Tuesday, January 08, 2008

What's a Widget Worth?

What's a Widget Worth?

Software developers say their impact is being underrepresented; comScore hopes a new measurement tool will paint a clearer picture

by Aaron Ricadela <http://www.businessweek.com/print/bios/Aaron_Ricadela.htm>

Online social networks will continue to grab the attention of Web users and the advertisers who want to reach them in 2008, but some software developers who help make the networks popular say they're missing out on the spoils.

Social sites such as MySpace, Facebook, and Google's (GOOG <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=GOOG> ) Orkut could crack $1 billion in ad sales by year's end. Yet makers of the so-called "widget" software, whose programs have helped propel the networks' growth, have yet to see much of that revenue, in part because of a lack of reliable data about how many people use their products. "There are a huge amount of page views in social networking, but no one's figured out how to monetize them properly," says Duncan Davidson, a venture partner at VantagePoint Venture Partners <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=23687> , which invests in News Corp.'s (NWS <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=NWS> ) MySpace and smaller social networks Multiply <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=22175544> , FanIQ <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=36692781> , and Bluepulse <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=36546047> . "It's still an experiment."

Who's Using What Widgets?

Market researcher comScore (SCOR <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=SCOR> ) wants to end the mystery. Considered by many to be the industry standard for audience tracking on the Web, comScore will use a revamped yardstick that could give advertisers, software makers, and investors a better handle on just how many people are using the programs. Under the new method of calculating, almost 586 million individual Internet users viewed a piece of widget software in November, 2007, according to an exclusive look at the data comScore provided to BusinessWeek.com. That's nearly double comScore's estimate in July, the last month it measured using an old system. ComScore plans to release the new widget usage data in mid-January.

What's different? For starters, comScore will now include activity on Facebook <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=20765463> , one of the fastest growing social networks. The new method can do that because it records how many Web users click on a given widget. ComScore's previous method only tracked the presence of Adobe Systems' (ADBE <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=ADBE> ) Flash software. That's useful since Flash is used to create many of the widgets used today. But the method didn't work for Facebook, which bars the automatic loading of Flash animations.

The new version of comScore's tool will also account for widgets built with JavaScript, a Web programming language, in addition to those based on Flash. ComScore also plans to measure usage of Google's Gadgets software in future surveys. Linda Abraham, an executive vice-president at comScore, says the new data could give software developers, and companies that want to advertise through their applications, a truer picture of who's using what widgets, and how often. "Widgets are looked on as not yet proven," she says. "We talk to widget companies all the time, and it comes up in every conversation."

"Lumpy" Revenue

Two of the biggest agitators are Silicon Valley startups Slide <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=24883471> and RockYou <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=27691317> . The competing companies make lighthearted software that lets users add pizzazz to profiles on Facebook, MySpace <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=120412> , and other sites by creating slide shows, comparing friends, or scrawling messages on each others' home pages. The startups are waging a programming and PR battle for users and advertisers. "It's like Coke and Pepsi," says Jeremy Liew, a general partner at Lightspeed Venture Partners <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=471694> , which invests in RockYou.

But both companies say their popularity has been vastly undercounted, holding back their ability to sell advertising. Other executives and investors in social networking and widget software companies say the absence of accurate usage data for widgets has capped growth in the market: Widget ad revenue was estimated at about $20 million in 2007, or about one-thousandth of Internet advertising as a whole. According to the new comScore data for November, Slide claimed almost 144 million unique viewers, for a 16% market share, and RockYou claimed a 11.7% share, with 104 million individual viewers. In July, Slide had 130 million individual users, or a 15% share, while RockYou boasted 96 million users, or 11.1% of the total.

Improved measurement tools are only one of the ingredients software companies will need in order to build lasting businesses on the backs of Facebook, MySpace, and other networks. Widgets present an attractive new market for advertisers-usage of the software has exploded since Facebook began allowing third-party software on its site in May, 2007, and MySpace is developing an advertising system <http://www.businessweek.com/magazine/content/07_45/b4057047.htm> (BusinessWeek.com, 11/5/07) for independent software vendors as well.

Yet competition among different networking sites means it's harder for advertisers to reach a large audience using the medium. Then there's the lack of a standardized widget ad unit: Should you run a "banner" ad across the top of the page rather than a long, narrow "skyscraper" ad along its side? Factor in advertisers' unease with risqué material on users' profile pages, and it's not surprising revenues have been low. "Current revenue is going to be lumpy," says Lightspeed partner Liew.

Other Obstacles to Ad Sales

Not counting Facebook activity "was absolutely a gross omission" by comScore, says Liew, but Web companies' lack of agreement about whether they're selling widget views, clicks, or installations is a larger barrier to ad sales. "This is a great step forward," he says of comScore's revised numbers, "but it's not enough."

Disney (DIS <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=DIS> ), for one, has opted not to advertise on pages associated with widgets for such reasons, according to people familiar with the company's thinking. Coca-Cola (KO <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=KO> ) has held off on advertising through Facebook's Beacon feature, a controversial program <http://www.businessweek.com/technology/content/nov2007/tc20071130_977788.htm> (BusinessWeek.com, 11/30/07) that broadcasts users' online purchases to people in their networks. And while social networks' popularity has attracted sizable investments by some of the computer industry's biggest players-Google spent $900 million in 2006 to place ads on MySpace, and Microsoft (MSFT <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=MSFT> ) in October, 2007, took a $240 million stake in Facebook that valued the company at $15 billion-more serious money from those companies may wait until the networks and widget companies iron out the advertising kinks.

The numbers for social networks are still heady. Traffic is expected to climb 31% in 2008, to 489 million broadband Internet users, according to research company eMarketer <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=736862> . Advertisers are expected to spend $1.56 billion on social networks in 2008, up 69% from $920 million in 2007. But that's still less than 6% of all online ad spending, which eMarketer pegs at $27.5 billion for 2008. And only a tiny fraction is likely flowing through widget software. Will Price, a managing director at Hummer Winblad Venture Partners <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=21015> , which invests in a widget software exchange site called Widgetbox, estimates advertisers will spend just $20 million to $40 million on advertisements linked to widget software in 2008. Others have put the number even lower <http://www.businessweek.com/magazine/content/07_43/b4055055.htm> (BusinessWeek.com, 10/27/07). "No one knows what a Facebook user is worth," says Price.

House of Cards?

In the interim, widget publishers are looking for creative ways to generate revenue. Slide, which makes applications like FunWall, Top Friends, and SuperPoke, has tried offering users branded slide shows with characters from movies Bratz and Bee Movie. The company also sells online photo frames that look like magazine covers.

RockYou, which publishes widgets including Superwall, Likeness, and X Me, has struck deals to promote other widget software makers, collecting 50¢ each time a user installs one of those applications based on an ad on a RockYou page. The company stopped embedding ads in its slide shows after finding that click-through rates ranged between one-fifth of one percent to a little more than 1%, says founder and CEO Lance Tokuda.

But widget software companies need to be wary of foisting too many ads on their users and of building a house of cards based on promoting lots of small companies that, if history is any guide, will eventually go out of business. Says VantagePoint's Davidson: "Widgets live on Facebook, and can also die from it."

Ricadela <mailto:aaron_ricadela@businessweek.com> is a writer for BusinessWeek.com in Silicon Valley .

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