Web Masters Episode #6: Gregg Spiridellis

Below is a transcription of  Web Masters Episode 6: Gregg Spiridellis. To learn more about Web Masters and subscribe, check out the Web Masters podcast page.



Découvrez les meilleurs sites de cartes virtuel comme JibJab et envoyez des  cartes à ceux que vous aimez en quelques minutes seulement. | Free ecards,  Site, Ecards

Gregg Spiridellis:

So when I was at Wharton thinking that I was going to be an investment banker, I’d already been on the internet, I’d been using it to get 10-Ks from the SEC when I was a banker. I was good with data before ’99. But when I was at business school, I stumbled across a site called shockwave.com. And there, I clicked on one of the pieces of content, and all of a sudden, streaming at me was a giant dancing piece of poop in a short form animated episode created by John Kay, the creator Ren & Stimpy. And it was this hilarious 60-second video with an animated dancing piece of poop. And I said, “Oh my God, this is the future, dancing poop.”

Aaron Dinin:

That was Emmy Award winner, Gregg Spiridellis predicting a future of dancing hoop. If I had heard his prediction in 1999, I’d probably have chuckled and then said, “Yeah, right.” But here I am recording this podcast episode in October of 2020, and I feel like there’s never been a more accurate prediction in all of human history. The future was indeed dancing poop. And I don’t just mean that because I’m recording this episode in the midst of a global pandemic, rapidly escalating international tensions and all sorts of political and social turmoil.

Instead, I’m actually just referencing what I know best, which is internet history, digital media, and entrepreneurship, and yes, dancing poop is somehow still a perfect way to describe online content in 2020. But Gregg didn’t just predict a future of dancing poop, he also had a major hand in getting us here. He’s the co-founder, along with his brother, Evan, of an internet animation studio called JibJab. You ready to hear his story? Great. Let’s get dialed in.

[INTRO]

Aaron DInin:

You are listening to Web Masters, the podcast that explores internet history and internet entrepreneurship by talking with people who have built some of the world’s most successful and impactful internet businesses. I’m your host, Aaron Dinin. I’ve built some companies, done some other entrepreneurial things, and now I teach in the innovation and entrepreneurship initiative at Duke university, where I also do lots and lots of research related to digital media history. In this episode, we’re going to leverage some core concepts of media theory. How exciting is that? But don’t worry, I promise to keep the academicky stuff light. After all, we’re still going to be discussing media theory in the context of dancing poop, which as you’ve already heard was the source of inspiration for our guest, Gregg Spiridellis, co-Founder one of the most influential early web animation studios. That studio was and still is JibJab, which I’m pretty sure you’ve heard of, and even if you haven’t, I’m sure you’ve seen their work. It was kind of a big deal in internet history. But before I talk about why it was such a big deal, I want to talk about something else that’s also kind of a big deal. Web Masters wouldn’t exist without the support of our amazing partner, Latonas. Latonas is a boutique mergers and acquisitions broker that specializes in the buying and selling of cashflow positive internet businesses. Those are the kinds of businesses that we talk about a lot here on the podcast. I’m talking businesses like e-commerce sites, SaaS apps, Amazon FBAs, Shopify stores, membership services, domain portfolios, basically, any kind of work-from-anywhere online business you can imagine.

Even if that business involves creating and or distributing animations of dancing poop, which as we’re going to hear on today’s episode can be shockingly profitable, or maybe it’s not that shocking. By the way, if you’re interested in purchasing an online business, check out the latest listings of businesses for sale over on the Latonas website, that’s Latonas.com. And if you have got an internet business to sell, talk to Latonas too. Every week, they help tons of internet entrepreneurs just like you sell their businesses online and get a great price for all the hard work they’ve put in over the years. So again, if you’ve ever been curious about buying or selling an internet business, check out Latinas.com, that’s -L-A-T-O-N-A-S.com.

Okay. So I’ve set the stage for this episode by telling you that JibJab was a really big deal. If you’ve seen a JibJab animation, you might be wondering why I’m saying that, after all, JibJab’s trademark animation style is cartoony characters with human faces and have their mouths cutout so they can flap up and down to make it look like they’re speaking. In other words, it’s nothing that’ll take your breath away or come close to shocking you with how lifelike it is. And of course, that’s not the point. In some respects, the animation reminds me a bit of the South Park animation style, which debuted a couple of years earlier.

