What is the widget world coming to?

It seems to me there is a lot of confusion in the world about widgets right now, and that thinking about the old fashioned concept of value can help us see through the fog.

To set the scene, along with many others I believe that widgets are big news.  Content is getting atomised and widgets are a big part of that story.  Ivan Pope’s widget predictions for 2007 give a glimpse of just how big this might be.

Back in Jan I wrote that widgets can be an important source of distribution for consumer internet businesses, but that lack of revenue model made it hard for me to get excited about pure play widget businesses.

I’ve had to have a bit of re-think! MySpace’s $250m acquisition of Photobucket (a pure play widget company whose widget lets you display slide shows of your photos) tells me that thinking about value might help pick the winners from the losers in this space.

Any company has got to add value to its customers, right, business 101.  Widget companies are in the slightly confusing position of having two sets of potential customers – end users and distribution partners (usually social nets).

Dave Hornik wrote a good post on this subject last week, talking about how the relationship between widget company and social networks can be symbiotic – widget adds value to the consumer AND the social net so they both benefit, or parasitic widget competes with the social net for the consumer’s attention.  The business model the widget company adopts is a contributing factor here as well – if the widget has direct advertising revenue then the social net is more likely to see it as parasitic.

So back to value.  Dave’s portfolio company VideoEgg, focuses pretty much 100% on adding value to the social network.  Their embedded video widget allows a social net to offer video without the expense of building their own service, and it gives them money for the privilege.  VideoEgg sells the ads in the video streams and gives a rev share to the social net.  Bebo is a customer, as is our own WAYN, and it is a fantastic service.

Photobucket took the opposite strategy of focusing on adding value to the consumer – they have a great widget for displaying photos on your Myspace profile.  Myspace benefits indirectly because people hang around on the site more to look at the photos, but that is a by-product.  Photobucket took the strategy favoured by most widget businesses of growing the user base first and monetising it second.  This worked well for them until they tried to put ads in the widget, at which point Myspace started to view them as parasitic and blocked them.  Fortunately for Photobucket consumers love their widget, and in the battle that followed Myspace decided to solve the problem by buying the company.

Somewhere in the middle of this lies the widget platform businesses, like Snipperoo which adds value to users by aggregating widgets and taking hassle out of installing and removing them and to social nets by offering services like code validation and tracking.

Getting to the money – focusing on adding value to the host (typically a social network) is not too far off a traditional software (or SaaS) model.  You can make good money like this – compared to a consumer oriented play it is safer, but less exciting.   The excitement comes from owning the consumer, in the same way that MyBlogLog owns me.  In this model you get the massive scalability (think YouTube), but you have challenges with revenue model and dependence on third parties for your very existence (think YouTube!).  This can work, but my view would be that you need to be adding enough value to your consumers that a social net wouldn’t dare to block you – even post Photobucket, this feels like a risky strategy.

Another thought, and this feels like heresy in today’s world of free (as in beer), is that people might be prepared to pay a widget provider directly to have the widget on their site.  I would pay for MyBlogLog – now that is a clear statement of value!

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