….. you get the idea. Sprint made the Qik service as their best application in 4G launch nationwide in 2010.
Bernard: Got it. So when you finally did one of those first deals you got your investor money?
Ramu: Yes. As the deals were closing the investors said, “Okay, this is how the company can make money.”
Bernard: How big was your team at the time?
Ramu: We were about 25 people.
Bernard: Twenty-five people. And you said all stayed?
Ramu: All stayed together.
Bernard: How did you keep the team focused during the financial crisis? I assume there were doubts.
Ramu: The team always had doubts but we kept motivation up by continually communicating our vision and what we were going to do. Every time we had a term sheet, an investor meeting, or important discussion, we kept everything very transparent to both teams in the U.S. as well as in Moscow.
It was challenging because our team was distributed between Redwood City and Moscow. We had to have good communication to make sure that both these teams understood where we were. Having a good founding team with solid mutual trust was critical and worked to our advantage.
The third thing was that they [teams] were all passionate about solving problems. There were very hard technical problems doing live video from the phone. Along the way iPhone and Android came, constantly presenting new technical challenges for us.
Bernard: So when you were recruiting, was that one thing you were looking for?
Ramu: Both passion in the mobile space and the product. We had product engineers building software on different mobile platforms, and that was only about a third of the team. Another third were working on cloud-based infrastructure for video because video was pretty bulky to manage once it went to the cloud. Then the last third was building the web infrastructure for integrating into social networks, building reports, and all the other stuff.
Ramu: Not taking funding was the big mistake we made in 2008. We learned a lot and we survived only for two reasons: We had a great team and I had a great mentor, Ben Horowitz. Marc Andreessen and Ben also stepped in at the right times [as investors]. This was before they started their own fund. Those were the toughest nine months. And we had great investors like Camp and Quest Ventures and all the friends and family participated in the next round, Series C, in May 2009.
This forced us to think hard, “How do we make money on this product?” At the end of 2009, we started making money in distribution revenues with Nokia, as well as a priced product in the Apple App Store. We persevered through the tough times and survived. Most of the competitors were gone by then. We had competitors from Israel, Canada and in the U.S. You need solid investors to help when things are not going well.
Bernard: You mentioned your competitors not evolving fast enough. How did Qik’s product evolve?
Ramu: Initially, it was streaming to the Internet, video archiving, video sharing, then two-way video calling and finally video messaging. Qik was all the things that were required to capture any moment on your phone that you wanted to share with your friends on Internet or mobile or share live, and all of it was archived.
Bernard: As you evolved, did your user base change?
Ramu: Yes, our user base changed. Our initial sweet spot was journalists/bloggers who wanted to break news to their community using Qik, but we realized there was no revenue in the market because journalists needed more high-quality videos than what the phones could produce. For them, video quality was paramount to the real-time nature, because newsworthy items require pristine videos. Today, all of us watch HD videos not cell phone videos. We realized very quickly that there was a good go-to market approach, but not to secure our success. So we made the switch and became a consumer company. This is when we started getting the mainstream adoption, mainstream distribution and mainstream revenues. We became a personal sharing service for smartphone users.
Bernard: Your product evolution also coincided with the users and revenue?
Ramu: Yes. Our user base, active users and revenue were growing 10x year to year. When people started downloading and signing up, the usage of the product and revenue was all growing 10x.
Bernard: What was unique about Qik’s technology?
Ramu: We built a smart streaming cloud that understood the different types of cell phone videos and the frames that were missed from going to the cloud. It intelligently transcoded the video and made sure the consumer doesn’t see the choppiness or the missing frames. This was our own proprietary technology. We built all the servers and phones, maintained one or two TCP/IP connections to the cloud, and managed everything on them unlike Skype’s peer-to-peer infrastructure. This was a required architectural decision as we went further along, because PCs have more capacity than mobile devices and don’t work off a battery. This is an important tradeoff when you’re building a product for mobile consumers.
The cloud infrastructure we built takes any kind of video from any mobile device and puts it out on any device and/or on the Internet in real-time.
We had built technology in four different areas. How do we do this video in real time without giving up on quality? The first area was real-time video quality. The big tradeoff here was you stream a little less just to fit through the pipe, but if you stream more, it jams the pipe. How do we do this without compromising quality? That’s where we had six patents. Then we had technology, which worked across disparate smartphones. When we started with Nokia it forced us to think of all variances between phones. So we built our client-side technology that could go with all phones and leverage the best quality video and consume the least amount of battery.
We also built our IP with the idea that video should never be lost. When you take a video, your cell connection could drop, your phone battery runs out, and so on. This is where we said: “We have to build technology where our video is never lost.” Our initial users were all journalists and they were really upset if their video was lost. We maintained a journal on the device and the cloud, did periodic checkpoints and a phased commit to ensure the video is archived in its entirety.
Bernard: Was there any specific feature from your product that made it stickier or people more loyal to your product?
Ramu: The biggest competition or feature that really forced people to start taking us more seriously was when FaceTime was launched. Apple made video calls cool. Everyone said we had to have this product too. We were the best product that was doing it across Apple, Android, Nokia and other phones.
