VENTURESCOPE

Enter the search term “video sharing site” into Google and you'll be bombarded with dozens of relatively new domains, all competing to amuse you with short, silly and often crude videos produced by people all over the world. Sites with names like Revver, Grouper, Guba, Heavy and Stickam have popped up all over the internet in the last few months. It is probably no coincidence that they all resemble wildly popular site YouTube, which has achieved runaway success in the past year and become a household name virtually overnight.

YouTube, founded a little less than two years ago by two former PayPal executives, allows users to upload short videos and share them with the world. The site quickly became a huge hit, offering millions of short videos showcasing everything from bike stunts to Tom Cruise's antics on the Oprah Winfrey show. With reported growth of 20 percent per month, the site has survived mostly from VC backing, but has yet to figure out how it is going to become a profitable enterprise.

This hasn't stopped countless imitators from emulating the site's format, nor has it stopped investors from pumping money in. With the technology world abuzz about how YouTube is going to revolutionize the way we watch video, VCs are betting that there's room for more than one provider of this type of service.

This week Motionbox, a video sharing site based in New York, received $4.2 million (€3.3 million) in first-round funding from Canaan Partners, SAS Investors and Itochu Corp of Japan. The investment follows last month's sale of Sausalito, California-based Grouper, another video sharing site, to Sony Pictures Entertainment for $65 million in cash.

Grouper had already signed a term sheet from an undisclosed venture capital firm for $8 million with a pre-money valuation in the $30 million range, but opted to be bought instead. The sale followed the purchase of online video showcase Atom Entertainment earlier in August by Viacom for $200 million.

“I think the way we will consume video two years from now is going to be radically different from the way we consume video today,” says Warren Lee, a principal with Canaan Partners. “I don't think it's a passing fad, but I think it's really early. There's so many start-up companies right now because we're just at the beginning of this process.”

Lee says Canaan looked at over a dozen new video-sharing sites before settling on Motionbox. He says that while most of the sites he saw seemed to have a ‘me too’ mentality, offering only YouTube clones, Motionbox offers innovative services that set it apart from the crowd and will allow it to attract users who wouldn't be interested in the YouTube site. He says it caters to users who just want to share their videos with family and friends rather than exhibit to the whole world. The site offers special features like the ability to break up videos into sections and allow users to skip straight to the sections they want to see. The noticeably less voyeuristic nature of the site made a local NBC affiliate comfortable enough with the content to partner with the site.

Different as Motionbox may be, many observers are still concerned that new video-sharing sites have yet to exhibit any clear business model that will make them a profit. And so far, after the number-one-ranked YouTube, the most popular video sharing sites have come from the large internet players. News Corp's MySpace Video, MSN Video, Google Video, AOL Video and Yahoo Video are the next five most popular video sites after YouTube. While these more established sites are able to integrate the video services with their established advertising plans, it remains to be seen how the independent video sharing start-ups will monetize increasing interest.

As the video sharing sites rush to find ways to integrate advertisers, it may be that the first site to discover the best way to do so will emerge as the real competitor to YouTube. For its part, the video sharing pioneer has recruited Paris Hilton, herself no stranger to “user-generated” internet video, to launch its latest attempt at advertising. The socialite-turned-pop singer now has her own branded channel on the site, paid for by her record label, Warner Music, to promote her new album. It remains to be seen whether the ‘branded channel’ approach will hit it off with viewers, but with celebrities getting in on the act, there may be no stopping the march of internet video.