The New Online Video Cottage Industry

Mac fans rejoiced when Apple TV finally hit the shelves this week. Their happiness was shared by a growing number of third-party software vendors whose business models are almost as interesting as their products are colorful.

Want to watch your DivX downloads on your Apple TV? Just get one of the many Apple TV converter solutions. How about YouTube videos? There are online platforms that help you with that as well, complete with RSS syndication no less. And what if you’re a Wii gamer who doesn’t want to spend 300 bucks for yet another white box?

Don’t worry, someone out there is working on a Zelda-themed media center solution as we speak. Welcome to the new online video cottage industry.

Granted, third-party product extensions are nothing new for companies like Apple. Just think of the myriads of iPod speakers, pouches, software solutions and, yes, vibrators. So far these third-party vendors have had fairly traditional business models. Hardware sales, shareware fees and the occasional free-for-all open-source license each have been proven ways to make some dough or at least gain some cosmic karma points.

But the game changes with a new generation of networked devices reaching the market. Vendors don’t just sell add-ons anymore, they increasingly become destinations. Here’s what some companies have come up with:

The pay-as-you-go model, as implemented by HeyWatch is an online video conversion platform with a gazillion input and output formats to chose from. But refinancing this resource-intensive service has proven to be challenging. HeyWatch initially offered free conversions to persuade users to sign up for a flat-fee premium service. Now every conversion costs a dime. HeyWatch compares this to the Amazon Web Services way of making money, but that might be a tough sell for end users.

The licensing model. Emeryville-based startup Orb Networks hopes to get some love from device makers by giving game console owners Apple TV-like features for free. Orb’s Mycasting service essentially transforms your PC into a media server for your Wii or Playstation. The company stopped charging users subscription fees two years ago, instead banking on licensing and advertising income. Orb has since partnered with media device makers like Hauppage and Creative Labs, so they could be onto something.

The destination model. Red Kawa has been releasing all kinds of free video downloading and conversion tools. Now they’re working on an online media locker complete with integrated marketplace. Gamers will soon be able to use the service to buy and store Flash games and applications, and indie developers will be able to sell their goods through the site. Red Kawa is also operating the gamer-friendly video portal (previous coverage). Combine these offerings with the company’s media center solution, and you could end up with a pretty powerful destination for game console owners.

Of course, these offerings aren’t without risk. Third-party vendors operate at the mercy of hardware manufacturers. But they have a huge advantage as well. Big companies don’t like to touch media conversion because of all the copyright issues attached – which is why there will be always some room for the little guy.