The two definitely aren’t identical, but it’s not like JibJab ushered in some animation technology revolution, which is fine because the animation isn’t what matters, what matters in this case is the distribution. The story of JibJab is important because JibJab’s story perfectly maps to the seismic shift of the media industry caused by internet distribution, or as our guest, Gregg puts it.

Gregg Spiridellis:

How does technology shift the types of stories that we can tell? And what kinds of stories can we tell that you weren’t able to tell before either by creative limitation or by industry structure.

Aaron Dinin:

How does technology shift the types of stories that we can tell? That right there is the revolutionary insight Gregg had back in 1999, and it was triggered by that animated dancing poop on his computer screen. I realize that might seem like a weird trigger, but the trigger doesn’t matter so much as the insight. Now, in order to understand why that insight is so important, let’s start by understanding a bit more about where it came from.

Gregg Spiridellis:

I was one of those kids with an IIe and a BBS, and was really into technology. And then in high school, I stopped geeking out and I started playing drums and I was really into music. But in college, I studied finance and I went to Wall Street. I worked at Goldman Sachs and Bear Stearns and in investment banking. And then after that, I did what most bankers do, I went to business school, I went to Wharton and it was 1999. Business school gave me a chance to take a beat. And really, my intention was to go into private equity and go move money around for a living. And what happened was I got a 56K modem, and one day I saw a streaming cartoon over the internet.

Aaron Dinin:

He doesn’t mention it explicitly here, but this, by the way is where he’s referencing the dancing poop cartoon.

Gregg Spiridellis:

It was flash animation, vector animation. It was the only real video you could push over such a small pipe in those days. And my brother was an artist and an independent filmmaker. He studied at Parsons and was waiting tables and coming up with TV show ideas. And I called him up and I said, “Stop thinking about TV, download flash, look on the internet. You can actually produce things and distribute them all around the world without having to go through any big media conglomerate to get some development exec to sign off and say, ‘Yeah, this is, this is a good idea.'”

Aaron Dinin:

And can you explain for us why that was such a big deal?

Gregg Spiridellis:

So that was really exciting to me. Like the idea that like the Barbarians were at the gate, all these giant media companies, they had this longstanding competitive advantage, which was basically capital and distribution. So capital because it took millions of dollars to make anything, and distribution because they controlled channels and distribution, whether it’s cable or television or shipping canisters of films to movie theaters. And so what the internet really represented to me was a chance to say, “Take a $2,000 Blueberry iMac, put it on your desk, make something, press a button, and then anybody in the world could access that content.” And if it was good enough, the idea of viral wasn’t a term back then, but the thought was, if you make something that’s compelling, people will share it.

The friction to share on the internet is virtually zero. And so what that meant is you could build a brand, you could build content franchises, you could build a brand, and you could do it without ever having to deal with one of these giant media companies.

Aaron Dinin:

Let’s add some historical context here. It’s 1999 and mainstream media is still pretty much the only avenue for creating and disseminating content. Yeah, you’ve got the early web and blogs are just starting to catch on and get some large readerships, but nobody, and I mean nobody has a major online video platform. Everyone still gets their visual media content from television or movies. But Gregg correctly predicts that this is all about to change in a big, big way. And luckily he also happens to have a brother who’s able to create animations.

Gregg Spiridellis:

And so I got my brother excited about it. He started making these little animations. I was still in Philly, he was in New York. He’d ship these little animations, and I would be like, “Hey, it’d be funny if when the elf is shoved into the oven, you put a chain around the oven,” and so we started like a creative collaboration, just having fun. And then I spent my summer at business school doing private equity, LBOs, leveraged buyouts. And I just came back to my second year and I said, “Oh, no, I’m about to throw this $80,000 Wharton MBA out the window and do something crazy and go start a cartoon company on the internet.” And that’s what I did.

Gregg Spiridellis:

After I graduated, my brother and I started JibJab in a garage in Brooklyn. The first of a handful of startup cliches. From there, it was a 19-year ride before we sold it.

Aaron Dinin:

Simply put, before the internet, the kinds of short form animation Gregg and his brother were creating content exist, or more precisely, few people would ever see short form animations because the cost of distribution versus any potential return on investment made it enormously prohibitive to produce. That’s why Hollywood isn’t known for making that kind of content. But the internet changes that, the internet tramples the historical barriers around audio-visual content distribution, and that allowed two brothers in a rented garage in Brooklyn to create short, low budget animations and share them with the world for a tiny fraction of what it would have cost just a few years earlier.