Bernard: How did you distribute your product?
Ramu: Towards the end of 2010 we had distribution agreements with operators in North America and abroad. In South Korea with SKT, as well as Softbank in Japan and so on. This was where we figured out the distribution revenues for Qik. During 2010, the entire world was seeing FaceTime on iPhones. And for all the Androids, a FaceTime feature wasn’t a priority, so we became the product of choice for Android OEMs (mobile phone manufacturers). All Android operators and OEMs wanted to get FaceTime parity they had to take Qik, and we worked with them to have Qik pre-loaded on 55+ devices.
Bernard: That’s great and obviously you get…
Ramu: We get distribution revenues. We’re making good distribution revenues, new and active users, and revenues went up 10x each year from 2009 to 2010 to 2011.
This continued upwards towards 2011 when we merged with Skype. When Skype acquired us we had distribution relationships with 13 carriers in the world and all the top 10 OEMs. So this was where all things were falling into place for us in terms of distribution and revenues.
I learned that if you had other people evangelize the product, it works much better than you pitching your own product. We had Nokia’s support and evangelism. Excellent commercials and marketing. Also Sprint was promoting us when they were launching the first 4G network. Sprint used Qik as the killer application and a reason why you needed to get 4G. Walmart/T-Mobile too, started selling two smartphones for Qik Video Chat among families.
Bernard: What factors do you think drove Skype to acquire Qik?
Ramu: We complemented what Skype already had. Skype was a desktop VoIP and video product and we were mobile-centric. Our design emphasis since the beginning was “how do you build a product for the mobile world?” Qik was completely cloud-based infrastructure and not peer-to-peer. The second thing was we were doing all these premium services like video messaging and video chatting. The cloud video infrastructure Qik built did automatic archiving of videos, which was hard for Skype to do because it was peer-to-peer. It was a synergy in terms of product and Skype’s future plans. The other synergy they also had was that Skype had R&D operations in Tallin, Estonia and Qik had operations in Moscow.
What also drove the merger was our mistake in summer 2008 when investors wanted to give us money. We didn’t take it and almost killed the company. This time around we said, “let’s take it.”
Bernard: How did the interest first come from Skype?
Ramu: Skype looked at the Qik roadmap. They saw what they wanted to make. Skype was a premium model. Qik had exactly the same premium model, direct to mobile consumers. Second thing was Skype’s mobile ambitions and Qik’s footprints were identical. What Skype needed to build, Qik already had in the market. So when we were working on a partnership, they realized that what they wanted to build, Qik already had. And we had the distribution relationships with all operators and OEMs.
In North America, Sprint, T-Mobile, AT&T all went with Qik, and Verizon was evaluating Qik in their labs. So they thought, you know, you cannot have two video products on your phone. So they had to acquire Qik.
Bernard: So they initially approached you on a partnership deal and then it just accelerated?
Ramu: It accelerated pretty quickly. Within a week or so, they made an offer. I can’t say exactly when but very quickly they came around with a revised offer that was acceptable to the Qik board. In another four weeks the deal was closed and announced at 2011 CES. All this happened over Christmas and New Year holidays.
Bernard: Wow, that’s really fast. So I assume when they made their first offer, it was their best offer.
Ramu: They made a second offer, which was accepted by the Qik board. They bought the company for $150 million. It was a good roadmap for all engineers at Qik. It was a great merger for both companies going forward and now Microsoft.
Bernard: What are some lessons you would tell other entrepreneurs?
Ramu: The three things that worked for us: No. 1 – The team has to have a good working relationship. I think the team has to get along well because you don’t know what’s coming in the future. You pivot at different points, run out of money, and make a lot of hard decisions. The team has to really work together.
No. 2 – The idea has to be disruptive. When we started Qik we didn’t know anything about distribution to mobile or monetization with mobile consumers. Things like that you can figure it out. When iPhone and Android came to the market in 2007, our adoption accelerated. If the idea is disruptive, it gives you more time to figure these things out because the market is trying to figure it out. Use the time to get more awareness and more buzz and at the same time figure out your distributions and revenue models.
The last thing is execution. You just stick it through. Sometimes it gets bleak, but focus and push through it. Execution also becomes a little easier if you have a good mentor. I was really lucky in my case and a good set of investors who stuck through in trying times.
Bernard: Do big opportunities remain in mobile video?
Ramu: There are still big opportunities in mobile video. Today, we do not have universal voice calling which works with all phones and all operators. We have texting plans that work with all phones and operators but we don’t have anything with video. There are solutions such as Skype (and Qik), Apple FaceTime and Google Hangout. They have built their own video experiences and work in their own ecosystem. If someone can build a product that can work out the economics with the operators and is available on all video-enabled endpoints, I think there is a good business to be had. The challenge is the economics have to work out in the mobile eco-system of operators, OEMs and the video service provider.
Bernard: I’ll circle back with you later on what your next startup is. Thanks a lot for your time and insights, Ramu.
Ramu: No problem. I enjoyed sharing my story and lessons from Qik.