No, you’re not paying for all those channels you never watch, I’ve said before, and now Alex Tabarrok explains bundling more formally for his MRUniversity course on media economics:
Michael O. Church believes that people are localistic:
We are altruistic to people we consider near to us in genetic, tribal, cultural, or emotional terms. We’re generally indifferent to those we regard at the periphery, favoring the needs of our tribe. Good and evil don’t escape from this localism; they just handle it differently. Good attempts to transcend this localism and (perhaps cautiously) grow the neighborhood of concern: expanding it to all citizens of a polity, then all humans, then all living beings. Evil, not always being egoistic, turns this localism into militancy. Both involve an outside-the-system comprehension of localism that is somewhat rare, leaving most people in an alignment considered neutral. Morally neutral people are best described as weakly good. Assuming they have a strong sense of what good and evil are, they’d prefer to be good, but this preference is not strong and they do not have a burning desire to seek good at personal or localistic risk.
The civility spectrum, between law and chaos, reflects peoples’ biases toward organizations and those who lead them. While lawful good people will oppose an evil society and chaotic good will support a good one, the truth about most societies and organizations is that they are themselves morally neutral, so a person’s civility (bias in favor or against establishment) will influence her tendency to oppose or support power more than the sign-comparison of her and its moral alignments. Lawful people think organizations tend to be better than the people who comprise them; chaotic people think they tend to be worse than the people who make them up. For my part, I’m chaotic, but just slightly. I think that individual people average a C+ on the moral scale (A being good, F being evil) and organizations tend to average a C-. Chaotic bias makes it natural to see corporations as “evil”; in reality, most of them are indifferent profit maximizers.
Interesting enough, software engineering is intrinsically chaotic. Because software requires exact precision, while human communication is inherently ambiguous, large software teams do not perform well. The per-person productivity of a large development team is substantially lower than that of an individual engineer. A team of 10 might be 2-2.5 times as productive as a single engineer. This leads us, as technologists, toward the (chaotic, possibly faulty) assumption that organizations are inherently less than the sum of their parts, because that is clearly true of software engineering teams.
Management theorists have questioned human nature, generating two opposite sets of assumptions about the typical employee of a corporation.
Theory X (presumed egoism): employees are intrinsically lazy, selfish, and amoral. If they are not watched, they will steal. If they are not prodded, they will slack. They are not to be trusted. The manager’s job is to intimidate people into getting their work done and not doing things that hurt the company.
Theory Y (presumed altruism): employees are intrinsically motivated and inclined to help the organization. If they are given appropriate work, they’ll do well. The manager’s job is to nurture talent and then get out of people’s way, so they can get work done.
Theory X is socially unacceptable, but a better representative than Y of how business executives actually think. Theory Y is how executives and organizations present their mentality, because it’s more socially acceptable. So which is right? Neither entirely. Theory X is ugly, but it has some virtues. First, it can be, perversely, more egalitarian than Theory Y. Theory X distrusts everyone, including the most talented and best positioned. Executives are no better than worker bees; everyone must be monitored and a bit scared. Theory Y, which is focused on talent and development, requires (non-egalitarian) decisions about whom to develop. Second, Theory X is more tolerant of scaling, because large-scale societies run (by necessity) on X-ish assumptions. To keep a Theory-Y organization intact, you cannot hire before you trust. Only in the technological era (where small groups can deliver massive returns) has it been possible for growth-oriented organizations to hire so selectively as to make Theory-Y organizational policies tenable.
