A Better Way to Stream TV?

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"Video significantly changes their business model since it demands a continuous stream, which makes shared bandwidth difficult," says Danny Saar, manager of the Internet & technology sector at BBDO Consulting (OMC) in Tel Aviv. The high cost of adding additional capacity to meet demand has already led many providers to look for creative alternatives. Some are capping the amount of data that residential users get with their monthly plans, charging extra when the threshold is exceeded. Others are arbitrarily limiting speeds at peak hours.

Peer-to-Peer vs. Multicasting

The Arootz solution, developed by Yechiam Yemini, a co-founder of Israeli telecom software giant Comverse Technology (CMVT.PK), is based on a series of complex algorithms and management protocols that determine household demand and network constraints. The company figures that all of Israel could be served with just one server farm, while the U.S. could be covered with about 20.

By comparison, the king of today's so-called content distribution networks, Cambridge, (Mass.)-based Akamai Technologies (AKAM), has tens of thousands of servers scattered around the globe to distribute Internet content. Its biggest competitor, Limelight Networks (LLNW), has deployed a network of privately owned fiber to do the same.

Some companies, including BitTorrent and Kontiki (which was acquired last year by Verisign (VRSN)), are taking yet another approach. They're using a peer-to-peer (P2P) architecture, which spreads the workload by replicating content onto the PCs of thousands or even millions of PCs scattered around the Internet. The problem, Arootz contends, is that P2P doesn't address the fundamental congestion of the network, whereas using multicasting to minimize duplicate transmission does. Plus content still must be downloaded from peer nodes to end users when they want it—thus clogging the Net at peak times.

Shopping for More Capital

Arootz started initial testing of its technology in February in a trial involving delivery of hours of high-quality video content to 10 households in Israel. "We've seen nothing else out there like it that gives the consumer such high-quality television without utilizing the Net's full bandwidth," says the chief technology officer of a leading Israeli ISP who asked not to be identified.

A much larger trial of several hundred homes, in cooperation with some of Israel's leading content and service providers, is scheduled to take place this summer, with further tests in the U.S. and Europe set for later this year. To meet demand from Israel and abroad for the technology, the company aims to more than double its workforce, to 30, in the coming months. It's also looking for additional financing beyond the $5 million it has already raised from Israeli venture fund Gemini Israel Funds.

If all goes well, Arootz hopes to begin marketing its solution in 2008. The company is looking at two business models: either providing the technology to ISPs via licensing agreements and perhaps managing Net video services for them, or some sort of revenue-sharing model that would split ad royalties with content and service providers. Either way it looks like Arootz is on to something hot—and with little direct competition. Providers of Net-based TV services, such as Joost (which uses a P2P architecture) and Babelgum, are bound to be interested in what Arootz is up to (see BusinessWeek.com, 06/11/07, "Babelgum's Big Bet on Internet TV").

Now the company just has to prove itself. If it does, someday soon you could be enjoying smooth, broadcast-quality video delivered via the Net—without paying much higher prices for your connection or annoying everybody else in the neighborhood with your big fat downloads. That could make traditional broadcasters sit up and take notice.

Sandler is a correspondent for BusinessWeek in Jerusalem.