EyeIO: Netflix’s secret weapon against bandwidth caps?

Palo Alto, Calif.–based video encoding startup EyeIO left stealth mode on Wednesday with the announcement that it has licensed its technology to one of the biggest players in the online video space. Netflix (s NFLX) is using eyeIO’s encoding technology to cut down on the bandwidth of its streams, allowing the company to deliver HD video without busting subscribers’ bandwidth caps or overwhelming networks in emerging markets.
EyeIO has been operating stealthily since the end of 2010, and it was able to win Netflix as a customer last summer. Netflix hasn’t said where and in which capacity it is exactly using the technology it has been licensing from eyeIO, but the company’s VP of Product Development, Greg Peters, said in a press release that eyeIO is “an important part of the technology [Netflix uses] to improve video quality and overcome bandwidth challenges presented by Internet infrastructure.”
Standard-definition Netflix streams can consume up to 2.2 Mbps of bandwidth. Netflix’s 720p HD videos come in at roughly 3.8 Mbps, and 1080p videos go up to 4.8 Mbps. EyeIO CEO Rodolfo Vargas told me during a phone conversation on Tuesday that his company’s encoding technology can achieve better-looking results than most established encoders with 20 percent bandwidth savings and that eyeIO can still deliver similar quality to other encoders with up to 50 percent bandwidth savings. Content in 720p could be streamed using 1.8 Mbps, he explained. The company does this by optimizing the encoding process, which means that the results are regular, albeit smaller, H.264 files that can be played by end users without any need for additional plug-ins.
Bandwidth savings like these could be crucial to a company like Netflix both in wired as well as wireless networks. Netflix has been struggling with ISPs’ imposing bandwidth caps, and it is allowing its subscribers to voluntarily degrade their streaming quality to avoid hitting those caps. The company also started an aggressive international expansion last year, rolling out its service throughout Latin America, where average network speeds are often lower than in the U.S.. And finally, Netflix has also seen significant traction on mobile devices, where bandwidth caps are often much lower than on fixed networks.
EyeIO was founded by online video technology veterans; Vargas used to be the senior program manager for video at Microsoft, (s MSFT) and one of his co-founders, Robert Hagerty, used to be the chairman and CEO of teleconferencing provider Polycom. (s PLCM) The company is privately funded and currently has fewer than 10 full-time employees but is looking to expand over the coming months.