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Widgets = ad networks

I had previously written about Widgets and their Uneasy Truce with Blogging Platforms, which stemmed from Imeem’s ban on MySpace.

GigaOm covers the topic, now for Photobucket: MySpace: Show me the money.

A quote from a quote:

I asked MySpace’s chief marketing officer Sean Shawn Gold about the tiff. Why not just cut a revenue-sharing deal and be done with it? His agreed that is the right approach and hinted that those types of deals would probably be worked out in the future (not just with Photobucket, but other widget-providers who provide content to MySpace).

This, along with Facebook’s API, tells you that the top 2 social networks in the world want to play ball in terms of being platforms where people can develop. What does this mean about the business models of widget companies?

Widgets = ad networks
Ultimately, it means that every widget company in the world will start looking like ad networks. The idea is that the widgets get real estate on the site, which are basically ad inventory. They fill that space with advertising, or whatever way they’d like to monetize, and the social network takes a cut of the revenue.

This means that companies like Slide, Photobucket, and others will start having to pay a Traffic Acquisition Cost (TAC). For ad networks, this TAC looks like 60-80% to the publisher, but they are given a standard unit with little to no value to the end user. Let’s say that the widgets will get a better position, like 40-50%.

But even once this is solved, they will have to figure out how to monetize the space. They will also have to build out ad sales teams in order to monetize the real estate, and it’ll probably be brand advertising and not direct response. The former is much harder than the latter.

Where do widgets have to go to monetize?
If you agree with this widgets=networks premise, then you’d expect the biggest widget companies to do the following to improve their monetization potential:

  • Build out big ad sales teams that sell heavy-duty impressions to brand and remnant buyers
  • Create destination sites with ad inventory they control, for more flexibility and to offset TAC
  • Complain and bitch about the TAC percentages they have to pay
  • Quickly cut the users out of the equation – when you’re paying 60% to the blog infrastructure, you don’t want to pay another 20% to the user authoring the content

I think one major loser for this perspective on the market is widget aggregators. In those cases, every $100 needs to be split amongst the blog infrastructure, the widget market, the widget aggregator, and potentially the user. Yuck. That’s a bad business to be in.

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