Startup eyeIO comes out of stealth, hits the ground running with Netflix as customer No. 1

EyeIO (that's I-I-O, as in eye, input, output) came out of stealth mode this morning, announcing a new H.264 encoding technology that delivers HD-quality video at ultra-low bandwidth; it also trotted out a very short, but impressive customer list of one: Netflix (Nasdaq: NFLX).

The Palo Alto, Calif. startup has been working with Netflix since June, and said the streaming company selected it to do its encoding because of its ability to deliver a high-quality streaming experience using 20-50 percent less bandwidth.

It also gained some cred with Netflix because of the pedigree of its co-founders, CEO and CTO Rodolfo Vargas is the former senior program manager of video at Microsoft (Nasdaq: MSFT) and former co-chairman of Video Streaming and Internet Interactivity at the DVD Forum; Charles Steinberg, serving as chairman, is the former chief executive of Ampex Corp. and was president of the business and professional products company of Sony Electronics (NYSE: SNE); and Robert C. Hagerty, was the chairman and CEO of Polycom (Nasdaq: PLCM)--you can get a look at their complete pedigrees here.

"We had a prototype ready to show Netflix in September 2010," Vargas told me. "And they said if it wasn't for my Microsoft background they wouldn't have talked to me."

The prototype got a look, encoding huge amounts of video under various scenarios... and Vargas got a callback.

"They told me to go make a company, and that they were very interested," he said, calling from New York, where he and Steinberg were meeting with potential clients.

The signed a deal June 29; Netflix announced its expansion to Latin America and the Caribbean a little more than a week later. "I was very proud because I'm Mexican, and eyeIO will be used (for video delivery to Mexico)."

Neither Vargas nor Steinberg could say how much video Netflix has encoded using eyeIO, because, said Vargas, the company does not disclose that information. "But I can tell you they have encoded a humongous amount," he said.

Steinberg said there are two ways to identify whether you're watching eyeIO-encoded video on Netflix:

"One is the latency," he said. "It used to take a movie from 20 to 30 seconds before the buffering was complete and it started to play. Now, when you see the latency around two or three seconds, you know it's coming from eyeIO.

"The second thing you can look for is the quality, which is substantially improved; we've reduced the bandwidth that Netflix is using by a minimum 20 percent. That's substantially improved the quality."

Vargas says there's another way: "You can put a meter on the line... if it's 50 percent less than it used to be, it's ours."

Greg Peters, VP of product development for Netflix, said the eyeIO technology "is an important part of the technology we use to improve video quality and overcome bandwidth challenges presented by Internet infrastructure."

EyeIO is self funded. Steinberg said the company's three co-founders used the "friends and family" network to launch, and said the income from their lighthouse customer, Netflix, has provided enough revenue "where we are financed to a level that we need... and we're not looking for additional financing at all."

"We're off and running," he said.

Asked to name potential customers for eyeIO, Steinberg chuckled.

"Make a list... anyone who want to deliver quality video and use dramatically less bandwidth will be on it," he said.

Vargas said the company would look for more international customers, especially where bandwidth constraints are tight.

Steinberg, meanwhile, has his eye on the U.S. market.

"It's ideal in the United States where you want to have better video delivered to the home and use less bandwidth, or where you might want to deliver 4K video, which is superb quality," he said. "You can make a list of who those customers are very easily, and those are the ones that we are already talking with...and we're getting a great reception."

EyeIO, said Vargas, is device agnostic... it creates streams that are totally H.264 compatible so there's no need to change display equipment. And, he said, the company is now focusing on devices that are more constrained by hardware. "We want to send content to as many devices as possible, and with ultra-low bandwidth usage, that means we can send to all kinds of mobile devices." The technology can be deployed as either a cloud or local solution.

EyeIO currently has a small team, but Vargas and Steinberg said it will begin ramping up immediately, looking for engineers and support for the business side now that it's out of stealth mode. If the technology lives up to its early promise, you might want to send them a note... this might be one star you want to hitch your wagon to.--Jim