This is textbook media theory, specifically from a guy named Herbert Marshall McLuhan, usually referred to as Marshall McLuhan. McLuhan was a Canadian born philosophy professor who lived and wrote in the mid to late 20th century. He’s most famously known for coining the phrase, “The medium is the message.” Basically, in his 1964 book called Understanding Media: The Extensions Of Man, McLuhan argues that a communication medium itself, rather than the content conveyed by it, is the thing people should study in terms of its importance in overall human history.

In other words, let’s imagine 100 years from now, someone is studying this podcast. They shouldn’t be focused on the things I’m saying, my words aren’t really what’s important in terms of the grand scope of history. What’s important is that vessel this content is being delivered in, which is the podcasting format. What does it mean that in the early 21st century people liked listening to podcasts? That, according to McLuhan, is the important question. And it’s actually an interesting question if we care to think about it for a moment, because it reflects a lot about the current historical moment. For example, it speaks to the fact that early 21st century humans enjoyed a type of long-form educational narrative entertainment that could be consumed solely with our ears.

Now, I realize that probably seems like a silly observation, but fast forward 100 years. And we can imagine a world where podcast consumption has completely vanished because our need for them no longer exists. If say, you’re listening to this episode as you drive, will you be driving yourself 100 years from now? Or will we have self-driving cars? In which case you’ll be able to do things with your eyes and your hands that you can’t do right at this second. Now, apply those same concepts back to Gregg in that video of a dancing poop, the poop didn’t matter, what Gregg did was look beyond the dancing poop. Here’s a phrase I never thought I’d say, he looked beyond the dancing poop. And by doing that, he recognized the opportunity of the medium that enabled him to see it.

So the real question here is, how the heck did he do that?

Gregg Spiridellis:

And then I saw the internet, I knew it was a game changer. I just knew. It was the first mass two-way communication channel with audio and visual multimedia. So to me, it was not some deep intellectual exercise where I went off and did a four quadrant, and I said, “This is the growth area of the future.” It was just visceral. It was like, holy— This thing is going to be huge. This is going topple all of the existing barriers to entry for the existing media companies, capital and distribution are scarce now, and talent is what’s going to be scarce in the future.” And so that was just exciting to me. I just wanted to break things down. I don’t know what it was, there’s just something inside of me. And it said, “Don’t go back to investment banking and push a bunch of money around, go define what the future of entertainment is going to be.” It was really just truly a visceral thing. I didn’t overly intellectualize it.

Aaron Dinin:

And yeah, just to be clear, I’m not sitting here trying to argue that Gregg or you, or really any would-be entrepreneur should spend your days studying philosophy and media theory to develop some complex thesis about the future of technology. We got to remember that it’s hard to recognize or understand or appreciate seismic technological shifts as they’re happening. It’s much easier, two decades later, to listen to someone, tell you the story of the amazing internet business he built, and then retrospectively describe a complex phenomena using overly intellectualized language. That’s my job. So really, what I’m doing here is I’m narrating what happened after the fact, and that’s a bit easier to do, but the story of JibJab as Gregg explained, was a story that lasted nearly 20 years. That is a long time to build a business.

Now, guarantee, it wasn’t 20 years of meteoric success in worldwide fame because of this clearly defined technological emergence. That’s not what happens when you’re attempting to build a business around a revolutionary technology trend. Instead, the story of JibJab is the story of a few breakout hits and a founding team that was constantly hustling to keep the lights on for a business that didn’t always have a clear path toward making money.

Gregg Spiridellis:

So we started the company in October, 1999. I rented a garage in Brooklyn. It was the office and my apartment. I had a little cordoned off area with a futon, a bookshelf and a television set. Three quarters of the space in the garage was all dedicated to the office. And we did door desks and soft horses. It was a true scrappy startup because we were paying for everything, we weren’t venture financed. We just started figuring it out. We just threw ourselves into it, and we said, “Okay, here’s how you FTP a file. Here’s how you set up a website.” And luckily, I had my best friend from third grade who was an engineer, had gone off on a path and was an engineer. So nights and weekends, he was helping us out, helping us get the website set up and get all of our hosting in place.

