Autonomy, the software group, is creating a new AIM-listed search engine business that will challenge Google in online video.

The Cambridge-based company will demerge its consumer arm and exercise an option to buy Blinkx, a privately owned search engine that uses Autonomy’s IDOL software to find video content on the web.

The two will combine to form a new company that will focus on video search and retain the Blinkx name.

Blinkx is set to be valued at more than £100 million, but analysts are awaiting more information before rating the company. Blinkx’s main web-site, Blinkx.com, is the world’s largest video search engine.

However, three years after being founded it is a minnow compared with rivals such as YouTube, the largest video-sharing site, which started two years ago and was bought by Google for $1.65 billion in October.

The planned float on AIM next month will be among the first in the nascent online video search sector.

Mike Lynch, Autonomy’s chief executive, said that the demerger would help it to focus on its commercial business. A previous effort to enter the consumer sector failed when Autonomy was outmuscled by Google and Yahoo! in 2000. It tried again in 2005 in China with the launch of a joint venture, OpenV.

Autonomy has invested about $165 million (£83 million) in IDOL and will keep 10 per cent of the new company, which plans to make money through interactive advertisements attached to video clips.

It will also offer broadband television services and explore “transaction hijacking”, where consumers buying items online are automatically informed, during their transaction, if a better price is offered elsewhere.

Derek Brown, the Seymour Pierce analyst, said that interest in the IPO would be keen, given “the explosion of unstructured video content on the web”. Cisco, Silicon Valley’s largest company, has estimated that online video technologies will be worth $20 billion.

Autonomy yesterday posted record first-quarter results, with pretax profits nearly doubling to $19.5 million on revenues up 17 per cent to $65.5 million.

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