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Whither widgets? January 7, 2007

Posted by jeremyliew in Consumer internet, Digital Media, social media, social networks, startups, widgets.
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A couple of posts on Techcrunch, one on Filmloop entering the Deadpool, and another on a rumor that Slide took $20m in funding have sparked some lively debate in comments about the business models for widgets. I don’t pretend to have the answer to this, although I did note in my earlier post on 2007 Consumer Internet predictions that this would be the year that social networks would find a business model.

I led Lightspeed’s investment in Rockyou early last year (Sequoia was our co-investor). Rockyou is a competitor to both Slide and Filmloop – they help people to customize their online representations (on social network pages, blogs etc) by embedding widgets, including photo slideshows, glittertext, image text and other widgets. As has been noted in the comments to the Techcrunch posts, the technology involved here is not terribly complicated (although the challenges of scale are meaningful). We invested for a couple of reasons: (i) Rockyou had achieved very real adoption from users and (ii) we really liked the two founders, Lance Tokuda and Jia Shen. Lance and Jia have a great sense for their users needs. Here in the valley we can get a little insular, but Lance and Jia have developed a fantastic sense of what their user, the Myspace/Bebo/Friendster user, is looking for.

We have been very happy with our investment in Rockyou. It has only continued to grow since we invested – it now serves well over 100 million widget views every DAY, and it has diversified well beyond a dependence on Myspace (a majority of its visits do not come from Myspace anymore). Having too much of a dependence for new users on a single source is a scary thing for any company. When Myspace launched its photo slideshow widget a few months ago, we waited with baited breath to see the impact on our growth. If Myspace blocked Rockyou (or Slide or any other widget company) it would have a meaningful impact on the business. However, Myspace has grown in large part by being open. It briefly blocked YouTube in December of 2005 (eventually attributed to a misunderstanding) but reversed that shortly afterwards, perhaps due to complaints from its users. Its hard to read the FIM/Myspace tealeaves, but they have had plenty of opportunity to block successful widget companies in the last year and have not chosen to do so so far, even while they have launched competing services internally.

That being said, like most startups just past their one year anniversary, Rockyou is not yet profitable. As I mentioned in my prior post, Youtube is really the only company that has suceeded in turning widgets into a destination website that can be monetized directly. Photobucket drives enough traffic from users uploading and editing photos to be able to generate significant revenue from advertising as well. Its fair to say that none of the other widget companies, Rockyou included, have achieved the same level of success in creating a destination browsing experience to the same degree.

Its not yet clear what the business model for such widgets will be. One possibility is sponsorship. Rockyou partnered with Sony to offer “Casino Royale” themes and with Nettwerk Records to offer “Matt Wertz” and Leigh Nash” themes that users could apply to their slideshows. All three have been successful, with large numbers of users choosing these themes resulting in 10s -100s of millions of widget views. This could well be a path to monetization. Another is freemium models. Although the base products will always be free, users may be willing to pay for certain premium customizations. Rockyou allows users to customize a “pin” to replace the rockyou watermark on their slideshows for a small fee. Its early days, and we don’t yet have a clear picture of exactly what the monetization model will be, but these are both highly promising options. Venture investing, and starting companies, always carries elements of risk after all!

Comments»

1. Charles - January 7, 2007

FilmLoop was actually bringing in a “fair amount” of money through sponsorship and branding advertiser deals with NASCAR, Purina, HP, Toyota, eBay and others. Had they allowed the MySpace widget channel to grow more, things might look different.

There are definitely monetization models that have proven successful in corollary markets (we’re working on one) and with RockYou’s company size and DNA, I’m sure they’ll be successful with one or more of them.

2. Mickie - January 7, 2007

Jeremy

It’s amazing that several times you mentioned in the post that you have no idea how to monetize the eyeballs for Rockyou. What’s the basis for the investment then, that you liked the Founders, that they had one single great feature, much like Filmloop, Slide et tal.

