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Sharing the Widget Wealth

Widgets jazz up profiles and boost traffic, but eat into social networks' ad revenue. Facebook and others ponder a remedy

Call them Web page bling. They're widgets, the shareable programs that let Internet users do everything from display photo slide shows to embed multimedia movie trailers, music, and audio messages. Over the past year or so, millions of Web users have employed widgets to accessorize their pages on social network sites, such as Friendster and Bebo.

For the makers of the applications, widgets are a potential gold mine. Slide, the maker of popular slide show tools, reaches about 50 million viewers a day, says founder and Chief Executive Max Levchin. "These are features for self-expression…that can create very engrossing experiences for users," he says.

They're also good for social networks as they help boost site traffic and time spent on a site—actions that advertisers crave. But there is a downside for social networks, too. As widgets incorporate more advertising—such as movie trailers and brand logos within picture players—they can grab attention away from the ads the social networks sell on their pages, making those spaces less valuable and creating competition for the clicks that generate advertising revenue.

So the social networks want their share.

A Widget "Tax"

Several network owners are discussing with widget makers how they can help disseminate and split the revenue from advertiser-supported widgets and widgets that are advertisements themselves, such as movie trailers. RockYou!, a maker of popular widgets including a countdown-to-event widget, is discussing revenue-sharing deals with several social networks, says Chief Executive Lance Tokuda. Similarly, Friendster is open to revenue-sharing opportunities, says Director of Marketing Jeff Roberto. "The social networks will exact some sort of a tax or a revenue split because the widgets live inside the frame of the social network," says Slide's Levchin. "There is a huge incentive for MySpace, Facebook, and everyone else to make sure that we stick around."

Facebook may be taking extra steps to ensure that Slide and its peers stick around. Facebook is considering letting third-party companies, such as widget makers, provide their services on its site, The Wall Street Journal reported on May 21. A Facebook representative declined to comment on the story, instead noting that the company plans to make some announcements at a May 24 event. Facebook reportedly does not plan to share revenue with the widget makers, who believe such revenue splits are only a matter of time.

Does Traffic Trump Payment?

It's up for debate just how much of a tax social networks deserve. On one level, widgets already give social networks a popularity boost with users. In the five months after Friendster opened its site up to all widgets in August, 2006, it added more than 5 million new users and is now serving more than 200 million pages a day. Roughly 39% of the site's users have a widget in their profiles, and users with widgets tend to be more active, says Friendster's Roberto. He adds that the users who continually update and add widgets to their pages—he calls them "content mavens"—draw more users to those pages. "All of those dynamics play up to more activity and more registered users," says Roberto. "Right after we opened up the site [to widgets] we did see a spike."

RockYou!'s Tokuda says that his company's widgets, and those of other widget makers, had a similar effect on Bebo, another popular social network site. "Widget providers increase their traffic because it gives their users more things to do," says Tokuda, adding that users see widgets as a means of self-expression.

The extra boost in traffic and time spent on social networks may seem like payment enough from widget makers. But considering the potential for competing advertisers to detract from the network's own advertisers, some networks have been reluctant to open up their pages to an influx of third-party widgets. Widget makers say News Corp's (NWS) MySpace, for example, has blocked some third-party widget makers who either sell, or are hoping to sell, ads on their small programs. The most well-known example is MySpace's block of popular photo-sharing widget maker Photobucket (see, 4/12/07, "MySpace Plays Chicken with Users"). The company is now reportedly acquiring Photobucket for $250 million. MySpace did not return requests for comment.

Revenue-Sharing Inevitability

After MySpace, Facebook is the second-largest social network, according to Hitwise. Widget creators are hopeful that, should Facebook open its doors to them, even with a revenue-sharing deal, MySpace will have little choice but to follow suit. "It certainly puts pressure on social networks to be more open," says Haroon Mokhtarzada, chief executive of Freewebs, the maker of a tool that lets users select and customize a variety of widgets from a Widgetbank, launched May 21. "Users are going to go to where there is more freedom."

Mokhtarzada believes a revenue-sharing economy is inevitable. The reason is that most widget makers are willing to share their revenue with the sites they rely on for distribution, provided the sites don't want so much that widget makers can't run their businesses. And provided they don't want that money before the makers have had a chance to generate revenue to share.

The widget economy is, in many ways, still in its infancy. Freewebs plans to host a widget conference in New York at the beginning of July. At the conference, widget makers will discuss how to charge advertisers in order to then be able to work out such revenue deals with social networks and others.

Meantime, social networks may just have to settle for the traffic boost. "I think, at this stage of the game, they are just going to have to allow it to happen," says Alex Blum, chief executive of KickApps, a company that enables publishers to customize widgets and serves widget advertisements. "But as time goes on there may be a widget economy that comes out of all of this," he says. And its chief currency is all those attention-grabbing features filling up Web pages.

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