Vringo Bets on Video Ringtones

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A six-member team led by Goldfarb designed a solution in about 18 months at the startup's headquarters in Bet Shemesh. The patented software rides on top of the handset's own code, springing to life whenever a call comes in. At present only about 10% of all handsets are capable of supporting Vringo's software. But Medved predicts that by the end of next year about half of all phones manufactured by Nokia (NOK), Motorola (MOT), Sony Ericsson (SNE, ERIC), and Samsung (SSNGY) will be compatible.

Video in Vogue

Will videos shared via mobile phones be the next big fad? Already, companies such as Jamster (VRSN) offer video ringtones that work pretty much like conventional audio offerings. And Vringo is not alone in pursuing the idea of video sharing: Mobile software provider NMS Communications (NMSS) of Framingham, Mass., includes support for mobile video sharing in its MyCommunity suite. But Ira Brodsky, president of St. Louis-based consultancy Datacomm Research says Vringo has a head start over competitors. "The mobile market is increasingly going for enhanced and personalized services like video ringtones," he adds.

In a vote of confidence for Vringo, Universal Music Group, the world's largest music company, announced a deal with the company on July 10 that will permit Vringo users to produce their own video ringtones from Universal's video collection. "This will make our artists available to an even wider and more connected worldwide audience through this service," predicts Rob Well, senior vice-president for digital at Universal Music Group. Vringo is conducting trials on its technology in the U.S. and Europe with some of the leading mobile-phone operators.

A "Personal Advertising Agency"

The startup is also pursuing opportunities in mobile marketing, holding talks with several unnamed consumer-products giants about using its network of members for advertising. If that pans out, Vringo's technology would, in effect, turn the cell phone into what pundits are calling a "personal advertising agency." Mobile operators could harvest revenues from distributing ads to customers, while mobile users would likely get something in return for viewing ads—whether points, discounts, or even free service.

For now, clips available for Vringo are free, but the company plans to go into commercial mode and start collecting revenues in 2008. Prices for the video clips haven't been revealed, but will be set by mobile operators or the owners of the content.

It will likely take some time for a critical mass of users to emerge, but Vringo is counting on its members to spread the word to their buddies. Audio ringtones became a multibillion-dollar cash cow in less than a decade. Medved is hoping that history will repeat itself.

Sandler is a correspondent for BusinessWeek in Jerusalem.