My ideology (e.g. open allocation) might be seen as “extreme Theory Y”, but that’s not because I believe Theory Y is inerrant. It’s not. Reality is somewhere between X and Y. I believe that organizations ought to take the Y-ward direction largely (on this spectrum) for the same reason that archers aim slightly above their targets. With the actual leadership of most organizations tending toward egoism and X-ness, an organization that doesn’t set inflexible, constitutional Theory-Y pillars (for some concerns) is going to suffer a severe X-ward bias. X-ism is tolerable for concave industrial work, but in the convex world, organizations need to be somewhat Theory Y. How X (or Y) should an organization be? There’s actually a very simple and absolutely correct answer here: trust employees with their own time and energy, distrust those who want to control others’. It really is that simple — a rarity in human affairs — and to continue with anything else is moronic. Employees who volunteer to use their own energies toward something they believe will benefit the organization should be trusted to do so; those who exhibit a desire for dominance over others should be deeply distrusted.
(Hat tip to Clerestorian.)
The mad billionaire behind GoPro was once a failed dot-commer obsessed with surfing — and coming up with a wrist camera to capture his exploits:
That concept came a few years after college after an online gaming service he started, Funbug, went belly-up in the dot-com crash of 2000-01, taking with it $3.9 million of investors’ money. “I’d never failed at anything before except computer science engineering classes,” he says. “So it was like, ‘Holy s–t, maybe I’m not capable of doing this.’”
To get his head straight again, Woodman lit out on a surf odyssey through Australia and Indonesia, one last big trip before what he figured would become a life of comfortable middle-class monotony. He brought a contraption he’d made out of a broken surfboard leash and rubber bands that allowed him to dangle a Kodak disposable camera to his wrist for easy operation when the perfect wave hit. Close friend and current GoPro creative director Brad Schmidt met Woodman in Indonesia and became one of the first to toy with the strap. One of his first observations: Woodman needed a camera durable enough to take the wear and tear of the sea. Five months into being a surf bum, a recharged Woodman returned to California with the seed of an idea.
Woodman, then 27, holed up in the house he shared in Moss Beach, Calif., just over the hills from Silicon Valley. He “checked out” from his normal life, including friends and family, locking himself in his beachside bedroom to build his first prototypes. Deciding that he had to sell the strap, the camera and the casing, he armed himself with a drill and his mother’s sewing machine and strapped a Camelback filled half with Gatorade and half with water to his back (negating the 30-second walk to the kitchen) for 18-hour work sessions. “I’d have a sliding door to the outside so I could just go take a pee out on the bushes out on the side,” Woodman recalls. He gave himself four years to make it work before he would drop his idea and enter the workforce. “I was so scared that I would fail again that I was totally committed to succeed.””After he took off, he was like, ‘I think I’m going to start this wrist strap company for surfers,’” says Schmidt, who was skeptical. Says Woodman: “I thought to myself, ‘If I made a few hundred grand a year, I’m, like, in heaven.’”
Between sewing together old wetsuit material and drilling holes in raw plastic, Woodman was constantly trolling online and at trade shows for a camera he could modify and license as his own. He settled on a $3.05 35-millimeter model made in China, sending his plastic cases and $5,000 on a prayer to an unknown entity named Hotax. Woodman received his 3-D models and renderings a few months later and sold his first product in September 2004 at an action-sports trade show in San Diego.
That was the first validation for Woodman, whose friends thought their former surfing buddy had held his breath underwater for a little too long. Neil Dana, his roommate and first hire, recalls a work-obsessed guy constantly fixated on success. “We would be at a party,” Dana recalls, “and he would come up the stairs and be like, ‘Dude, check this out, this is how we’re going to become millionaires!’ ” Woodman was only three zeroes off.
GoPro grossed $350,000 in its first full year of sales. Woodman was the all-in-one product engineer, R&D head, salesman and packaging model. He and Dana rang up surf shops across the country hoping to get some of their product out of Woodman’s father’s home in Sausalito and into the market. In 2005 he appeared on QVC three times, running into Spanx founder and fellow future billionaire Sara Blakely while she was building her company as well. (“If she remembers me, I’ll be amazed,” says Woodman. “But I’d love to get word to her to give her a digital high-five on crushing it.”)
