The internet has grown quickly over its short lifetime. Now, it’s about to see what could be its biggest spurt yet, and it’s all thanks to online video.

Cisco conducted a study that states that by the end of 2008, online video will make up about a third of all consumer internet traffic.  (See study here) It also predicts that by 2012 more than half of all internet traffic will be for online video. Some of this growth can no doubt be attributed to technical advances, such as increased bandwidth and improved streaming technology. A large contributing factor, however, is content.

In its early days, internet video was dominated by entertainment-based videos - think YouTube and its millions of funny and quirky videos. But over the last 12 months internet video has matured, and evolved into new vertical markets. Now, all kinds of organizations are finding innovative uses for online video from the US presidential campaigns, to corporate uses, such as bloggers who give people glances of the inner workings of a company like Microsoft, enhancing training like Deloitte and American Express, product demos and tutorials, and viral campaigns like Blendtec’s famous “Will it blend” series and Hitachi’s recent Tera Era viral video hit.

At WebsEdge we create video campaigns for governments, city communities, and healthcare providers – it’s clearly a far cry from the simple clips and entertainment videos of yore.  It isn’t difficult to see how online video will come to account for such a large percentage of net traffic.  The incredible potential of online video is finally being realized.

We’re deep in Wizard of Oz country this week bringing you APCOtv. For those who don’t know APCO represents emergency service first responders. Men and women who deal with the most harrowing situations day in and day out and we had several heart rendering stories to report on.

Also in America this week came a glimpse of the financial realities behind on-line video and the media industry in general. Whilst you tube is a testament to the phenomenal interest in on-line video we’ve yet to see the emergence of a sustainable economic model.

So when AoL/Time Warner released their latest results it gave us all a good opportunity to see how things are working out. It’s particularly interesting because that media giant has fingers in so many pies. And a rather clear – if slightly counter intuitive picture is emerging.

Contrary to public perception this isn’t a migration in income terms from traditional television to on-line video. Traditional television income still dwarfs on-line video and is holding up pretty well. And in absolute terms there’s no doubt that the big increases in advertising linked to on-line video have yet to emerge.

What is clear though is the dramatic fall in print revenues. Year on year declines in revenue of 10% or more are not unheard of. So media owners have  a big hole to fill and are struggling to do so. Strategy after strategy looks to on-line video display advertising to fill the gap and that just isn’t materialising.

So what’s the way forward? As far as on-line goes it’s simply a question of engagement. All the figures show that whilst people love watching video over the internet they’re not engaged by it. And given the smaller numbers compared to terrestrial television that means a lack of advertising revenue.

I think the good folks at APCO might give us a clue here. Waiting for the Wizard to deliver big revenues is just not going to happen. What we need to do is to make our programmes relevant and engaging to the people we serve. And if we do this the revenues to support it won’t be far away.