Video Sharing: Thinning the Pack

As YouTube emerges as the alpha dog, other sites search for niches in which to distinguish themselves from the rest of the crowd

by Catherine Holahan

Suranga Chandratillake's inbox began showing the tell-tale signs of a slim down in the video sharing space last November. A few independently owned, semi-successful startups were e-mailing to ask if Blinkx, Chandratillake's video-search company, was in the market for a video-sharing site or, at least, interested in buying traffic. Chandratillake declined. Blinkx wasn't really interested in running a video upload site and definitely didn't want to enter the field. "There's a video-sharing shakeout," says Chandratillake.

Around the Web, signs abound that the once-hot market for sites that let consumers share videos is cooling. Top executives at Revver and Guba, rivals to Google's (GOOG) YouTube, left in December, and several video-sharing companies are aggressively seeking buyers. Thomas McInerney, the Guba co-founder who recently stepped down as CEO to pursue other projects, has repeatedly said Guba is for sale. "We are going to be a lot more attractive to an acquirer because our number could be in the tens of millions," says McInerney. However, much higher sums were being bandied about last year. Rumors were rife in December that Metacafe was in acquisition talks, though a deal failed to materialize. "I have certainly seen a number of sites suffer significant management changes or look at consolidating," says Chandratillake.

Needing an Edge

A lot of that soul-searching began in earnest after Google's $1.65 billion acquisition of YouTube, the leading video-sharing site, in October. It was then that some sites realized just how much—or little—they were worth, given substantially smaller user bases. Many saw the YouTube deal as the end of the race for a big payout. "It would surprise me if one of these sites cost $100 million," says Forrester Research (FORR) analyst Josh Bernoff. He says a more typical acquisition price would be the $65 million Sony (SNE) paid for Grouper (see BusinessWeek.com, 8/23/06, "Online Video: Tasty Takeover Targets?").

Around the time it was sold, Grouper was one of the top 15 sites in the video-sharing arena, according to July comScore data. Video-sharing sites Metacafe, Veoh, and Revver made it to the top 15 as well. However, it is unclear how many more large companies will still need to shell out considerable cash to augment their online video presence. Yahoo! (YHOO), Microsoft (MSFT), Time Warner (TWX), and Viacom (VIA) already have well-trafficked sites that rank among the top ten in unique video streamers, according to comScore.

The recent announcement from YouTube that it plans to compensate users who upload videos only put more pressure on smaller video sites to differentiate themselves from the market leader in order to gain attention, whether from users or possible buyers, says Bernoff (see BusinessWeek.com, 1/30/06, "Upload Video, Download Cash on YouTube"). Sites such as Revver, Guba, and Metacafe have stood out from YouTube and News Corp.'s (NWS) social networking site MySpace, which also allows users to post videos, in part because they have paid users. Without that edge, they risk losing more market share to YouTube.

Seeing this year as a pivotal year, venture capitalists are spending more to get their investments to stand out (see BusinessWeek.com, 2/5/07, "Make-or-Break Time for the Net Newbies"). Breaking away from the crowd is particularly important for video sites, considering their sheer numbers.