And we were able to do it without a full-time engineer because it was a pretty simple setup. It was like FTP or files, create an HTML page. We were not doing fancy data-driven stuff at the time. It was really just about consumption. But, there were two things that were critical that we did that drove our success. Number one, was we put a share button on every page, share this with a friend, giant share button. This was before viral. We knew we had to minimize friction to get one person to invite another person. We didn’t know viral, we didn’t know key factors, we didn’t know any of this stuff. We just said, “The only way we’re going to grow is if we make it super easy for people to share.”

And the second thing we did was create a form field on every page, which said, “Join our mailing list.” So once we got a person, we wanted to make sure they brought people and that we were actually establishing a one-to-one link with that person so that when we released the next video, we could announce it to that list. And so you start at the ground level, we emailed our address book. We said, “Hey, Evan and I have started this new company and we’re making content on the internet. And if you want to check it out, here’s the link. And if you like it, please send it to your friends.”

And there was zero paid marketing, and there was zero promotion, and it grew from there. And over the period from 1999 to 2004, we had accumulated 130,000 people on our newsletter, inch by inch. It was definitely the trench warfare.

Aaron Dinin:

Wait a second, ’99 to 2004, that’s five years. How the heck are you making them?

Gregg Spiridellis:

Yeah, great question. There was zero way to make money from content on the internet between 1999 and 2004, and even beyond, quite frankly. So what we would do is we would do service work. So Syfy channel and Disney because we were early and we were doing animation on the web, we would get calls that would say, “Hey, we’ve got this project, can you help us with it?” And so we were dedicated about 50% of our time to work that was getting paid for by clients, and then we would take the profits and we would pour it all back into the original content piece of the business. So we were able to self-finance the business by doing service work and then plowing those dollars back into the more speculative, original content and brand-building work we were doing.

Aaron Dinin:

I don’t know if you know, but there’s actually a big debate about that strategy in the startup world. Some people say it’s a good idea to self-fund through client work. Some people argue it’s too much of a distraction away from the core business. So where do you stand on that argument?

Gregg Spiridellis:

If you can find an angle to do service work related to what your core competencies are, do that. And I recommend that to every entrepreneur, do not go raise money out of the gate. That’s not a blanket statement, there are types of businesses, network effect businesses, other things where you may want to throw it on the line and just go, but certainly not in original content production, that is not a network effect business. So go figure out how to work with clients, go make money the old fashioned way, and then put your own dollars at risk, control your destiny until you’ve got something bigger that warrants external investment.

In the early days, 1999, 2000, 2001, I had people calling all the time who said, “I want to give you guys a million dollars, I want to invest.” I’m an ex investment banker, I still do not see a path to us making money, I am not sure how we’re going to make money. I’m not going to take investment dollars until I have a clearer narrative in my head about how this business grows into an actual revenue generating and equity building business. And quite frankly, that perspective of not taking investment money too soon saved us. Every first generation content company on the internet was dead by 2002 because they raised venture money and they built infrastructure that required more venture money to keep going.

And when the party stopped, they couldn’t keep going. Whereas, as Sarah Lacy of PandoDaily calls us, the cockroaches of the internet, and she means that with great respect and I’ll take it any day.

Aaron Dinin:

It was the early 2000s. Every first gen content company on the internet was killed off either by the Dot-Com crash and/or the general lack of monetization infrastructure, because remember it’s still too early to make money off content, but JibJab is somehow still surviving mostly by bootstrapping. They are, as Gregg proudly admits, the cockroaches of the internet. But in addition to being scrappy, they’d learned some important lessons from their earliest experiments

Gregg Spiridellis:

In the year 2000, my brother and I created a video called Capitol Ill, and it was George Bush and Al Gore rapping in 2000, very few people were still on the internet, but it became this little cult hit. It got put on Mad TV. So we had like a little bit of notoriety, but it was still definitely a subculture thing. What we learned from 2000 was that music works, politics work. People loved the collage style that my brother had created.

Aaron Dinin:

Notice how everything Gregg talks about here is related to the medium and not the message. Online shorts needed music, timely relevant, a certain animation style. Again, JibJab wasn’t trying to create great art and then wedge it into internet distribution channels, they were assessing the strengths and weakness of internet distribution, the medium, and then creating content that played into those strengths. That led them to the opportunity they identified in conjunction with the 2004 presidential election, and ultimately, to their first massive hit.

