From the November 2006 issue of Entrepreneur

Suranga Chandratillake had never started a company but got the entrepreneurial itch in 2004 when Google was preparing its IPO. "It struck me that search was far from finished," says Chandratillake, 28, who realized that for all Google's dominance, it was basically searching text web pages for keywords. "It became obvious to me [that] the biggest growth area was going to be video."

 

So in 2004, Chandratillake started Blinkx.tv, a search engine company that analyzes video soundtracks and scene changes to help online video viewers find the clips they're looking for. The company has 30 employees, $8 million in VC funding and more than 4 million hours of indexed video and TV content, but no significant revenue.

Chandratillake hopes to charge companies to use Blinkx.tv's video search engine and share in advertising revenues from sites using his search tools.

Blinkx.tv is just one of countless startups angling to profit from the rapidly growing attention paid to online video. There's ample interest from consumers, says Brian Haven, senior analyst with Forrester Research Inc. More than a third of adults say they view online video at least monthly; 45 percent of online youth ages 13 to 21 have watched streaming or downloadable videos in the past month, Haven says. "And it's going to get more popular in the next two years."

The best-known internet video company is probably YouTube, the garage TV site that millions of people visit daily to view videos uploaded and often created by other users. Since YouTube went live late last year, hundreds of other consumer-generated video sites have sprung up. The challenge, says Haven, is figuring out how to make money from user-created video.

YouTube's business model, based on selling ads that run alongside videos being viewed, is either premature or basically flawed, Haven says. "Advertisers are afraid to associate their brands with consumer-generated video," he explains. "A kid knocking his teeth out in a snowboard accident is not the type of thing some advertisers want to hang with." In late August, YouTube announced a new advertising strategy: its rollout of branded channels and participatory channels, allowing companies to advertise specific products or services. This is a positive move for YouTube's business model, according to Haven, who believes it will appeal to advertisers more.

The rush into online video began in October 2005, when Apple introduced iTunes 6, says Haven. The iTunes video services let fans download and purchase music videos, short films and episodes of popular TV series. Expanding broadband inter-net access, improved algorithms for coding and de-coding online video, and the emergence of mobile phone networks that will support wireless video are also driving online video's mushrooming popularity.

Content providers still wrestle with what to put online, however. Haven says garage TV will probably always have a place, but movie trailers, music videos, news clips, short films and other mainstream-generated content are more important. And big media enterprises are racing to put their content on the web in some form.

Future opportunities in online video include infra-structure equipment and services, such as Akamai, which has a network of dispersed servers to distribute video and other content. Haven also sees video search and niche video providers, such as sites that cater to online learners, as possible growth areas. In garage TV, he believes YouTube has staying power, assuming it can monetize its viewership and some other upstart doesn't dislodge it.

Hardware is a less recognized area of online video opportunity, but it's one that brothers Jason and Blake Krikorian have turned into a 100-person company, Sling Media Inc., which sells devices to let people view the same programming on their computers that they get through their cable or satellite TV services. The Slingbox sells for $200 through major consumer electronics retailers in several countries, and Jason, 35, says the San Mateo, California, company received an overwhelming response from consumers after introducing the product in June 2005.

The idea behind Slingbox is that consumers shouldn't have to pay twice for the same content, Jason says, and he believes internet video offers plenty of room for similar gadgets. "We've got a rich road map of products we want to deliver," he says. "[Places] like Best Buy are asking us for new products that are similarly powerful for the consumer, letting them unlock their digital media." Some $58 million in venture capital backs his search for the keys.

Online video is clearly one of the most exciting, and yet perplexing, business arenas around. And experts and entrepreneurs in the space say the growth and chaos to date is no more than a precursor of what will come. "It's been a real roller coaster ride," says Haven. "But it's just the beginning."