Woodman eschewed venture capital as he grew — a by-product of his Funbug experience and a desire to work without suits interfering. Says Dana, “He wanted to keep it private for as long as possible so he could get a Lotus for ‘product testing’ and do things and not have to answer to a board about it.” At the outset Woodman dropped in $30,000 of his own money, as well as $35,000 from his mother and two $100,000 investments from his father. The company made money from that point and today boasts profit margins, FORBES estimates, around 15%. It wasn’t until May 2011 that GoPro took on $88 million from five venture firms including Riverwood Capital, led by former Flextronics CEO Michael Marks, and Steamboat Ventures, Disney’s venture investment arm, which allowed him, his family and some early executives to take a good chunk of cash out.
Publishers fear cultural irrelevance:
“The fact is that people don’t read anymore,” Steve Jobs told a reporter in 2008, blurting out the secret fear of bookish people everywhere. But consider this: In one week, people who don’t read anymore bought about half a million copies of a really long book called Steve Jobs. In the past year, Vintage has sold one book from the Fifty Shades of Grey trilogy for every six American adults. The Big Six publishers — Random House, Penguin, Hachette, Macmillan, Simon & Schuster, and HarperCollins — all make money, and at profit margins that are likely better than they were 50 years ago.
Meanwhile, readers have an unprecedented array of options. E-readers have gotten consistently cheaper and better since the first Kindle shipped in 2007, giving customers instant access to millions of titles. For a couple of dollars you can buy a self-published sensation or a Kindle Single rather than a full-length book. Add it all together and you have a more vibrant market for literary material than ever before, with nearly 3 billion copies sold every year. Amazon likes to point out that new Kindle buyers go on to purchase almost five times as many books from Amazon, print and digital, in the ensuing year as they did in the prior one. “I believe we’ll look back in five years,” says Russ Grandinetti, VP of Kindle content for Amazon, “and realize that digital was one of the great expansions of the publishing business.”
For all the digital optimism, not even Amazon is ready to declare the traditional model dead. In May 2011 the company announced that it was going head-to-head with the Big Six by launching a general-interest imprint in Manhattan, headed by respected industry veteran Larry Kirshbaum. It signed up celebrity authors, paying a reported $850,000 for a memoir by Laverne & Shirley star Penny Marshall and winning over best-selling self-help author Timothy Ferriss. Tired of being undersold by Amazon and wary of its encroachment into their business, many brick-and-mortar booksellers refused to stock the titles. The boycott has worked so far: Marshall’s book flopped, and Ferriss’ undersold his previous offering. Ferriss says he doesn’t regret his experiment with Amazon Publishing, but he allows, “I could have made more money — certainly up to this point — by staying with Random House.”
Still, it’s not clear that traditional publishers are well positioned to own the digital future. They are saddled with the costs of getting dead trees to customers — paper, printing, binding, warehousing, and shipping — and they cannot simply jettison those costs, because that system accounts for roughly 80 percent of their business. Ebooks continue to gain ground, but the healthiness of the profit margins is unclear. J. K. Rowling’s latest book helps illustrate this bind. At a rumored advance of $7 million, Little, Brown essentially backed up an armored car to Rowling’s house to pay her before seeing a nickel in revenue. The publisher then paid highly trained people to improve the novel and well-connected people to publicize and market it until it was inescapable. Little, Brown’s landlord in Manhattan occasionally asks for rent too. If a reader can buy the Kindle edition for $8.99, the public might eventually find it absurd to pay $19.99 for a printed version, let alone the $35 that Little, Brown wants for the hardcover.
In his 1960 book, The Human Side of Enterprise, Douglas McGregor made the distinction between Theory X and Theory Y, two competing theories about human nature that dominate managerial thought:
Theory X says that the average human being is lazy and self-centered, lacks ambition, dislikes change, and longs to be told what to do. The corresponding managerial approach emphasizes total control. Employee motivation, it says, is all about the fear and the pain. Theory Y maintains that human beings are active rather than passive shapers of themselves and of their environment. They long to grow and assume responsibility. The best way to manage them, then, is to manage as little as possible. Give them water and let them bloom, say the Y-types.