The only exit strategy that most MySpace/Bebo/etc widgets provider is the hope that users adoption are so great that eventually, one of the network is going to buy over the widget provider and integrating it into their core side and blocking out others. Isn’t that so?

3. jeremyliew - January 8, 2007

Hi Mickie,

In the post I say that I don’t think its clear what the best way will be to monetize the users of Rockyou, but I do present a couple of ideas! Charles’s comment above about Filmloop suggests that some of these ideas may well work.

Many startups take a while to figure out the best monetization path. For example, Google was launched in 1998 or so but didn’t introduce Adwords until 2002. As Rockyou determines its best monetization path (and I think it will take a lot less than the four years it took Google!) it will have a lot of options to either grow as an independent company or to pursue strategic opportunities.

4. sourabh niyogi - January 8, 2007

The “allowNetworking=’internal'” restriction that Adobe inserted into Flash 9 suffocates widget monetization innovation severely as it eliminates the “advertiser click” possibilities (PPC/PPA schemes). Myspace and Adobe appear to have worked closely on this suffocation feature, but I’m not clear as to whether it was to curb security risks (phishing, flash worms, etc.), to thwart widget cos some (at least to buy time), or to keep users on myspace. It seems likely that other social networking sites will impose the same restrictions for the same reasons.

That leaves just CPM-based branding deals, where the numbers are good enough (for rockyou today, that’d be 100 million widget views / day x $.10 CPM = $300K/month potentially) to try to get a couple of “pin” experiments rolling. The source of the pin image/video could be from myspace et al (my guess long-term) or from rockyou et al (my guess short-term).

How do you see the pin experiment going?

5. Richie Hecker - January 9, 2007

I see two possibilities in the development of widgets.

1) They are built into the sites themselves and the purpose disapears
2) Widgets get acquired

Widgets now are a fad (not saying a bad thing, I’m considering launching one). People have too many sites to login already, widgets add another layer.

See 2007 as the year that users get annoyed by too much. 2006 saw a slide in many 2nd tier social networks (ie:tagworld) and 2007 should see the same thing with widgets.

In terms of business models, using widgets to drive end sales is the way to go like photobucket driving sales of photos. Advertising rotation is one thing but we’re talking abut cpm in the small pennies. The inventory is worth less than standard social net space because it’ll be in confused rotation for the most part. With that said, the ad network I started (AquaMediaDirect.com) would be happy to sell space on any widget site for you, can’t guarantee a fortune but it’ll generate some revenue. Woohoo, sorry for the self promotion

Richie

6. David Armstrong - January 10, 2007

Widgets and gadgets are marketing words that got hyped…etc..etc. Hype kills concepts sometimes because few know the roots. So, to me, the root of the concept is the decentralization of your service. For example….would I like to have an RockYou RSS widget from my favorite friends slide shows to my “reader” or startpage….yes. eliminates the pain of emails with 20 attachments and a note that says “here some new pictures of my kids” or that damn Snapfish Spam. All delivered via widget. Now…make a rockon widget that lets me add images like delicious does for web pages and couple in some logic like stumble upon…wow…that would be fun. Monetize? connect with a print company and share in the revenue, three way, print company, the photographer and RockOn……just thoughts.

7. Sundar Krishnamurthy - January 15, 2007

Interesting write-up. The one thing that stood out for me is that the investment mainly based on growing service usage (and of course the team). True, Google didn’t start AdWords years after its founding but its search engine was based on strong technological underpinnings that made AdWords super-successful. Witness the struggle Yahoo is having with growing the Overture business for contrast.

Compared to that, the companies mentioned in this write-up are relying on scale to deter newcomers and possibly attract suitors from among the likes of MySpace.

It may well be VCs are investing in the hope these startups achieve that particular outcome…

8. Ewan - January 15, 2007

The only real way I can see of making money from this is the branded content route, I’m sure Nike, Reebok, and Adidas would all want people to be using their official marketing materials on their myspace site instead of unofficial ones, and the company that can provide the best looking “widgetisements” which people actually want to include in their myspace type pages could do well.