Gregg Spiridellis:

As we approached the 2004 election, you can create something in July, in an election year that’s going to be relevant in the news cycle for four months as you get to the November election, unlike other topical stories like Dick Cheney shoots someone in the face. That story is here today, is gone in a week, two weeks, a day. But elections, you knew you had shelf life. So as we were approaching 2004, we were really concerned because here we were evangelizing the internet and how it’s going to be the future of entertainment for almost five years. And quite frankly, there was nothing on the internet except us and it had been decimated by the.com crash. And so we said, “Okay, this is it. We’re going to make an election satire, and if this doesn’t change things, we’re just going to have to go get jobs because maybe we we’re wrong, maybe the internet never will be used for entertainment.”

We created a parody called This Land. It was George Bush and John Kerry doing a parody of Woody Guthrie’s, This Land is Your Land. By that point, we had accumulated 130,000 people on our newsletter. So we produced this video. I wrote it, my brother animated it. It was just the two of us with my old friend from third grade, helping us FTP it to a server and put it online. All we did was we put this video on the web and we sent an email to our 130,000 person newsletter. And we said, “Hey, we made this video, check it out.” And that was a Thursday, and just boom, instant global phenomenon.

Aaron Dinin:

That’s like the dream of every entrepreneur, virality, overnight success. Can you tell us what it was actually like? Is it as good as people imagined?

Gregg Spiridellis:

We went from wondering whether or not we were going to have to get real jobs the Wednesday before we launched this thing to being on Jay Leno’s couch the following Wednesday. It was literally overnight success after five years of street warfare, hand-to-hand combat. It was wild. It was wild. Basically in an instant validated everything we thought was possible, which was, if you create something that’s great, people will share it. And that’s exactly what happened.

And so, you can imagine what is it like to support a video that would go on to have 80 million views in 2004 well before YouTube was created in an era where you had to do all the hosting yourself, when you’re two non-engineers and a friend from third grade, who’s hustling nights and weekends to try to keep your servers up while this whole thing blows up and takes over the whole world. It was quite a run.

Aaron Dinin:

Okay. That doesn’t sound too bad. Can you tell us, how did it feel to have one of the big first viral hits on the internet? And just as importantly, what kind of opportunities did that open up for you and your brother and JibJab?

Gregg Spiridellis:

All of a sudden JibJab was everywhere, and the spillover to mass media was incredible, Today Show, CNN, every news outlet was carrying it. We’d have TV crews showing up from Korea and Japan and be in flow of media attention, just spun the wheel. It was really incredible. It was one of these moments, I remember there was a morning I woke up and I was actually a little bit distraught because all of a sudden the world was so small. We all live in this world and it feels kind of infinite, but all of a sudden, something we had made had spread all across the globe. The awareness for the video was incredible.

There was a stat we’re in July of 2004, if you saw a video on the internet, we had over 90% share. If you saw a video in July of 1994, if you saw our video, nothing exists on the web today that probably gets 20% let alone 90. So it was ubiquitous on the internet and mess with your mind a little bit, something sprung out of our heads that had now touched tens of millions of people all around the world. And not only that, NASA called us for a copy and they sent it up to the international space station. We were getting emails from soldiers in Saddam Hussein’s palace telling us that the department of defense had blocked our website because JibJab was flooding the networks all across the Middle East.

These are things where you’re two guys in a garage going, “Oh my God, the world is going to change.”

Aaron Dinin:

And it did change the world, not by itself, of course, but JibJab was one of the first, if not the first company, to show the full potential of viral consumer shareable video content. Sure, it was a silly little political satire video, but that’s silly little political satire video has evolved into the terrifyingly manipulative political memes that have become the hallmark of the modern media landscape. And by the way, it’s not like people weren’t realizing what was going to happen back in 2004, for example, listen to this little story Gregg tells, which is honestly really creepy.

Gregg Spiridellis:

The CIA came to us and they asked us to do a seminar for a gathering of CIA agents in the Beverly Hills Hotel. The message was like, “This is used to make people laugh, but guess what? It could be used for other stuff too.” It’s interesting to think back then, how fresh this all was and how unaware we were of the flip side of the coin and the dark ways of this distribution and content could be used.

Aaron Dinin:

In other words, JibJab was ushering in the age of information warfare on the internet. How crazy is that? But of course, that’s probably a story to explore another time since Gregg and his brother weren’t trying to top all political regimes, at least I don’t think they were. Instead, they’d had their first big hit, but they still didn’t have a business.

