Brightcove’s IPO and the perils of online video

Updated. Brightcove said Wednesday that it plans to go public and has filed an S-1 registration statement with the U.S. Securities and Exchange Commission. The startup, which is best known for providing a white-label video distribution solution to enterprise and media customers, plans to raise $50 million through its initial public offering.

But Brightcove’s IPO will be modest in comparison to expectations many of us had for the company — and for the online video industry in general. Brightcove has raised a total of $100 million since being founded in 2005. Most of that money was raised in the heady days before the market actually developed, including a $59.5 million round raised in 2007, just a few months after Google acquired YouTube¬†for $1.65 billion.

Given the promise of online video and the amount of money pouring into other video startups during that era — Joost raised $45 million in 2007 and Veoh raised $26 million around the same time — investing in Brightcove seemed like a solid bet. After all, the company was a platform play, not an advertising play. And it had a solid management team led by CEO Jeremy Allaire, who had helped create Macromedia’s Flash technology created ColdFusion and served as CTO of Macromedia, which was later sold to Adobe. (s ADBE)

The online video market has grown substantially since then, and Brightcove has grown with it. It has aggressively added to its customer base and increased the number of video streams it delivers. It has 3,300 customers according to the filing, and delivers an average of 700 million video streams a month. On an absolute basis, that’s second only to YouTube’s (s GOOG) 3 billion videos delivered per month, according to data from comScore. (s SCOR)

But while the hockey stick-like growth in online video consumption has materialized, it hasn’t translated into comparable revenue growth for Brightcove. In its S-1, it estimates that the addressable market for online video platforms is approximately $2.3 billion in 2011, growing to approximately $5.8 billion in 2015. Yet Brightcove reported revenues of $43.7 million in 2010, and $28.3 million in the first half of this year. Those are respectable numbers for a startup, but pale in comparison to the $1 billion or more YouTube is estimated to be making in revenues, or the $2.2 billion Netflix (s NFLX) generated. More importantly, Brightcove continues to lose money; it reported a loss of $9.7 million for the first half of this year, and doesn’t expect to be profitable until late 2012.

Lack of growth in online video revenues may be one reason Brightcove finally decided it needed to diversify its business, launching its App Cloud platform. That product allows mobile app makers to easily build and distribute their applications to multiple platforms. With that now available, Brightcove will no longer be solely beholden to the perils of the online video ecosystem to pay the bills, and it can chase another fast-growing market for multiplatform content delivery.

Granted, Brightcove deserves kudos for making it this far while other online video companies have either been acquired at fire sale prices or bit the dust. But the modest revenues revealed by its IPO filing show just how hard it is to make money in online video, even while viewers are tuning in droves.

Update: We incorrectly stated that Brightcove CEO Jeremy Allaire helped create Flash at Macromedia. Instead, he created ColdFusion at Allaire Corp. and was CTO at Macromedia.

Photo courtesy of Flickr user echiner1.