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Yaroslav Azhnyuk, Petcube: “I think Amazon may want to buy us. We make products that may be of interest to them”

We meet with Yaroslav Azhnyuk, co-founder and CEO of the Ukrainian company Petcube, at 6 PM on Sunday. He arrived in Kyiv from the United States for a short time and did not find another time for a spontaneous interview due to how busy he is. Despite the late hour of the weekend, Azhnyuk is in a good mood, he willingly tells us about the latest achievements. Petcube is not just a company selling devices. Today, it is Petcube Care’s subscription in partnership with global brands and active data work. The result of the latter may be a better understanding of the behavior of animals. The AIN.UA editor talked with Azhnyuk about what Petcube is today, who are the customers and what is the best way to start selling products in the United States.

All photos by Olha Zakrevska

Our previous conversation took place in the office near the Shevchenko Park, there were dozens of tables out there and very few people. Now the location has changed, the office is huge, the tables have become much larger. I suggest starting with a simple: what is Petcube now?

Same as before, our mission is to connect animals to the internet and give them a voice. But a Ukrainian who previously read about PetCube at AIN.UA knows us as a company that made a camera with a laser pointer to play with cats and dogs. Then we made another iteration – Petcube Play. The new version has better quality of video, sound, laser, and so on. A year ago, the Petcube Bites device came out: a camera that lets you throw food for animals. We are a company that not only makes cameras for pets and creates software that connects them to the internet, we actually come up with this category, and we are a global leader in it.

Last year we also launched Petcube Care. At first it was a service to save video in the cloud. For $5, $10, or $25 you can save your video for the last 3, 10, or 30 days in our cloud. And in the spring of this year, the possibilities of Care have greatly expanded, and now we give discounts or bonuses from our partners to all who make a subscription. For example, to buy food, dog walking or pet insurance. There are a lot of such partners, these are huge players of the world market. And now they are our partners who provide exclusive discounts to Petcube Care customers.

Do I get it right that you receive a commission from this?

So, we get a small commission. In fact, we create the analogue of Amazon Prime, but for animal owners. You get saved videos and you can watch how the animal behaved, while you were not at home. Additionally, you get a number of bonuses, such as discounts from world companies and services. You do not want to unsubscribe from this because it saves you hundreds of dollars a year. Just like on the Amazon Prime, where you get access to videos, music, and so on.

Petcube Care is bought by the owners of Petcube devices. Actually, how many Petcube devices have you sold? The last public figure I’ve seen was over 100,000.

We do not disclose exact figures, this is confidential information. I can only say that really, it is more than 100 000, we have passed this stage a long time ago. Hundreds of thousands – the only thing I can voice now.

How many subscriptions do you have on Care now?

This figure is also non-public, but there are plenty of subscribers, their number is growing actively.

Does the main income now come from the Petcube devices or Care with a monthly subscription?

Today, we make the most of the money on the product, Care is still running behind.

There is a thought that the product itself, in your case it’s Petcube, needs to be sold cheaply, and the main income should be made on the subscription model. How do you feel about this idea and do you plan to set cheaper prices for your devices in the future?

Perhaps this type of monetization has the right to exist. I believe that it is wrong to give out some valuable thing for free. In this case, the consumer becomes the goods, his/her information is being sold. For us, the issue of privacy is very important because we have a camera that is placed at peoples’ houses. It is a huge responsibility to protect this camera. We carefully encrypt the traffic, we spend a lot of time trying to protect the device itself and traffic that goes, servers, the application, etc. We specifically hire people, Ukrainian hacking teams, to do what is called penetration testing, and they tried to hack us. Considering all of it, we are not ready to distribute our cameras free of charge for earning a percentage through Care.

As far as I understand, you do not disclose the financial performance?

As a private company, we do not disclose.

In one of the recent interviews, you said that you might have another round of investment. Its size may be $20 million, is it true?

We are constantly talking with investors, we keep in touch, and the figure of $20 million was being discussed as well. We have something to invest in – development, software, marketing. But for now, we do not have news about investments, so there is nothing to talk about.

How many people are there today in the company? In which countries do they work?

There are about 70 people now. The largest office is in Kyiv, there are 50 people. They are engaged in development, marketing, support, finance, logistics, design, etc. Another 12 people are located in San Francisco, they handle sales, marketing, finance, executive function. And in China (Shenzhen), we have four people responsible for production.

Are you actively growing?

Last year we almost did not grow. In fact, they was so optimizing going on like changing people, rebuilding processes in the company.

What was a reason for this?

Each company has several stages when it is changing. First there is a group of founders, then the first employees appear, then there are no longer 10, but 30 employees. And later there are 50 people. Managers constantly appear, since the founder or even a group of founders cannot keep everything in the head. Today there are 70 of us, there are several levels of managers. To make everything qualitatively, you need to rebuild the processes sometimes, to keep everything running.