Gregg Spiridellis:

There’s no advertising money on the internet in 2004, it was a wasteland of monetization models. There was nothing you can plug and play. And so it really took some creativity to figure out how to piece it all together. For example, one of the things we did right out of the gate was we offered paid downloads. For free, you could watch it streaming, but because the servers were getting so slammed, sometimes that wasn’t that responsive, but there was a big button that lets you download the video for $2.99. Probably some of the first paid content on the internet.

So, I had hooked up a service that enabled us to do pay downloads for $2.99 a download. We made, I think it was a couple of hundred thousand dollars, the scale was pretty incredible. Don’t forget, it was me and my brother at that point, we did not have a big staff. So that was real money. The other thing, the best thing, and maybe my crowning pride moment of my entrepreneurial career was the Today Show. We did a second one for the Jay Leno show. So we were on Jay Leno for This Land we were on the couch, he said, “Would you do another one for the show?” And we said, “Of course, we would.”

And then we went off afterwards and we panicked, “How are we going to ever top this?” But we produced the second video for the election called Good To Be in DC! And the Today’s Show was coming in to film us at like 3:00 in the morning for East Coast, going live to premier the short. And to about 10 o’clock the night before I said to my brother, “Hey, we should make a DVD with these two videos on it and sell it on the Today Show.” And we’re like, “I don’t know how to make a DVD.” So my brother made a fake DVD. He designed a cover and I went onto Yahoo Stores and I set up a Yahoo Store. And I just put on the page, “This will ship in eight weeks.” Because I figured, “In eight weeks, I got to be able to figure this out. I can figure this out in eight weeks.”

Gregg Spiridellis:

And then when the Today Show came on, literally while we’re live, the question always comes up, “How do you guys make money?” “Thanks for asking.” We hold up the DVD and said, “Go to jibjab.com and you can buy our collector’s edition DVD for $9.99. And by the end of the day, we had sold over $100,000 worth of DVDs. I had no idea how we were going to make them, but I told people it’ll take us about eight weeks. I think we shipped them in like five, and boom, instant business model.

Aaron Dinin:

This entrepreneurial scrappiness is pretty much JibJab’s secret to survival in its first years. As the internet media landscape evolved, JibJab had to keep coming up with new ways to turn public notoriety into revenue that began with traditional content licensing deals that were more of an old media approach to monetization.

Gregg Spiridellis:

We found deals where we could find them and we cobbled together a really nice bounty, and that actually set us up to do an exclusive content licensing, online licensing deal with Yahoo, where they were the only third-party distributor allowed to distribute our content. Those were cool deals. This was pre-YouTube, we enabled Yahoo to co distribute with us. I was never going to give someone else my content and cut off my direct relationship with the audience, but I said, “Yahoo, you’re the only other person who can distribute this video online.”

And so, what it did was it gave us great brand distribution, but preserved our direct connection with the audience. And so we did a six figure deal with Yahoo for our next two shorts. And then we wound up doing a really big deal with MSN next, where they paid us to be the exclusive third-party distributor for our next five shorts. And keep in mind, Jay Leno was world premiering all of these on The Tonight Show. With those two deals and all the side deals and the DVDs we just cobbled together a nice little business.

Aaron Dinin:

But we’re still talking about the early days of the internet media landscape, which means the entire ecosystem was rapidly changing, and the monetization strategies that worked once or twice or even three times, weren’t always guaranteed to keep working.

Gregg Spiridellis:

YouTube came and crushed the exclusive licensing business, so we found ourselves at our next inflection point, which was we built the brand, we figured out how to make a really good living doing this, and then all of a sudden, YouTube came around and exclusive licensing was a joke. It was piracy all the way, and not only was there piracy, we were now going to be competing with creators all around the world for attention as opposed to our own special niche, which was we can create and distribute.

Aaron Dinin:

Yeah, YouTube, that was my first thought when you were talking about these monetization models. YouTube seems like a huge wrench in your business strategy in part because everyone can create content and distribute it worldwide, so you’ve got way more competitors. So how do you deal with YouTube coming along and basically eating your lunch?