We are all Theory Y people now — at least when it comes to delivering or receiving motivational talks — and yet, truth be told, we all have our doubts that the world has caught up with our wisdom about it. It will have already occurred to many people, for example, that quite a few of those companies are great places to work because they are successful, rather than the other way around. (I mean, any old company can offer free haircuts and on-site medical care if it has a market capitalization of US$200 billion and a fast-growing market.) There is also plenty of anecdotal evidence to suggest that firms change their assumptions about human nature after their fortunes change, rather than before. The dot-coms, for example, were all exuberantly convinced about the merits of self-realization in the workplace as long as the market-valuation bubbly was pouring. In the gloomy aftermath, many of the surviving firms transformed themselves with impressive speed into gulag archipelagoes, imposing harsh, X-style discipline on employees who were doing all those jobs that the dot-coms did not outsource.
In the story as McGregor tells it, and more especially as his successors resell it, the world of X is in a state of conflict. Workers and managers eye one another across the ragged front lines of suspicion and mistrust. The world of Y is in a state of peace. Workers and managers embrace one another as partners on the journey to personal fulfillment. And all that is required to change from one state to the next is making a simple change in one’s assumptions about human nature. But is this really true? Does all conflict dissolve in a higher state of consciousness?
Rather than Theory X and Theory Y, about human nature, Matthew Stewart suggests we examine Theory U and Theory T, about human relations:
Theory U, for Utopian, says that conflicts among human beings always originate in misunderstanding. Eliminate the false assumptions that individuals carry around in their heads, the theory says, and a human community will return to the natural state of peace. McGregor — like just about every management guru you’ve ever heard of — is a U-man at heart.
Theory T, for Tragic, says that conflict is endemic to human relations and arises from real divergences of interest. Peace is therefore a temporary state, and its endurance depends primarily not on the attitudes of individuals but on the system of their relations. Shakespeare and the framers of the U.S. Constitution are classic T-types.
Both theories put crucial emphasis on the concept of “trust,” but in strikingly different ways. Theory U says that you build trust by relaxing your control over people — by showing them that you trust them. Theory T says you build trust by demonstrating that things are under control — by creating a system in which good deeds regularly receive due rewards and bad deeds are appropriately punished.
The two pairs of management theories naturally make a two-by-two matrix:
In order to grasp why some large organisations (but not others) spend so much money on something as ethereal as “strategy,” Matthew Stewart explains, one must dispose of the naïve idea that consulting involves the transfer of knowledge:
The savvier consultants and their clients understand that the basis of the business is not technological but anthropological — and that this is not always a bad thing. Among human beings, it turns out, the perception of expertise, however unfounded, can sometimes be used to good purpose. As the shamans who poison chickens and the soothsayers who read entrails have long demonstrated, sometimes it is more important to build a consensus around a good decision than to make the best possible decision; sometimes it is more useful to believe that a decision is sanctioned by a higher authority than to acknowledge that it rests on mere conjecture; and sometimes it is better to make a truly random choice than to continue to follow the predictable inclinations of one’s established prejudices. Consultants, following in the footsteps of their pagan forebears, understand that they must adopt the holy mien of a priestly caste.
So, cuff links matter; flying first class and ritual feasting, too, are part of the job. But consultants also know that an outrageously unjustified level of self-confidence can add several points to one’s perceived expertise quotient.
The most important of the all-too-human functions of shaman-consultants is to sanctify and communicate opinion. Like ministers of information, consultants condense the message, smooth out the dissonances, unify the rhetoric, and then repeat and amplify it ad nauseam through the client’s rank and file. The chief message to be communicated is that you will be expected to work much harder than you ever have before and your chances of losing your job are infinitely greater than you ever imagined.
