While the early platform players had to be all things to all people, there’s a maturity in the market as companies define needs in the market and evolve to serve them. Video isn’t going to be a one size fits all solution, and Video Egg has always been early in the space. The founders were right when they determined that uploading was a bottleneck, and build what was the most easily adopted uploader out there. Client side encoding is great, just expensive. Now Video Egg is narrowing their focus to turn their high volume customers in to a revenue stream. This makes good sense too. Luckily the video creator and video consumer market is still nascent, and there are some really great companies out there that will be able to partner with sites to provide video services. Years from now, there will be a whole array of video services, and the companies that thrive will have defined themselves, and provided a valuable service to their customers. Until then, smart companies will watch the space evolve, and be first movers as revenue streams emerge. Clearly Video Egg is doing just that.

As to the reason why they are cutting off this traffic my guess would be bandwidth costs (probably the same reason BC shut down their free services). They provided a higher quality encode and are likely incurring higher transfer charges per video. Not everyone has the pursestrings of Google to float them until they figure it out.

(Disclosure: I am one of the founders of Tremor Media, ostensibly a competitor to Video Egg. These are my opinions and not my companies.)