Gregg Spiridellis:

When YouTube came around, I knew we’re dead in the water. If we didn’t reinvent ourselves, we were dead in the water. We were doing the exclusive licensing, we were unique in that we were creating short form entertainment and no one else had figured out how to do the creation and the distribution side, but YouTube made distribution turnkey. And so all of a sudden, we’re going to be competing against creators all over the world. And we’re good, we’re not that good. So I knew we had to figure out a new format, and I also knew it’s going to take us time.

I raised my first round of venture capital six and a half years into the business, we raised $6.4 million. And I said, “This will give me the time to build the brand out, to figure out where that next business model is going to emerge from.” And so the story I told my investors was, “Hey, YouTube is coming around. This is great because it’s going to massively increase distribution. We know how to produce great content, what we’re going to do is we’re going to partner with brands to produce content and leverage YouTube distribution and our distribution to make branded entertainment.” Before that was a thing.

I raised $6.4 million against that narrative, again, narrative is key. I’m a storyteller, if I couldn’t tell that story, I’d never would have got that money, but we got the money. We did this great thing. We got John Landis, the greatest American comedy director of all time, Trading Places, Blues Brothers, Animal House, to do a sketch comedy competition. We got Verizon, the sponsor, we put it on The Tonight Show. It was a huge success in every way, except the fact that it was completely unscalable and we really didn’t make that much money after six months of work when the dust settled

And so there I was, I’d raised $6.4 million on this narrative that I had just come to the conclusion didn’t work. And I had to go tell my investors, it wasn’t going to work because why keep doing something that doesn’t work?

Aaron Dinin:

As someone who’s had the unfortunate need to inform my investors that the story I’d been telling them wasn’t going to work, what you’re about to hear is the part of JibJab story I’m personally most impressed with. When you’re running a company, part of your job is to stay positive about the narrative behind what you’re building, after all, as soon as you start saying bad things about your own business, it becomes a bit of a self-fulfilling prophecy because you won’t be able to get customers or keep employees or get new investors.

Because staying positive is such an important part of the entrepreneurial mindset, entrepreneurs usually struggle admitting when they’re wrong, I know I did. I spent years pursuing visions that in retrospect, I really should have tossed aside much more quickly, but Gregg didn’t do that. Instead, Gregg admitted he’d made a mistake as soon as he saw it, there just wasn’t monetizeable scalable markets for the kind of content his team was creating. So rather than cling to that initial belief, which by the way, it was the foundation upon which they built JibJab and had some truly impressive success, he pivoted the company. That’s what allowed him to turn it into a successful long-term business.

Gregg Spiridellis:

I remember it was Christmas 2006 and I was a little bit panicked and I was trying to figure out what’s the next step. Thanks to my banker days, I was looking at the American Greetings 10-K, American Greetings had an online subscription business. And I’m like, “Hey, I wonder how big this business is.” And I went to their 10K and I saw it was a $60 million business. And I was like, “Oh my God, this content is terrible, and people are spending $60 million a year? And what I realized was, no one’s going to pay to watch our shorts, but if you take content and you give it utility, you help people say happy birthday or Merry Christmas with it, people will pay.

And not only will they pay, they’ll join a subscription service, which is recurring revenue, just the most beautiful thing of all.

Aaron Dinin:

And if you’ve heard of JibJab, but don’t remember their animated shorts from the early 2000s, this is probably the JibJab you’re familiar with, the personalized e-cards where you could cut out pictures of your face, stick it on an animated character and send it to all your friends and family.

Gregg Spiridellis:

What we created was a tool called Starring You. And we give users tools to personalize their content and help them feel like they’re creators. We can vastly expand the amount of content that’s getting produced. My brother and I created this land, and one thing had to be relevant to 80 million people. But if we gave people tools, you could take our tools, cut out your friend’s face, put your friend or Uncle Joe into this dancing video and it would be hilarious to 10 people. But if you aggregate enough 10 people, you get mass audience scale.

So we realized that instead of us creating the whole thing, we create the templates, we let people integrate their friends and family, their small circles of friends, and then we aggregate enough small circles of friends and family, and we get even bigger scale than we got at the height of our political satire days. And then the other thing we realized was timing and relevance. We’re always on a cycle, elections, holidays, Christmas, especially, so we partner with OfficeMax and we made ElfYourSelf and it was just a monster success.