When you stipulate that management is the province of experts, you lose sight of the fact that organising fruitful co-operation among human beings is principally a matter of building trust. And you forget the most elemental truth of political philosophy, that in any system that does not have the features of transparency and accountability, no one trusts anyone.
Now the Wall Street Journal is calling it sci-fi’s underground hit:
Hugh Howey’s postapocalyptic thriller “Wool” has sold more than half a million copies and generated more than 5,260 Amazon reviews. Mr. Howey has raked in more than a million dollars in royalties and sold the film rights to “Alien” producer Ridley Scott.
And Simon & Schuster hasn’t even released the book yet.
In a highly unusual deal, Simon & Schuster acquired print publication rights to “Wool” while allowing Mr. Howey to keep the e-book rights himself. Mr. Howey self-published “Wool” as a serial novel in 2011, and took a rare stand by refusing to sell the digital rights. Last year, he turned down multiple seven-figure offers from publishers before reaching a mid-six-figure, print-only deal with Simon & Schuster.
“I had made seven figures on my own, so it was easy to walk away,” says Mr. Howey, 37, a college dropout who worked as a yacht captain, a roofer and a bookseller before he started self-publishing. “I thought, ‘How are you guys going to sell six times what I’m selling now?’ ”
It’s a sign of how far the balance of power has shifted toward authors in the new digital publishing landscape. Self-published titles made up 25% of the top-selling books on Amazon last year. Four independent authors have sold more than a million Kindle copies of their books, and 23 have sold more than 250,000, according to Amazon.
Management fads come and go, Matthew Stewart notes — and come back again, in an endless cycle:
Why does every new management theorist seem to want to outdo Chairman Mao in calling for perpetual havoc on the old order? Very simply, because all economic organizations involve at least some degree of power, and power always pisses people off. That is the human condition. At the end of the day, it isn’t a new world order that the management theorists are after; it’s the sensation of the revolutionary moment. They long for that exhilarating instant when they’re fighting the good fight and imagining a future utopia. What happens after the revolution — civil war and Stalinism being good bets — could not be of less concern.
Between them, Taylor and Mayo carved up the world of management theory. According to my scientific sampling, you can save yourself from reading about 99 percent of all the management literature once you master this dialectic between rationalists and humanists. The Taylorite rationalist says: Be efficient! The Mayo-ist humanist replies: Hey, these are people we’re talking about! And the debate goes on. Ultimately, it’s just another installment in the ongoing saga of reason and passion, of the individual and the group.
Boys accounted for 90% of Lego’s sales — until Lego introduced its Friends line:
Girls now account for 25% of purchases, and helped to increase overall sales for Lego by 25% last year, to $4.2 billion, according to results released last week. “Lego Friends” requires the same skills as “Lego Star Wars” and “Lego Kingdoms” for boys, but features less martial themes, and include tree houses, civic parks, dolls houses and pet salons.
Hasbro is releasing a black, blue, and silver Easy-Bake Oven and a Nerf Rebelle Hearthbreaker Bow. Spin Master is releasing Flutterbye Flying Fairies — R/C helicopters in drag.
While everyone is talking about 3-D printing, Protomold is making mass-production injection molding affordable:
Protomold has stepped in to provide servicing to those makers who need small orders by being able to produce 50-5,000 injection-molded parts in one business day with prices starting at $1,495 for a production tool, and each produced part costing a couple dollars or less. The experience isn’t much different than ordering business cards online. A designer uploads their CAD file, chooses from a few preset options, and shelf-worthy injection-molded parts arrive on their doorstep.
The company has been successful, operating since May 1999, while continuing to grow their service. They’ve just added new materials to their list, including injection molded steel, stainless steel, magnesium, copper. Their newest is the option to mold parts in high temperature, medical grade resins, giving garage entrepreneurs the ability to produce parts for medical devices and high performance applications.
What started as a single engineer looking to solve his own problem has turned into a publicly traded company with a billion dollar market cap and 511 workers filling 160,000 square feet of office space producing parts 24 hours a day.
