How-To Sites Thrive in Recession

Back in 1999, a reporter asked Ann Winblad of Hummer Winblad Venture Partners to name her favorite new investment. Without missing a beat, she named eHow, one of the first how-to sites on the Web that offered step-by-step instructions on everything from “how to put the spark back in your marriage” to “how to break up a cat fight.”

It was easy to understand Winblad’s excitement. The publishing industry had made billions from how-to books. What better way to grab a slice of that market than an expert site that could put specific answers to direct questions at your fingertips? But eHow was an idea whose time hadn’t quite come. The ad model was nearly non-existent, broadband penetration was weak and the rise of online video was still in the distant future.

Fast forward to today and the how-to genre is back and bigger than ever. Instructional sites such as 5min, Graspr, Howcast Media, Instructables, VideoJug, WonderHowTo and others have raised in excess of $60 million in venture capital in recent years (See Table) and claim to be growing at a strong clip.

Even eHow is back in business: It was bought out of Chapter 7 bankruptcy and is now part of Demand Media, a social media company founded by former MySpace Chairman Richard Rosenblatt. Demand has reportedly raised $355 million in financing and has breathed new life into eHow. The site boasts more than 600,000 articles and 160,000 videos and gets in the neighborhood of 19 million visitors a month, making it the largest how-to property on the Web.

But just because eHow was bought on the cheap, that doesn’t mean how-to sites can’t fetch big prices. Discovery Communications, which owns the Discovery Channel, paid $250 million for HowStuffWorks Inc. in October 2007. HowStuffWorks had raised a total of $82 million in venture backing, including $7.4 million from 1999 to 2001 and $75 million in February 2007 from Chilton Investments and an undisclosed firm, according to Thomson Reuters (publisher of VCJ).

Search Angle

The do-it-yourself movement continues to grow and the financial crisis has only reinforced that. People would rather fix things than buy new things, and they are going online to get the information.”

Mark Jacobsen

“How-to has always been one of the most searched items on the Internet,” says Mark Jacobsen, a managing director at O’Reilly AlphaTech Ventures, which invested approximately $1 million in Instructables. “The do-it-yourself movement continues to grow and the financial crisis has only reinforced that. People would rather fix things than buy new things, and they are going online to get the information.”

Tim Draper, managing director at Draper Fisher Jurvetson, agrees. That’s why he led a $2 million investment in Graspr. Draper says the recession is driving both experts and consumers to Graspr. “Graspr is helping consumers save money by doing more for themselves in learning a new skill or solving problems on their own,” he explains “Graspr is also empowering experts to monetize what they know through video.”

Draper, who’s known for thinking big, believes the how-to market “has multi-billion dollar potential.” But exactly how each company in the space will get its share of the pie is still a matter of great debate.

“The landscape is very crowded and competitive,” admits George Bell, a managing director at General Catalyst Partners, who invested in WonderHowTo. “The biggest challenge is scaling the business and getting big enough to matter.”

WonderHowTo’s approach is to not to produce it’s own how-to content, but rather to become a sort of clearinghouse for all how-to videos by collecting and “curating” the best content from across the Web. The company, which makes money via advertising, creates a brief description for each video, places it in one of 430 categories within its directory, and slaps a headline on it. For instance, one of the most popular how-to videos on the site is about a woman who trained her cat to use the toilet. The video’s kooky title, “How to teach a cat to pinch a loaf without a litter box,” added to its popularity.

WonderHowTo is devoutly against the creation of content. This is somewhat ironic given that the company was founded by Stephen Chao, a former president of Fox TV who created and commissioned trailblazing reality shows like “American’s Most Wanted” and “Cops.” “We believe no single company could compare to the collective imagination of the Web,” says Bell. “That’s why we use algorithms to find and organize the kookiest and most creative how-to videos.”

The landscape is very crowded and competitive. The biggest challenge is scaling the business and getting big enough to matter.”

George Bell

Enlisting Pros

This approach is in direct contrast to other how-to sites like Howcast, which places a premium on producing its own content. Howcast, started by a posse of former YouTube and Google employees, has raised more than $10 million from Ackerly Partners, Tudor Investment Corp. and others. The company actively encourages emerging filmmakers to create and contribute how-to videos by paying them between $50 to $100 per video, plus a share of the advertising revenue.

Howcast viewers, for their part, can add comments as well as suggest their own topics, like “how to get your seatmate to shut the hell up.” If enough people approve of the idea, the video is commissioned by Howcast.

“It is hard to build community if you are just an aggregation site,” says Jacobsen of O’Reilly AlphaTech. “The DIY content creation community is a very passionate bunch. They’re very similar to the open source crowd. They really thrive on the recognition that comes with their contributions.”

Jacobsen says Instructables, which bills itself as the world largest how-to show and tell, has done a great job of building community. When he made the investment more than two years ago, the company was at 5 million page views a month. Today, it has 50 million, and is approaching profitability.

“This is all a result of the strong community contributing quality content, and the viral nature of the site,” explains Jacobsen. Indeed, Instructables is beloved by the hardcore DIY crowd for its thorough, reader-contributed how-to projects. Almost every how-to on the site, ranging from “how to build a suspension mountain bike” to “how to milk a goat,” contain in-depth step-by step instructions accompanied by detailed photographs and images.

Graspr is helping consumers save money by doing more for themselves in learning a new skill or solving problems on their own. Graspr is also empowering experts to monetize what they know through video.”

Tim Draper

Users are also free to comment and add their own suggestions for improving the steps. “The discussions and interactions around each how-to contribution offer great entertainment value in themselves,” says Jacobsen.

Targeting Niches

Yet another approach to how-to is the syndication model being pursued by companies like 5min. The company has built a library of over 100,000 videos through partnership with media companies such as Car & Driver, Britannica, Kiplinger, and Woman’s Day. It then syndicates its content to hundreds of vertical sites, ideally delivering the most relevant content to niche audiences, wherever they exist on the Web. As a result of this syndication model, 5min claims its videos reach a potential audience of 200 million unique visitors each month.

Jonathan Seelig, a managing director at Globespan Capital Partners, which led a $7.5 million investment in 5min, says that audiences are fragmenting around passionate vertical communities. “Look, for example, at where auto fans hang out,” he says. “Yeah, they’re at Road & Track, but they’re also at Nascar.com, MarioAndretti.com, and the Boston metro area convertible blog.” His point, of course, is that the Web is so fragmented, you can’t expect every one to come to you. Instead, you have to go to them. “That’s why syndication is so important,” says Seelig. “It brings high-quality video to any Web publisher in an affordable way.”

5min personally views each piece of video on its platform and attaches the appropriate metadata. That means publishers are served trusted, high-quality videos that are advertiser friendly. For example, if publishers request a piece of video around “how to make a mojito,” they can be sure they won’t get the version with the topless bartender, says Seelig.

Today, most how-to sites rely solely on advertising to generate revenue. But just as the recession is driving more visitors to their sites, it is also driving away more advertisers. The greatest challenge for these companies is going beyond a simple ad model. That’s where a site like Graspr comes in. The company is introducing a significant e-commerce engine to its how-to platform. The idea is that after it tells you how to do something, it tries to sell you the tools to do it.

“Graspr is experiencing success in selling closely related Amazon products next to its videos,” explains Draper. “Commerce works because experts often recommend products and brands in their videos, and consumers are very close to the point of purchase when they’re learning how to do something.”

So after you get dumped by the girl of your dreams, you can go to Graspr to learn how to repair a broken heart. And, just a click away, there’s a $70 bottle of Primal Instinct love scent. You might not get your mojo back, but the how-to sites certainly have.