Moreover, earlier I thought that the number of employees is an important indicator, but now I think differently: the most important is the company’s revenue, as well as the company’s revenue per employee. At WhatsApp, there were slightly fewer than 60 people when they were bought for $19 billion. This was the most profitable sale of a company with this amount of people. Therefore, I do not want a quick increase and we have no intention to hire non-stop.

You already have 70 people, several products, there is an understanding of where and how to grow. Personally, you, considering this, still perceive Petcube as a startup, or is it a formed business, a company?

Of course, Petcube is a startup. It must be understood that the concept of “startup” is not just a small business where several people work. In fact, the definition of a startup, as a rule, is a technology company that creates some kind of innovation and therefore has the potential for super-fast growth. Startup is necessarily about the potential of super-fast growth. Therefore, the digital marketing agency or a doner kebab kiosks cannot be startups for common definitions. Unless they make doner kebab, which is synthesized with molecular exhaust generators, and supply robots around the world with it, not people. And this doner place will become a billion-dollar company in three years – only then it will be a technological startup.

Petcube is still a startup, because we continue to grow fast, and we have a clear plan how to grow much further. Our goal is to connect all animals to the Internet. Only in America there are is more than 80 million pets. That is, we still have to sell a lot.

Do Chinese people copy you? Is there a problem with the release of cheaper replica? At one time Vlad Tislenko told that iBlazr had a problem with this.

I have not seen direct copies, but there are conceptual copies. Someone has copied our site for his conceptual copy, we can see copy past can in HTML and so on. However, they do not have much success.

As for iBlazr, it was a flash, it was easier to repeat it, having just iron. Our product does not work if you do not have software for it. For example, we ourselves wrote our system of video streaming, it is essentially an analog to Skype. It connects peer-to-peer your phone to the Petcube device so that traffic is not passed through the server, it provides real-time communication without delay, laser control, and so on. If you can copy a smartphone and stick it to Android, which is an open source, then this will not work.

To copy Petcube, you need to be insistent and very patient to split it, copy hard, write software: you cannot put ready Android on it, you have to write this software for Linux, etc.

By the way, this is one of the smart questions asked by any investor: “What is your protection?”, “Why isn’t it easy to copy you?” It does not matter whether it happens in China, or not in China. It is important for them to know whether our product really has added value and what do we do business with. In our case, it is not only iron, but also software.

But honestly, and you can repeat it as well. If three boys from Kyiv succeeded in doing this, others may also do it. To be honest, today we already have not only a product and software, but also a strong brand name, a team, as well as a network of partnerships with global companies at Petcube Care. This is accompanied by an incredible amount of data that we can and will use in the future.

What is this data and how do you use it? I understand that this is the next stage in the development of Petcube?

Our cameras record the movements of pets. There are hundreds of thousands of devices that keep track of animals every day. We understand that we can use this information to better understand the animals.

In Ukrainian it can be called “behavioral diagnostics”. This is recognition of movements and patterns of animal behavior. Based on data available for us, we can understand, for example, whether the animal is ill, why it behaves in a specific way, whether it is aggressive or worried. For this, we use artificial intelligence, and a large array of data gives us the opportunity to train it, thanks to the cameras, we have this massive information. Returning to the clones, I can say that they do not have it, and therefore cannot create similar functionality.

The long-term ambition of the company is to contribute to the understanding of humankind by domestic animals. See how much Google or Facebook learned about sociology, what contribution Apple made to technology, how much SpaceX contributed to the space industry. It cannot be done at public expense. We have our own ambition and we are trying to bring people together to bring the ideas of the company together.

What is your main market today?

Yes, the largest market is the United States. In general, we officially sell our product in 18 countries around the world: besides States, we have strong sales in Canada, Great Britain, Japan, Australia, Germany, Singapore, France, and Hong Kong.

Is there China in your plans?

So far, we are not planning on it, but in general logic is usual here: you find strong local partners, adjust logistics, marketing and go to an interesting market. Therefore, now it’s more of a question of how much the company is willing to invest in, the issue of priorities. At the moment, we have other priorities. Of course, China has its own difficulties, but at the same time it is a huge market. For example, three years ago, the pets market was $15 billion, today it’s already $30 billion. In several years from now it will overtake States in which the pet market exceeds $70 billion.

You mentioned the distribution. If I am a young project and I want to start selling my product, who is the best to go to?

It’s simple – Amazon.

It is an unreal giant, which systematically and dynamically fits all of the retail in the United States. It is convenient for people to order goods while sitting at home or at work. And within some time, it will come to any specified place. The platform is easy to operate, it offers many opportunities.

Amazon bought the Ring not that long ago, it actively develops its own devices, quite successfully. Have you ever thought that they could buy you?

I think that Amazon may want to buy us. We make products that may be of interest to them.

