Video Chat Is Anyone's to Win, and Investors Are Acting Accordingly

By Nathaniel Mott , written on June 29, 2012

From The News Desk

The startup community, as a whole, will probably fall into a deep, impenetrable insanity if one more service claims to be the "Instagram of video." Startups have reaped the benefits of working in the video communications market by raising money at ridiculously high valuations and declaring themselves to be the next big thing.

TokBox has surveyed the landscape and written a report on video-based startups and the market that they operate in, and all signs point to one thing: A gold mine. Now, the report should be taken with about a pound of salt. TokBox provides a platform for video chat, and anything that makes the video communications market look good in turn makes TokBox look good.

Much of the report is focused on how users interact with video-based products, and the breakdown isn't too surprising. Skype dominates video chat; 82 percent of those surveyed that use video chat use the Swedish-born service. Most video chatters use a laptop to connect with the service; only 11 percent and 6 percent of smartphone and tablet owners, respectively, use a video chat service on their mobile devices.

As we continue to shift to a mobile-only (or mobile-first) computing model those numbers will have to rise. Whoever cracks the model for video communications on smartphones and tablets could gain a large number of users very quickly, and may become the de facto standard for video chat across all devices. That explains why venture capitalists continue to pump money into video-based startups, investing an increasing percentage of their funds in such companies. (Also, VCs just tend to do that with anything that looks like it might be promising. They're called "lemmings" for a reason...)

The report shows that many people are turning to video chat for a variety of purposes. Some 46 to 47 percent of respondents said that they would like to use video chat while they were gaming, watching television, watching a clip on YouTube, or watching their favorite sports teams play a game. So many people saying that they would like to video chat while they're watching something else lends credence to the "second screen" notion that appeals to investors and creators alike.

"Looking back 5 or 10 years ago, we could do video communications over the Web but it was so choppy and crappy that you might as well just go for a phone call," says Scott Friend from Bain Capital (an investor in TokBox). " In the last year and a half we've reached the point where we are technologically able to have good video chat."

When the average viewer watches almost 22 hours of online videos each month – a number that continues to grow – that second screen will continue to gain more attention... and likely attract even more VC dollars.