With the advent of DVRs, television programming began to change. Shows could expect a more dedicated audience. Now Netflix is unleashing all 13 episodes of its new series at once, for marathon viewing:
“House of Cards,” which is the first show made specifically for Netflix, dispenses with some of the traditions that are so common on network TV, like flashbacks. There is less reason to remind viewers what happened in previous episodes, the producers say, because so many viewers will have just seen it. And if they don’t remember, Google is just a click away. The show “assumes you know what’s happening all the time, whereas television has to assume that a big chunk of the audience is always just tuning in,” said Ted Sarandos, Netflix’s chief content officer.
While a large majority of TV is still watched live, not recorded, the ratings for some series — like FX’s “Sons of Anarchy” — double after a week of recorded viewing is counted. A first-of-its-kind Nielsen study last fall found that a handful of shows gain an extra 5 percent after another three weeks.
Nielsen does not routinely count viewers who wait more than a week to watch an episode, nor does it count most of the viewers who watch online, so it’s hard to estimate the true amount of bingeing. Some hoarders wait years: Mr. Mazzara, for instance, said he’s waiting to watch HBO’s “Girls” until the whole series is over, several years from now. This stockpiling phenomenon has become so common that some network executives worry that it is hurting new shows because they cancel the shows before would-be viewers get around to watching them.
Kevin Reilly, the Fox Entertainment chairman, whose network has already canceled two of the three shows it introduced last fall, alluded to this problem at a news conference earlier this month. “If I bumped into one more person that was doing a ‘Breaking Bad’ marathon in the middle of our fall launch…,” he said, trailing off as reporters laughed.
Watching one episode per night is just about perfect.
In 1999 Charles Huang and his brother Kai founded Red Octane, which went on to becomes a billion dollar business without any VC funding:
Launching six months before Netflix, the goal was to be the Netflix of videogames. But six months after they launched the dot com bubble burst and so did their business. As funding completely dried up, the capital intensive rental business became unfundable. Of that time Charles said, “It looked like the whole valley was just going to die and go away. So that’s when we scrambled and looked at video game hardware, and eventually videogame software. That was the beginning of what was many lives of Red Octane.”
They were gamers and were playing a lot of Playstation 1 games, especially the pirated stuff out of Japan. Dance Dance Revolution was just making it’s way to the States so they stated selling dance pads. “We realized the dance pads that we were buying and reselling were garbage, because they were breaking down and we thought we could make better dance pads than this,” Charles said. “I literally packed my bags, went to China, visited a few of these factories that made dance pads, figured out how they made them and took a bunch of suggestions that users had given us and incorporated them into new designs and so we started coming out with our own dance pads and believe it or not, that kept the company afloat (from 2001 to 2003).”
Everything was sold online due to lack of cash. “We had to start that way because we couldn’t afford to sell to stores due to cash flow. The way it works is you sell to Gamestop and they don’t pay you for 60 to 90 days. We didn’t have the money to do that, so we had to sell everything online because when somebody orders with a credit card, you get paid in two days.”
The company’s number one rule to survive was simple. Don’t die. “As long as your company doesn’t die, smart people will find a way to make things happen, but if you let your company die, that’s it, you’ll never have another shot.”
For two years the company ran with less than 2-weeks of cash in the bank. Seriously. Every week they hoped to make enough money to make the next payroll. One time Charles had drafted the email to lay the employees off because they didn’t have enough money to pay. They decided to wait until after Thanksgiving and when Black Friday hit, orders poured in. “It was like a gift, like money falling from the heavens,” Charles said. “Like ‘where are all of these orders coming from?’ Then that actually gave us enough money to make payroll and we made enough money over the next month to continue.”
Once they realized that Konami could ruin their dance pad business if they decided to stop selling it in the US, they needed to be more in charge of their own destiny. They took a popular arcade game called “The Groove” and partnered with the developer to bring it to the console. This took their company from $1MM in revenue to $9MM and the profits allowed them to work on their second game, Guitar Hero.
