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Widgets and business models

By December 29, 2006 January 1st, 2007 11 Comments


This is the second post inspired by Fred Wilson’s 2007: The end of the page view.  This one is about widgets, the atomisation of content and the separation of value and revenue.

To take a definition from the Apple Store, widgets are:

mini-applications that let you perform common tasks and provide you with fast access to information

They sit on desk tops, blogs and personal profile pages  – the MyBlogLog rogues gallery on my sidebar is a good example.   

Widgets are starting to become big business.  Ivan Pope of Snipperoo is a leading player in this space and his post on the progress of widgets through 2006 is well worth a read if you are interested in this space.

This is a great development.  It is another step forward in using the web to drive efficiency in our lives.  Giving us quicker, easier and more configurable access to the content we want.  Netvibes can be thought of as a personal efficiency widget company.

It is also part of a larger trend towards the atomisation of content.  Content used to come in aggregated bundles – newspapers, TV channels, now using the internet we pick off individual items and create our own bundles.  RSS feeds are a good example of this with written content.  YouTube is a good example in video.

To repeat, I welcome this development.  But it is resulting in a separation of revenue and value

Aggregated content bundles were consumed by aggregated audiences and advertising and subscription models were relatively straight forward.  In a widget world things are more complicated – the content provider doesn’t control the real estate around the content any more. 

If my blog is viewed in Netvibes then my options are limited to putting ads in my feed, the white space around it belongs to Netvibes.  At least bloggers have that option.  For most widgets – a weather widget would be a good example – there is no advertising option available.  Given that there are lots of weather widgets available for free it is hard to see how the writers of weather widgets can make any money.  The value of the widget is turned into revenue not by the widget owner but by the owners of the sites where the widget is embedded – via advertising or subscription.

Value and revenue are separated.

MyBlogLog is a good case study of this playing out in practice.  Their rogues gallery widget is everywhere, so they have created something of value.  Yet they don’t get any money from the sites where it is embedded.  I haven’t seen the numbers, but I would guess that the number of times their widget is displayed is huge and growing really fast, but that click throughs to their site are much lower.

The challenge for entrepreneurs and VCs is figuring out where the value will lie on exit.  Will ‘widgets served’ numbers become sufficient to drive a big exit? 

Your answer to that question will have a profound impact on your strategy.  If yes then your plans are all about distribution.  If no then you need to focus more on click through rates and time on your own site.

Experience has shown us over the last couple of years that massive value can be generated on exit without proving a revenue model out.  Think Skype and YouTube.  But both of those companies had a clear logic that linked users to potential revenue.  That logical link is missing for widgets and until it arrives my gut says we won’t see a big exit for a pure widget company.  But when the link is found that exit could come round very quickly.  After all, good widgets spread like wildfire.

UPDATE:  On reflection YouTube was at least half a widget company – so they found a model to make this work.