What Value Widgets?

ReadWrite Web continues to questions the ability of facebook to monetize its platform. The general potential of facebook and other social networks is an issue I've blogged about here and here. It has not stopped the venture community from continuing to pour money in, including a $20 million investment in meebo at a $200 million valuation most recently.

RWW notes that most of the successful facebook applications are strictly fun ways to communicate with your friends - I totally just superPoked your demon. Applications that actually have utility tend to not have the viral component that many of these applications which just reach out and touch/invite facebook friends. Further, it remains difficult to engage users while on facebook. Further, for applications that are related to one's personal activities - calendars, reminders, blog readers - it is strains reason to assume that people will bother their friends with invitations.

None of this has stopped folks like Adonomics from continuing to espouse the limitless earning potential of facebook applications. According to a February blog post everything on the web will be remade for facebook which will create a marketplace and incomes for developers of facebook applications along the lines of eBay for Power Sellers. However, to date, the income from the widgets has come only through advertising with networks like Gigya and WidgetBucks.

These networks may extract the ad rents from facebook, assuming they can produce more success than ads on the network itself. My personal experiment with ~15 different ads failed to yield a click-through rate above 0.04%, at which point the company stops serving your ad until you increase the Cost-per-Click bid to something in the Google levels - read $1.50. The site does have the ability to deliver impressions, but the value of that given its users' unwillingness to engage calls into question its ability to drive value. (Companies can use larger images, but to do so, you need a $50,000 guaranteed budget, and who knows whether that is on an impression or click basis.

Online ads certainly continue to garner more of the discretionary funds of large advertisers. The battle for the clicks that make these ads useful will continue to go on between the multiple players providing each piece of a web page.

Widget Payments

Mpayy continues to offer its secure payments services through a syndicated widget that can also be found on facebook. Mpayy will relaunch its widget with configurable logos, skins and payment fields on May 18th. Stay tuned.

Eyeballs Aren't Enough

I've been having a discussion with an acquaintance who is starting a venture incubator about what startups really need in a strategic partner. He contends that personnel and advice are critical to a startup, and that the proper guidance can make most business models work. My argument is that the foundation HAS to be a solid business model - with very few notable exceptions - or in the long run it will fail, and there are a number of examples out there right now to draw lessons from.

The Many Faces of Social Networking

I've discussed at length the potential overvaluation of many startup companies, and the overcrowding of specific markets caused by the herd mentality. However, that does not stop money from flowing into those markets whether or not they prove profitable.

Three years ago, Fox bought MySpace for $850 million, and Google bought YouTube in 2006 for $1.65 billion. AOL spent the same amount as Fox to buy Bebo last month, and Microsoft's investment in facebook that valued the social network at $15 billion has been widely documented.

As of now, the only business model producing revenue for these companies is advertising, and acquiring companies possess successful advertising businesses that the acquired properties are expected to drive forward. In fact, Google paid Fox News $900 million for the right to sell advertising on the popular MySpace property. Yet, that bet doesn't seem to be panning out, as Investor's Business Daily reports.

The story does say that Fox's revenues from "Other" grew significantly, and guesses that may be related to improved targeting in it advertising.

Targeted Ads to Drive Revenue through IM/Chat?



In the Spring of 2006, I wrote a paper on instant messaging startup Meebo for a Technology Strategy class at the University of Chicago. I'll dig the document out and post it here as soon as I get a chance. The thesis behind our paper was that Meebo's power would leverage the universality of instant messaging by allowing users to log in to multiple instant messaging services at the same time. While there are a number of other services that allow this, meebo's thin-client application was unique in that it would not be blocked by firewalls and download restrictions that businesses put on instant messaging, and users could use meebo through a browser from anywhere. The traffic has certainly come.



While we were correct in our forecast that the company would benefit from the zero costs of homing among instant messaging networks, and meebo would free ride on the dollars that Yahoo, AOL, Hotmail, and others had spent to build out their instant messaging memberships. These features, combined with their successful launch of chat rooms, has generated incredible success. The challenge, we concluded, would be to monetize the traffic for long-term viability.

Meebo has attempted to turn its traffic into a sale to both Fox and AOL at a valuation of around $250 million, but is now searching for a new round of funding at a valuation of $175-200 million. The company has only thus far created around $1 million in revenue.

Meebo hired a Chief Revenue Officer, CNet and Warner Music vet Carter Brokaw, to help it launch its long anticipated advertising offering. According to Read/Write Web,

"Users will be able to opt-in to sponsored experiences that are targeted to them specifically, based on their demographics and behavior. Negative feedback on a particular ad will teach the ad server not to serve the same ad to a particular user and there will be a leader board on the site displaying the most popular ads according to user response.

Meebo says that in tests, they are experiencing 2 to 4% user engagement with these new types of ads, a far higher percentage than banner ads see. "

If meebo can replicate its click-through rate at scale, it will certainly earn a premium for its advertising and could grow into a significant moneymaker. However, if, like on facebook and others, users remain too engaged in the process of networking and chat, rather than commerce and advertising, meebo will continue to struggle to justify its valuation.