The inflation and pop of the first Internet bubble went something like this:
- Excited about the cost savings of an online store versus a traditional “bricks and mortar” store, a bunch of entrepreneurs built ecommerce sites
- As venture funding poured into the space, entrepreneurs got more specialized (“your online store for ballpoint pens!”)
- As it became apparent that there weren’t enough users or sales to support all these ecommerce sites, those companies who still had resources raced to transform their businesses into B2B – selling / licensing their technology to established companies that could pay real money
- Long sales cycles, a shaky economy, and the tightening of venture purse strings doomed most of these companies
- The bubble burst
Are we seeing a similar cycle in the widget space? Like ecommerce, the promise of widgets (at least from a marketing perspective) has a lot to do with cost benefits over an incumbent system – it’s cheaper to let your users distribute your message than it is to pay for your own distribution. And like the ecommerce example, increasing competition and venture funding is leading to increased specialization.
The other night I was moderating Widgets up the Wazoo 2, and things were rolling along. The demos were great, the reach numbers cited by the companies were huge, and there was a lot of energy in the room.
Then PJ Gurumohan of Genwi stood up and asked a question that went something like this:
“So if Gigya is doing 150M pageviews per month, and at best, you can expect edge CPM of a $1 or so at most, that translates to monthly revenue of $150K, which is an annual run rate of under $2M. Is that really a venture business?”
The crowd went silent. A chill came over the standing room only crowd. Somewhere, a baby whimpered.
Ori Soen of MuseStorm happened to be at the microphone, and he paused before recovering gracefully. “No, wait, your math is wrong. They’re not doing 150M pageviews per month, they’re reaching 150M uniques per month – that translates to billions of pageviews.”
With that, the crowd gave an audible sigh of relief, the music and buzz returned, and the party was back in full swing.
But what went unsaid was that PJ’s point still held true – even if he was off by a factor of 4,6,8 or whatever.
Along with Clearspring, Gigya is one of the runaway successes in this space in terms of achieving reach. If even the biggest players in the widget platform / ad network space struggle to get to meaningful revenues on $1 CPMs (which is probably optimistic), where does that leave the rest of the widget ecosystem?
This is why I think we’re seeing the rush to provide widget related tools to big, profitable companies with significant marketing budgets. MuseStorm is now a tool that targets agencies. KickApps goes primarily after enterprises. Sprout and iWidgets seem to be targeting their widget tools towards enterprises and agencies.
A while back, there was a lot of talk that traditional BizDev might be dead. That your API and your widgets could do your BizDev and sales for you.
This may have been a little premature – from where I’m sitting, sales and bizdev remain crucial channels, especially as revenue expectations start to come due.
To reference back to my original dot com cycle, are we now at the stage where there is a mad rush for B2C widget companies to reinvent themselves as B2B service providers? It sure looks that way.
But there some important differences between 2008 and 2001. Enterprise clients are far more savvy about the distribution potential of the Internet than they were in 2000, which should shorten sales cycles. And the proliferation of APIs make integration and implementation much easier than they were in 2000. And last but not least, startup costs have come down which should give a longer runway for companies to figure out the revenue side of the equation.
I remain optimistic about the widget space, but would caution folks from being too ideological about their business model. Free distribution with ads layered on top is not going to work for everybody because of the massive reach required. Licensing and agency work can deliver real revenue, but may not achieve the reach for a homerun exit. Hub & Spoke is cool, but it needs to be done in a way that the hub is not competing against the hosts of the spokes. The good news is that many of the pioneering companies in this space – Clearspring, Gigya, MuseStorm, Widgetbox – are starting to devote more resources to figure out the revenue side.
