A new report says the online video platform industry has the potential to generate more than $1 billion in annual revenue in five years, citing the explosive growth in popularity of online video as the driving factor.
"More than half of the U.S. population already watches online video on a regular basis. This industry is set for continued rapid growth in the coming years," said Strategy Analytics analyst Jia Wu. "We believe the market will be dominated by a few major players and that there will be a lot of the smaller players falling out of the market in the next couple of years. I don't know if their VC investors and angel investors will wait for them to become profitable."
As the money squeeze tightens and the bigger players absorb more of the market, OVPs will increasingly have to bring more to the market than a straight-forward hosting platform.
"For the big guys, who have big media, it's not as important," Wu said. "But for smaller OVPs, it's going to be critical for them to differentiate themselves to survive."
Wu pointed out Veeple and its interactive video, and Kaltura's open source platform as examples of two smaller OVPs that are giving customers additional features that may not be available elsewhere.
In addition to fierce competition for customers, OVPs are also facing new competition from other segments.
"As tech giants such as Cisco, Microsoft and others increase their efforts in the fast growing OVP market, incumbent market leaders, such as Brightcove and thePlatform, will come under considerable pressure," added Martin Olausson, Director of Digital Media Research at Strategy Analytics.
Increasingly, OVPs and content delivery networks are working to attract the same customer, and each is looking to commoditize the other's service. Add to that the fact that Verizon and AT&T are looking to enter the space as well, and the space gets even more crowded.
"At the end of the day, it's a game for the big guys," said Wu.
Conventional wisdom says Brightcove, Ooyala and several of the larger OVPs will manage to hang on, with most looking to mine the lucrative, but undeveloped, markets in Asia and Eastern Europe.
"Those markets are good opportunities for them," Wu said, pointing out that established players will dominate the U.S. and Western European markets.
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