I dont think it’ll become a billion dollar business though.

9. Joe Suh - January 16, 2007

What about CPA/CPL commission through widgets? Slideshows, for example, can display the user’s favorite books or movies which serve as links to Amazon. Or even scroll through samples of music displaying the record album covers, which serve as links to a 3rd party music seller.

Commission can then be split between widget provider (ie RockYou) and user… and Myspace if they start erecting the tollbooths :)

Perhaps the catalyst to widget monetization lies in the user making some money.

10. Angela - January 16, 2007

Great post Jeremy. Very enlightening. Especially for people like me just getting started.

It’s interesting that the majority of RockYou’s traffic isn’t from MySpace. I thought that would be the primary driver of most widgets and slideshows

Is the traffic coming from Bebo now?

11. alex bard - January 17, 2007

Jeremy,

I would love your thoughts on what we are doing with widgets @ http://www.yourminis.com.

yourminis (www.yourminis.com) is a personalized dashboard (startpage) of multimedia minis (widgets) that provides instant access to your Internet tasks, information and entertainment in one place, including checking email, weather, traffic and news, accessing your calendar, browsing photos and videos, listening to music and more.

You can create internal dashboards or publish them to share your interests (you can see some of our public pages @ http://dir.yourminis.com). In addition you can take the individual minis and embed them in your personal page, blog, myspace, etc.

I think the widget space is very interesting – I think however it will be increasingly more difficult to succeed as a individual stand alone widget. I know that there have been some early successes including RockYou, but I think that will be increasingly more difficult to replicate going forward. I believe new companies will emerge as platforms for widgets…the one that can get out fast and get adoption across multiple devices / platforms (web, wireless, tv, etc.) and get to the consumer will have a great chance at breakout success.

12. jeremyliew - January 18, 2007

Joe,

I think that there is definitely an opportunity to make money through CPA/CPL. A few companies have been trying something like this, companies like mypicklist and nabbr. Its a very clever idea and one that ought to work. That being said, neither company seems to have hit the virality curve to the extent of Rockyou or Slide just yet. For some reason, money seems to be less of a motivator than passion and self expression in social network widgets so far. But who knows, this may change in the future?

Angela,

Traffic is coming from all the major social networks now, in rough proportion to their sizes, as you would expect

Alex,

My crystal ball is a bit cloudy (its getting its perpetual motion machine replaced at the dealer!) so its hard to see whether widgets continue being hit driven or become more platform plays. I think that there is an important distinction that you draw though, between startpage type widgets such as what you offer on yourminis or what netvibes or pageflakes or goowy offers, where the primary audience is you, vs self expression type widgets that are published on social network pages where the primary audience is other people. Yourminis seems to cross both categories. Obviously, the opportunity for virality is stronger when the audience is others, but the value of customization is stronger when the audience is yourself

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14. Duc Chau - March 4, 2007

Are there any plans to build out or partner with companies to build out the destination community? To me that seems like the most logical next step to siphon off traffic from the widgets into a destination community/multiple destination communities that is built by rockyou. What we’re seeing now is a free for all in terms of unregulated traffic from widgets, but when major providers of traffic for widgets start implementing their own inhouse solution (which we’re slowing seeing) thats more integrated, I think we’ll start to see a slow decline in the widgets hype. To not try to leverage the eyeballs and traffic now to develop new “communities” to me just seem like a waste, because who knows how long the eyeballs will be there?

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21. kpli - December 28, 2007

very nice post here..i’ve bookmarked this blog for future reference..

Hey i hope it’s not too late to wish you a Happy New Year

Enjoy reading this blog …;)

thanks

22. Jay - January 7, 2008

Slide is deffinitely a company to lookout for widget distribution. Clearspring http//www.clearspring.com/ is probably the top widget platform currently around. Deffinetly a big year for widgets.

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25. Fap Turbo Robot - February 15, 2009

Facebook is faster than MySpace and i really think it’s outgrowing it.

You can find Rockyou ads for Facebook and you can make money from your Facebook application.


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