Microsoft seems to be playing catch up these days, rather than innovating. It has taken them years to decide to try to edge into Apple’s iPod market, and now it has announced the testing phase of its new user-generated video site.

Soapbox starts testing to invited users today, and is scheduled to launch within six months as part of MSN Video. It is designed to compete with YouTube, Google, and Yahoo’s video offering, but it has a long way to go to accrue the 34 million visitors that YouTube reportedly counted last month.

So what can Microsoft bring to the table that the other companies haven’t already offered? The company says it is offering a better design, more advanced features, and integration with MSN and Windows Live sites and applications, like instant messenger and blogging.

The challenge is to build a big user-base quickly, because without user-generated content on the site, there’s no incentive for new users to sign on. However, Microsoft’s ability to tap into the chat world will work in its favour; for example, a signal will appear next to a user’s buddy icon when that user has uploaded a new video.

It’s not known how Microsoft will make money from this venture, as it’s hard to convince advertisers to sponsor spots next to user-generated content, as they don’t know what may appear in the video.