They knew the music genre was working in Asia, but it hadn’t translated to the US or Europe. They took a look at music games and found Guitar Freaks. “We said, man this thing is fun, but if we could just make a few changes, we think that would be a `partnership was perfect. Red Octane made the hardware and Harmonix made the software.
“Guitar Hero was an incredible experience in that in the first day that we talked about it in February, to the day we released it in November, everything about it just seemed like this magical experience. You know, you hear musicians say how sometimes the right songs just flow from your head? It was like that, every idea just came so smoothly.” They demoed the game at E3 in true underdog fashion they weren’t even on the main show floor. They were down in the basement with the other indie games. They won Best of Show awards going up against Madden, Need for Speed, Tony Hawk, and others. The budget for the original game was $1.7MM.
But they were still fighting. Retailers didn’t want to carry the game because the large box didn’t fit on the shelves and there was no precedence for that type of game selling well despite the positive consumer buzz. GameStop was the only retailer to carry the game. “They were almost obligated to take every videogame product because GameStop was where hardcore gamers shopped, so you have to have everything.”
To pay for the inventory, Red Octane tried to raise money again. And while they had done $9MM in revenue the year before, they were unable to raise $3MM. “It wasn’t like we were a startup that was burning cash, we were already profitable. At the time, videogames were just considered an uninvestable category by VCs. So, in order to get the game out, my brother and I took out second mortgages and took on credit card debt and to buy inventory for the launch of Guitar Hero.”
The game launched in November 2005. Best Buy forecast the game would sell 30K units between November and the end of January. The day it launched they sold 3,000 units in the first two hours. Best Buy called that day and wanted 80K more units the next week. Because of the hardware the games were built and shipped from China. That shipping delay turned Guitar Hero into the hardest game to find that Christmas season. They sold $45MM worth of Guitar Hero in the first 11-months and then they were acquired by Activision for north of $100MM.
Shapeways CEO Peter Weijmarshausen discusses 3D printing and the future of shopping with Reason‘s Nick Gillespie:
The creators of Sympoz found that demand for quilting tripled that of any other class they offered, so they spun off Craftsy:
Unlike some other online-education services, which offer back-of-the-auditorium access to university lectures, Craftsy spends upward of $15,000 to develop and film each class. Most courses, which last several hours and are broken up into lessons, are targeted at intermediate-level to advanced quilters, embroiderers and bakers.
The company has invested more than $5 million in technologies meant to mimic the live classroom experience, the founders say. For example, a single-click, 30-second repeat feature allows students to back up and catch any bits they might have missed in a fast-moving video. Videos are layered with 3-D models and magnified graphics that help explain important words and methods.
Craftsy concentrates on helping people master hobbies that many have spent considerable sums of money on already.
“When you’ve bought a sewing machine, the cost of failure is high,” says Mr. Scott, a co-founder. “Spending $20 to get better is a small investment.”
To date, Craftsy users have paid for 410,000 classes and thesite had 50,000 paid enrollments just this past November. Fifty percent of students who have paid for a class go on to pay for a second. The company says nearly all of its users are women, 83% are over 41 years of age and 75% attended college. Their average household income is more than $80,000.
Craftsy also sells materials like knitting yarn and fabric for quilting. Nearly a quarter of the company’s 2012 revenue of about $12 million came from this e-commerce, Mr. Scott says. November was the company’s first profitable month, Mr. Scott says. It hasn’t touched its latest venture-capital investment of $15 million, and plans to reinvest profit.
The site can be a lucrative outlet for craft teachers. Stefanie Japel, now a Craftsy staffer who helps find other instructors, has taught three knitting courses, including “Circular Knit Lab: Hats Four Ways.” More than 20,000 students have paid to take her classes and she has netted more than $60,000. Teachers get between 10% to 15% of the revenue from a class.