VideoCoin raises $35M for blockchain to rival Amazon video

Longtime tech entrepreneur Halsey Minor has a plan for tapping into all those idle servers -- think of them as "zombie" computers -- sitting in data centers and having them process, store and distribute video. And he says that plan will cost far less than rival services from Google and Amazon.

Oh, and he's come up with a way for content creators to pay owners of the computers they're effectively renting that uses a new blockchain-based cryptocurrency called VideoCoin.

Got it?

Even if you don't, VideoCoin has millions of reasons to believe it's on to something. Just a little over a month after announcing VideoCoin, with $10 million in backing, Minor said Tuesday that the startup has raised $35 million toward its $50 million goal from more than 20 investors, including the co-founder of Ethereum, a platform for blockchain apps. Thanks to what it calls "overwhelming demand" from private investors, VideoCoin also scrapped a March initial coin offering (ICO) to raise money to build out the platform, which it wants to have up and running in the next 12 to 18 months.

Minor, who co-founded cloud-based software pioneer Salesforce.com and founded CNET, knows it may be difficult for some to get what VideoCoin is all about. He describes it as a decentralized video encoding and distribution platform that will cost content creators 60 percent to 80 percent less than competitive cloud-based services from Amazon and Google. He also describes it as a sharing economy business like Airbnb or Uber, only for video, that relies on blockchain technology to keep track of services rendered and transactions between content creators and server providers.

I asked Minor, CEO of Live Planet, an investor in the VideoCoin Network, to talk me through his plan. Here's an edited transcript of our conversation.

Q: With Salesforce, you had to convince the world software could be sold as a service rather than on a disc in a box. What's VideoCoin about?  

When I invested in Salesforce and started it with Marc [Benioff], nobody believed that people we're going to put data in the cloud. Nobody. Literally nobody. So what this is, is me finding the new cloud. There's always something new. This is the new cloud.

It's the post cloud. It's what happens after Amazon. It's what happens after all these other cloud providers, who have been so successful -- in fact have been so successful that nobody ever thinks that anything will come next. It is essentially taking the sharing economy and applying it globally to computing resources, which are now everywhere and growing quickly.  

Q: What are you trying to solve for here?

The problem we're solving is the runaway cost of video that's affecting every entertainment organization in the world as people transition from broadcast to internet delivery to the audience. These companies -- it costs them nothing to send it by broadcast, [but] it costs them something to send to every person. And that something is growing at an almost exponential rate. Today 80 percent of traffic on the internet is video and it's growing at 25 percent compound annual. And we're going to get 8K and 4K and virtual reality -- and these are even more expensive.

So the problem we're solving is to dramatically lower the cost for people who are distributing video. There's a byproduct of that, which is we reduce dependence on the companies [that] these media companies are competing with. Amazon and Google are straight head-up competitors with media companies these days. Amazon Web Services has huge margins, and that margin is being contributed to by media companies who compete directly with Amazon.

Q: How does blockchain come into it?

There's an idea out there that's been pursued in a number of businesses quite successfully. The idea is the sharing economy. We all know about Uber and we all know about Airbnb.  People have resources that are not fully used, that they can contribute to the economy.

In the world of computing, the opportunity is to take all the resources out there and make the system much more efficient by allowing for the sharing of competing resources globally. This is the full on commoditization of computation.

Every computer and every chip has on it what's called a video encoder. A video encoder can do two things: it can take video and reduce the overall size of the video so it can be transported over the internet. And then at the other end, it can decode it so it can be turned into the video that we see today ... If you look across the landscape of computing, you'll find, if you type in 'zombies,' you'll find that 30 percent of all computers are idle waiting for a surge and 20 percent are simply not used at all. Just straight overbuilding, absolutely no income generated from them despite the many billions of dollars they represent in capital investment.

Q: How is VideoCoin different than other services?

If you want to get into the business of earning money by running a computer, you have to go buy a specialized card. What's different about video, we call them video miners, is that anyone who has a PC, Mac, whatever, or more importantly, servers and data centers, can load our software, they can encode video because they already have an encoder. They can store video because there's excess disc space and they can stream video because they have excess bandwidth.

So everyone of these servers that do nothing today, these people do not have to go buy anything more. They simply run our software and they reduce the cost of Amazon Web Services by 60 to 80 percent. We dramatically lower the cost of a cost that is going through the roof.

Q: What's the timing for this to kick off?

The goal is to have an alpha version out this year.  

Q: As an individual and not a media company, why should I pay attention to this?

What I'm going to say is the same thing I said about Salesforce: There will be a whole wave of innovation that will result of the fact that we are open source and will have open source APIs and entire development communities will arise who will build apps on top of our network.  

This will unleash a wave of consumer-focused innovation.  

The reason this exists today and not five years ago is because the friction for doing this would have been so high that it could have never possibly happened. And the friction comes from first the payment system. Without the advent of cryptocurrency, it is impossible to pay people for doing something. They would all need to get a Bank of America account. And for some people who just contributed a small amount of resources and they only made 35 cents, I'd have to do a wire transfer to them for 35 cents.

To allow anybody anywhere to plug in, even if they don't have an American bank account, we allow for a global infrastructure to arise, just like bitcoin. They just run the software, they get paid in the coins, and then, they can take it to an exchange or turn it into bitcoins. But they do not have to own a bank account. So we don't have to, at the end of every month, figure out how to wire money to all these people, which is what we would have to do if we lived in the old world.

The second thing is we have to prove these people actually did something. The software also monitors what is going on so we have proof that people have actually done something. So the software serves as this remarkable new payment system -- you can just take your computer, download our software and you start any video clients. You take all the financial friction out of it. And then from our standpoint, we can prove who did what so that they can be compensated for it.

Q: So figuring out the payment part is the big key to this sharing economy for distributed computing?

Yes. Again Salesforce, we said we're one-tenth the cost. That was what got everybody excited. Over time, people realized it was a better platform for innovation. I can't prove that to people yet. I can only tell you when things are open source, you find a lot more community development then when they're not.  

I would say one other really important part of this is that once we create this, it runs on its own. It automatically finds the lowest cost resources. It validates that they've done something and it pays them. Bitcoin works the same way. What happens then is you create this thing, this organization, that cannot be stopped, that cannot be bought out and we're entering a new age of competition where the things that companies are competing against are the things they cannot take over.

What the blockchain does is it allows for information and payment to flow together. It's like a new kind of internet that has information that's being shared and that information has the ability to have attached compensation. And that's a very very powerful concept. And I think it's one that people will be probing, for the next 20 years.