Is there a question of selling a company?

As a company manager, I have a duty to all shareholders to consider any offer to sell the company. This is one of my corporate functions. If someone comes and offers some kind of big sum, then we will meet with the board of directors, advise and make some decisions. Of course, for any company there is an amount for which it is expedient to sell it at the moment because there is a development plan, there is an understanding of the value of the company. And selling a business does not mean “#treason.”
Selling a company is to give liquidity to the company’s investors and employees of the company. After all, employees of the company have options. And the company itself does not disappear after the sale. When a strong partner buys a company, it only begins to accelerate as a result of this. Therefore, with the right partner, the right price, selling a business can be the right decision.

Do you have strong competitors at all?

You know, I’m really surprised that no company is trying to make such a platform for pets, connect animals to the internet, have all the animal data, build a platform for other companies that need this data. We have rivals on the product level – these are home surveillance cameras: Nest by Google, Arlo, Ring, which now are owned by the same Amazon.

But they do not quite compete with us. Their products cost about the same amount as ours. The quality of the picture is approximately the same as ours. However, we still have a laser and animal feeder. And also, we have software that is “concentrated” on animals, while their product is made to protect the house. If you are an animal owner and you know about us, then you definitely will buy Petcube, but we are not as popular as they are at the moment. Therefore, one of the things we have to do is invest more in marketing and user education.

Why didn’t you invest in marketing before?

We did. However, it was rather at the level of hypotheses that need to be checked. After all, you want to invest in marketing channels that work effectively rather than simply throwing away money. You also need to consider the product: invest in a product when the product is ready for the mass market. This is such an iterative process, which runs parallel in two, or even in three worlds. This is a type of hardware company, it is the world of product and engineering, it is the world of marketing and it is the world of distribution of sales. It makes no sense to invest in marketing until you are in the store, on the showcases of key stores. Here we are somewhere in this iterative process.

Let’s imagine that I am a young startup man and I want to make my “iron” product. What are the numbers?

Let’s not discuss it, then there will be more people who will start developing [Laughs].

I think we spent about $300,000 on the release of the first Petcube. Thanks to the powerful promo, we managed to raise $250,000 on Kickstarter, the money went into development and production. The first Petcube turned out to be imperfect, but it was a quality product, and we sold somewhere up to 50,000 copies.

But this is not what’s important. The most important features of an entrepreneur are curiosity and perseverance. You will get your knowledge on the go. We were simple Kyiv guys, we were 23 years old. We have never had to deal with iron, never set up production, we had never started sales in the US before. I do not even want to talk about all the horrors that we have seen on the way. But we succeeded, because we worked hard.

It is also important to understand that you are creating a product. When Alexander Neskin started researching what dog products exist out there, before the creation of Petcube, he saw products that looked like they were created in the 70’s or 90’s: both in design and in a set of functions. And at that time, we already had an iPhone, a MacBook and other gadgets with incredible design. And then we realized that we were able to create a gadget that would meet the needs of the present, including in terms of design. The market was $70 billion in the US and $160 billion globally. Today, the average Petcube user spends 50 minutes a week watching his/her pet, which is more than people spend talking to their parents.

In Ukraine, is there a pet market in general?

So, in Ukraine there is a relatively large market, there are companies that create food for animals. We do not have exact figures, but there are quite a lot of animals owned by people, and therefore there are those who earn money on it.

Do you sell Petcube here officially?

We are not selling it now. It was a long time ago, but now the easiest way to buy Petcube is to order it on the European Amazon. From the point of view of business, this is not a priority for us now, although we, of course, want Petcube to be officially marketed here. I think we would have had some success, but this requires a number of factors: first, to have some retailers interested in it. Secondly, they must have to take at least some of their promotions. As for Petcube in Ukraine, it is more known among the geeks, it is not a popular brand of smartphones. Simply putting the goods on the showcase is not enough, you need to work on it.

How do you assess the potential of Petcube on the local market?

Considering that it is not cheap and will only be useful for those who have pets and who are interested in the technology, then, for instance, all the owners of the latest versions of the iPhone, who also bought Apple Watch are, most likely, our customers (laughing).

The last question is: what do you recommend to read, to listen to?

An interesting podcast is 996, it’s in English. It helps to understand what’s happening in the Chinese market. Next is the Master of Scale, a podcast from the founder of LinkedIn, Reed Hoffman.

I also read the newsletter of Benedict Evans, lead analyst Andreessen Horowitz, use the Sip News app – the ones where the news feed is very brief.

If we talk about books, everything is easy here: reading books is very useful, because it is a work on which a person worked a lot. So, when I need to understand something in a good way, I take some good books and study the material. If you need marketing materials, read Philip Kotler, if you need to understand the Internet better, read Clay Shirky, and Adam Smith is good for economics.

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