It will become a white label platform for media companies and distributors, including cable and satellite providers to enable them to publish content under their own brands.
As part of the restructure, chief executive Mike Volpi will step down, but will remain involved as chairman of the board.
He will be replaced by Matt Zelesko, currently senior vice president of engineering.
The company is expected to let around 70 employees go, and it will shut down its development facility in the Netherlands.
"In these tough economic times, it's been increasingly challenging to operate as an independent, ad-supported online video platform," Volpi said. ."Unfortunately, as part of this change, we will say goodbye to many of our colleagues and friends."
Joost, which was launched in 2006 by Skype founders Niklas Zennstrom and Janus Friis, was the first third-party web company to sign online distribution deals with media firms such as CBS, Viacom and Warner Bros.
Joost was touted as a real threat to YouTube dominance of the video-sharing market, but struggled to gain traction due to its roots in peer to peer file sharing, which required the download and installation of software.
Joost has also faced stiff competition in the US from Hulu, which is backed by NBC Universal, News Corp and Disney.
It relaunched last year as a streaming service, but the upgrade was not completed soon enough to change users' video habits.
The site hosted over 7000 hours of video and claimed around one million users.
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