And the other thing that was happening at the time was the distribution channels were changing. It used to be that you take one thing and you would email it to your entire contact manager, that became so spammy people stopped doing that, but what came around was Myspace and then Facebook. Instead of saying, getting good at emailing your friends, we got really good at social network feed distribution, and we were able to leverage that to drive just monstrous global growth. All of a sudden, you see in the news that Prince Harry is doing ElfYourself, and you see your work being used and enjoyed all over the world. It’s amazing.

Aaron Dinin:

I just want to point out that here, again, we have Gregg perhaps unknowingly channeling his inner Marshall McLuhan and focusing on the medium rather than the message. Traditional multimedia content was standardized for all viewers. The goal of a content producer was to create one piece of content and sell access to that one piece of content as many times as possible. And of course, that model made the most sense when distribution was limited to movie theaters and televisions. However, the new distribution medium of the internet enabled content personalization.

So, long before you had Snapchat filters and TikTok effects, you had Gregg and JibJab introducing personalized video content to the world. And yes, it was an enormous success.

Gregg Spiridellis:

Since my Wharton days, I always had this vision of personalized entertainment, could you replace faces on characters with people you knew? And so we brought the personalization tools into the mix too, and we created the next wave of like giant viral hits. And between those observations and that business model over the years we built, turned into a multi-million subscriber business with $30 million of revenue, incredible cash flow that led us fund other ventures.

Aaron Dinin:

Those other ventures by the way, include the hit children’s educational TV series, StoryBots. It’s won multiple Emmy’s and in 2019, it was acquired by Netflix. And for what it’s worth, that successful project was also inspired by… You guessed it, a massive shift in the standard ways in which people, specifically children, consume media.

Gregg Spiridellis:

Three or four years into the car business, we’re like, “Okay. Yeah, we’ve established this format and it’s really fun and it works, but what’s the next frontier? What’s next? We want to invent. We’re not optimization guys, we’re invention guys.” And so we looked in our own living rooms. In 2011, we had really young kids, I had three, he had two, I had a one-year-old, a three and a five-year-old, and he had a six-year-old and a three-year-old. And I remember, the day I walked out of my bedroom and my two kids, my five-year-old, my three-year-old were sitting outside my bedroom on a Saturday morning holding iPads.

Each was holding an iPad and they were each watching the cartoon that they wanted to watch, in their jammies, sitting next to each other, watching. I called my brother and I was like, “Oh my God, remember we used to have to fight for the remote, which network are we going to watch? Which cartoon were we going to watch on a Saturday morning? And here are my kids, each holding a piece of glass, watching what they want to watch.” And I just, “This was the future.” It was like that moment, I saw cartoons streaming over a 56K modem.

This matters, this is an impactful moment, this is going to change the way kids engage with and consume content. They’re not sitting in front of the TV, this is a new paradigm shift and we’re both in it. And we said, “Where would Sesame Street be if it were invented today? What would we do with children’s entertainment if it was invented today?

Aaron Dinin:

You see what I mean? The medium controls the message. What matters for Gregg isn’t what kind of content you’re engaging with, what matters is how you’re engaging with it, what technology are you using? And how is that technology different than the technologies that came before it? That’s why when a revolutionary technology like the internet comes along, it dramatically shifts how people engage with content, which in turn creates a massive frontier of innovation and ultimately, a podcast like Web Masters, where we get to explore all those incredible businesses.

As always, I hope you enjoy learning about them as much as me. And if you do, you know what I’m going to ask next, please head over to your favorite podcasting app, subscribe and give us a five-star review to tell the rest of the podcast listening world, what they’re missing out on. If you’d like to send us any comments, thoughts, concerns, or even criticism, that’s fine too, I can take it, reach us on Twitter, we’re @WebMastersPod. Hey, I’m on Twitter too @AaronDinin. That’s A-A-R-O-N D-I-N-I-N. And check out all my essays and articles about entrepreneurship over on medium.com. You can just search my name there, you’ll see I’m posting new stuff throughout the week.

I want to take a moment to thank my guest for this episode, Gregg Spiridellis. You can find him on Twitter, he’s @3GS.

Also, I want to thank our audio engineer, Ryan Higgs for making me sound better than I do in real life. Thanks, Ryan.

And I want to thank this podcast sponsor, Latona’s. Remember, if you’re interested in buying or selling an internet business, be sure to check out latonas.com.

And last, as always, I want to thank all of you for listening. I hope you enjoyed this episode. I can’t wait for you to hear the next one, but for now, time for me to sign off.