Answer by Josh Abramson:
When Jake Lodwick first showed me Vimeo, a side project he'd been working on while at CollegeHumor/BustedTees, I thought it was really neat but didn't see it becoming a profitable business. My experience with video through CollegeHumor had taught me that hosting user generated content without a filter would lead to inevitable legal trouble with the big media companies and I was also worried about the potential high costs of hosting a video free-for-all with no clear monetization strategy. Therefore, when we launched Vimeo there were a number of strict rules we placed around the upload process (size and length of video) which were intended primarily to prevent people from uploading copyrighted material to the site. This was before we sold our company to IAC, so I knew that one big lawsuit with Viacom, etc… had the potential to put a major dent in our business (not to mention that we were trying to sell CollegeHumor to these same media companies). Given that CollegeHumor, BustedTees and Vimeo were tied together under the same parent company, a lawsuit against Vimeo threatened to take away from the value we'd already built with our other self-funded businesses. Similarly, if Vimeo grew too quickly we would have had to sacrifice all of the positive cash flow we were generating elsewhere to fund the storage and bandwidth requirements of this very high risk new venture.
When YouTube first launched I can remember us all following them closely in the early months and watching how our traffic and theirs was neck and neck via Alexa stats. During this time we continued to focus most of our energy on CollegeHumor and still viewed Vimeo as a side project. The moment that I finally realized something was fundamentally changing about how people would share and discover video online was when the Lazy Sunday SNL video exploded and took YouTube up with it. Our restrictions on Vimeo did not allow for a video like this to make it online, so we watched from the sidelines as YouTube's traffic flew past Vimeo and then CollegeHumor literally overnight. It was then that I realized for the first time we'd probably made a mistake by throttling Vimeo.
In hindsight, we would have been smart to separate our businesses and raise money for Vimeo on its own so that we could have taken the big risk required without jeopardizing the rest of our company. YouTube, on the other hand, was well capitalized and focused 100% on their core business of allowing people to upload and share video so they were able to swing for the fences and not worry about growing too fast or getting sued.
Since I wrote this a lot of people have made some angry comments that I am wrong and Vimeo is not a failure. Clearly Vimeo is a success in many ways. Last month Vimeo had over eighty million unique users, and I think it is a much better user experience than YouTube. I am very proud to have been involved with it for the first few years. However, keep in mind that I wrote this from the perspective of a founder who made exactly zero dollars on Vimeo (originally I owned 35%) and watched the YouTube guys sell their company for $1.65bn to Google. Had Vimeo chosen a slightly different path and blown up instead of YouTube in the early days, the story may have ended differently for us. As it turned out though, we were eventually forced to give up our equity in Vimeo in order to keep it alive. We could no longer afford to finance the substantial losses generated by streaming and storing HD video without a clear monetization strategy. So, while we can all agree that the site is great, my co-founders and I failed to capitalize on it for the reasons I mentioned above.