James A. Pitaro is the vice president of media at Yahoo! (NSDQ: YHOO) He has worked at the company since 2001.

Just a few years ago, web video was the great unknown. Media and tech companies agreed that it was the next big thing, but no one knew what kind of content actually worked on the web. Early adopters watched music videos online, but the average consumer wasn’t ready to reach for the computer instead of the TV remote. Content owners and creators, meanwhile, either clung for dear life to traditional development and distribution models, or threw ideas against a wall to see what would stick.

Today, web video has mainstreamed. Three-quarters of Internet users, or 47% of the U.S. population, now watch video online. Videos streamed in September totaled 11 billion, up 24% year over year. Web-original video content is making up a bigger chunk of this consumption and has quietly become a viable business model for many online distributors.

As a result, new Internet companies focusing on video are emerging every day, and many existing businesses are transitioning to a video-intensive model. Just recently, MySpace announced that it was reinventing itself as an online destination for people to connect with friends over entertainment content, and the expectation is that the social-networking site will be doubling down on video. Meanwhile, Fox is now forming separate units to focus on creating digital video, including 15gigs, a web-development incubator, and Fox Digital Studios, a digital offshoot of Fox Filmed Entertainment.

But there are some serious pitfalls for video creators, and a number of the companies that poured into the space over the past couple of years have gone out of business. Yahoo produces a range of original video, but short-form, web-based video is the key to our success in original content. In September, this content, including shows like Yahoo! Sports Minute, Prime Time in No Time and The Thread, had more than 16 million unique visitors—or, more people than came to sites like ComedyCentral, TMZ, CNBC, Fox Sports or MLB.

Below are some lessons we’ve learned (in some cases, the hard way) about how to create original video that people want to watch and on which advertisers want to spend.

You need more than just a good idea

Identify something that is not just a good idea, but a good idea for the Internet—something that takes advantage of the medium. The Guild, a low-budget show about an obsessed online videogame player, is too niche for Hollywood, but plays perfectly on the web and has become one of the most successful web programs in history. On the flip side, the high-concept serialized drama Quarterlife, which is no longer with us, was perhaps better suited for cable than the internet because it aimed at more of a mass audience.

Develop a unique voice and identity and choose a space that’s own-able. If you build a humor-based content site, for example, figure out if you can compete with the heavies—Funnyordie, JibJab, collegehumor and even YouTube. Or, is there a narrower category within comedy with room for a new player? Why is a video podcast like Diggnation successful? Because it has a clearly defined core audience—the subset of Digg users who geek out over popular stories on the social-bookmarking site. Although Yahoo has a big audience that almost perfectly mirrors the demographics of the U.S., there are many things we don’t and won’t do because we don’t think we can own them.

Track your audience

If researched and developed correctly, your program should be virtually fool-proof because it will deliver the right content to the right user at the right time on your site. At Yahoo, we analyze search and click-through-rate data to see what users want, and then program to it. By mining data on Yahoo Finance’s audience, we determined that the vast majority of stock searches were tech-based. With that insight, we developed a daily tech-stock program called TechTicker for Yahoo Finance to provide additional insight on tech stocks, and it is now the most-watched finance show online.

Get sponsors involved early in the creative process

Partner with the advertiser starting with idea conception and co-develop your program. Dunkin’ Donuts, for example, came to Yahoo with a clear mission—promoting coffee in the morning. We had a similar goal of reaching our users first thing in the morning. Together, we developed and produced two daily news recap shows called Good Morning Yahoo! and Yahoo! Sports Minute. Note: You need to strike the right balance with product placement. Too much brand promotion and/or integration can tarnish the program and turn off users.

Be fast

Regardless of genre, web content must be timely, and what is timely depends on the category. Yahoo’s program Primetime in No Time recaps the prior evening’s prime-time TV shows. Every evening, the host of the program watches East Coast feeds of the programs, writes a script and tapes the program to air only hours later. This is the essence of “fast twitch” programming.

But for a subject like financial trading, even the next day is too late. And, in the case of Fantasy Football, users need the most up to date information on which players to sit. In both of these cases, the information needs to be delivered at exactly the right time to be valuable to the consumer, and you will need the resources and skills to create a live or near-live program.

But beware: live video has its own challenges. While getting your video up in a timely fashion is very important, equally important is your ability to continue providing access to that video. Unless you’re talking about examples similar to those listed above, or massive events—like the Michael Jackson funeral or an exclusive U2 live concert from—users have repeatedly conveyed to us that they don’t want to be told when to watch a video; they want to watch it when they want to watch it.

Don’t spend a lot of money

Yes, it is possible to produce high-quality content without breaking the bank if you hire seasoned professionals and offer them some creative freedom and license – a somewhat novel concept in the entertainment business. And there’s no need to build your own studio. There are plenty of studios available at very reasonable prices that provide soup-to-nuts solutions. The barriers to entry have been lowered and many companies are producing short-form programming for under $10,000 per clip. If you’re spending more than that, you should re-read this playbook and ask yourself if you are working with the best idea for your audience.