Video-sharing and downloading site Guba said it launched a cash incentive program on Tuesday that pays members to refer new users to the site.

The “Tell A Friend” program pays registered users $0.25 each time they get a person to sign up for a free membership account on Guba. New members can sign up by clicking on videos sent to them via email or embedded in a Guba member’s web page or blog.

When a cookie attached to a video file records the transaction, a quarter is deposited into the recruiter’s account. Guba will mail checks to users every two weeks, said CEO Tom McInerney.

In the competitive world of online video, key differentiators like this incentive program will set Guba apart from other sites such as MySpace, YouTube, and Google Video, where users share and download video, said Mr. McInerney.

“Right now there’s kind of a land grab going on in the video space,” he said. “Our feeling was we need more traffic. That’s one of the most critical metrics that these companies are being evaluated against.”

And Guba has its work cut out for it. According to Nielsen//NetRatings, Guba ranks 27th in a list of popular video-sharing sites, behind a string of others including YouTube, AOL video, and Metacafe. And the site’s traffic has declined in the past three months, according to traffic tracker Alexa.com.

Guba said the incentive program is permanent, and the amount paid to users for referring new members could increase over time. The site also plans to add tools and metrics that will allow users to keep track of their referral numbers.

Guba is not the first to use incentives to build community. Los Angeles-based user-generated video site Revver shares ad revenue with those who upload video on their site. And Blingo, a Mill Valley, California-based search engine gives away prizes, like Apple iPods and flat-screen TVs, to users. And there are others.

Word of Mouth Is King

“Everybody in the industry believes that word of mouth is one of the most valuable marketing tools,” said Michael Cai, an analyst with Dallas-based Parks Associates. “A lot of the companies are experimenting with this, but we haven’t seen any qualifying studies yet.”

The promise of prizes and cash gives people the sense that they are personally invested in a site’s success, said Mr. McInerney. “We’ve always tried to differentiate ourselves by doing more for the user and making their lives better,” he said. “It’s real money. If you sign up 1,000 people, you make $250 bucks. It’s not bad.”

Guba members can get paid for as many users as they can recommend. And Mr. McInerney said advertising revenue will more than make up for the payouts.

“It’s nothing new. A lot of the companies are experimenting with this, but we haven’t seen any qualifying studies yet.”

But not everyone thinks this is the best way to build community. “It may be a pathway for them to build up a consumer base, but that doesn’t mean it’s going to be a dedicated user base,” said Marissa Gluck, an analyst with Los Angeles-based Radar Research.

The idea that people are getting paid to recommend the site could also produce a trust gap, added Ms. Gluck. “There is the suspicion that they’re only doing it for the money,” she said.

And then there is the pesky problem of those who would abuse the program. Mr. McInerney said he has built in fraud checking to prevent such a thing, but nothing is foolproof. “Sometimes these are cat-and-mouse games with hackers,” he says. “But the effort to defraud the system is probably more difficult than the effort to sign up your friends.”

Contact the writer:AWeinstein@RedHerring.com

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