Set to make millions with their YouTube-beating technology, the upstarts in Lifted Logic found a better market for their talents

It's December 2005. Adam Fichman, a junior at Illinois Wesleyan University, where he's a business major, is home visiting his family. He's hanging out with two buddies, Austin and Zach Hurst, twins who are freshmen at the University of Kansas, and his girlfriend, Emma Bland.

For Christmas, Bland has received a first-generation video iPod. It can play videos, but only ones that she has bought and downloaded from Apple's iTunes Store. What she really wants to put on her iPod is a home video of her dogs.

This, Apple doesn't allow.

The dogs are a labradoodle named Paris — as in the ancient Trojan, not the modern hotel heiress — and a toy poodle named Ramesses.

Fichman and the Hursts start trying to figure out how to get Bland's dogs on her iPod.

And they know what they're doing.

At the rather ridiculous age of 14, Austin Hurst started a Web-design company called Dominant Design Group. (It was his second business; at 11, he ran his own eBay resale company.) One of Dominant Design's clients was Fichman's father, Jan Fichman, who owns the record store 7th Heaven.

They find a couple of software programs that will convert other video files to the iPod's format, but they cost between $60 and $80.

So Zach Hurst has an idea: Why not build a Web site, like YouTube, that lets people post their videos online and then convert them to whatever format they need for their iPods or cell phones?

Austin calls his software developer for Dominant Design, a man named John Jawed, who is working as a database manager for Time Warner in Torrance, California. He asks Jawed whether it's possible to develop the transcoding technology to get a video of a couple of dogs from a camera to a Web site to an iPod.

"Within a few days, he [Jawed] had figured it out and had a working prototype," Austin says.

Fichman goes back to school in Bloomington, Illinois. Over the next few months, the Hurst twins drop out of KU and move to Bloomington, too.

Working out of Fichman's garage, they start up a company. They name it 1Dawg, in honor of Paris.

To bankroll their business, they need advertisers. But there's no standard for advertising on video sites. As Fichman puts it now, "Companies were worried: Hey, what if my product shows up next to a video of a kid who's farting and lighting his fart on fire?" Today, he notes, companies spend millions on one ad campaign on MySpace or YouTube, but they wouldn't back then.

So Fichman, the Hursts and Jawed take on a new partner. Chicago-born Wesleyan student Kevin Sweeney is a history and psychology major with a head for business and skills in graphic design.

By October 2006, Google has bought YouTube for $1.65 billion, proving the commercial viability of user-generated video sites.

1Dawg.com launches in December of that year.

It starts out being compatible only with Verizon, but the 1Dawg technology will eventually grow to support 131 international carriers.

It catches on. Within four and a half months, 6 million users are connected to 1Dawg.com, which is now ranked 17th among online video sites.

"Every day was something new," Austin Hurst says. "We were constantly meeting new people, constantly going to the conventions and hooking up with companies that thought they could use our technology."

At the 2006 Consumer Electronics Show in Las Vegas — the industry's biggest convention — Fichman stays up one night until 5 a.m., printing thousands of 1Dawg.com decals at a Kinko's and then tagging the convention's free magazines with them.

A venture-capital firm run by a Hollywood talent manager, working with a hugely famous celebrity of the heartthrob variety (whose name, unfortunately, cannot be disclosed), flies them to Los Angeles and puts them up for a week in the presidential suite of the W Hotel. This potential client is developing a social networking site aimed at kids that would trade on the celebrity's fame. The deal doesn't work out, but the business experience is priceless.

The young Midwestern entrepreneurs meet with more venture capitalists, media companies and equity groups, who are all impressed with their product, but 1Dawg.com still isn't outfitted to sell ads.

The problem, Austin Hurst says, is that advertisers are still relating online video sites to television. "When you can get 16 million views twice for a 30-second commercial during an episode of Grey's Anatomy, how do you get that exact, parallel amount of views for your same ad on a video Web site?"

With Google behind it, YouTube will answer that question. Smaller sites like 1Dawg, however, are getting left behind.

Still, 1Dawg's video-transcoding technology remains peerless and possibly worth millions.

"We were young and proud of our product, and we weren't going to let anyone have it without serious, serious money," Fichman says.

But their company is growing so fast that its expenses are flying out of control. Bandwidth costs and legal fees — necessitated by the 1998 Digital Millennium Copyright Act, which regulates the dissemination of copyrighted material over the Internet — rise into the hundreds of thousands of dollars. Fichman is getting 20 letters a day demanding that their videos be taken down in accordance with the act. After April 17, 2007, when The Wall Street Journal names 1Dawg.com in an article about "guerrilla video sites," the number of letters goes up to 30 a day.