The Next Small Thing

The Next Small Thing

JULY 23, 2007

of code called widgets open the door to viral marketing across social
networks. Silicon Valley sees them as a Web revolution in the making

a land grab under way in Silicon Valley. Not in real land (even in Tech
Town, home sales are sagging), but on the Web. What’s fueling the
frenzy is something that couldn’t sound more prosaic: widgets.

In the Web world, widgets are modules of software that people can drag
and drop onto the personal page of their social network or onto a blog.
There, widgets typically look like a little window or box, packing a
bit of the functionality that you would get with a stand-alone Web site
or software package. The result can be as mundane as the WeatherBug, or
a YouTube clip of your favorite video of a bulldog riding a skateboard,
or your wish list from online jewelry retailer Blue Nile (NILE
But widgets also can
be storefront windows for selling products and services or digital
billoards to which customized ads can be affixed. Create one that plays
your favorite song and it can send visitors through to (AMZN
) to buy the band’s album. Random House Inc. has a widget that lets you
click through to buy new book releases from the company’s online store.
You might even share a slice of the proceeds.

The land grab comes from the sudden realization by software developers,
media companies, and retailers that by widgetizing their programs, news
snippets, video clips, and products, they can stake out some prime Web
real estate. People are increasingly spending their time with
like-minded souls at blogs, online communities, and social networking
sites such as Facebook, MySpace (NWS
), Hi5, and Tagged. In a sense, creating widgets is like unleashing a
cloud of benign viruses. They carry your storefront or video clip or ad
to anyone’s Web page or profile. And those who like them can share them
with thousands of people. They multiply, and as they do, they alter the
very geography of the Web.

That leads some technologists to conclude that these humble bits of
code–or applications, as widgets are also known–could turbocharge a
third phase in the Internet’s development. In the first, users typed in
addresses of Web sites or portals to find things. Then came search
engines in the mid-1990s, which gave surfers a faster way to ferret out
information and products. Widgets don’t signal the death of portals or
search engines, but they’re giving even more power to individuals to
become distributors, publishers, and arbiters of content. "We’ve got to
push it [content] out to where they are," says CBS Interactive (CBS
) President Quincy Smith. "We can’t drive everyone to CBS-dot-com-backslash-CSI-backslash. Nobody is around."

Marc Andreessen has seen one Web epoch. He co-founded Netscape Communications Corp. (TWX
), which ignited the Web revolution back in 1994 when it developed a
commercial version of the Web browser. Now he’s convinced something
similar is happening. "I think the Internet is going through a major,
major shift," says Andreessen, who is now co-founder of Ning Inc., a
service that lets people create social networking sites. "Concepts are
now able to spread on a million Web sites. It’s super exciting because
you can get huge scale very quickly. The big widgets have the potential
to become the new networks."

The scramble began on May 24, when Facebook Inc. announced it would
crack open its site and hand over significant economic and distribution
power to widget developers. While had let outsiders paste
applications on its site, Facebook, the No.2 social network, went a few
steps further and let developers tap into its user profile database to
increase a widget’s usefulness. Facebook also created discrete areas on
its site where developers can keep 100% of the revenue they generate
from advertising and e-commerce.

Here’s how it works now: Click the Flixster movie widget that you
installed on your Facebook profile page, and it zaps you to a place
where you can list the movies you’ve seen, along with your rating and
review, or look at pages that show reviews and ratings from your
friends, what’s playing in theaters, and film trailers. And when your
friend Todd posts his review of the new animated flick Ratatouille,
Facebook lets you know about it on your news feed page. Click on the
link, "View Todd’s Reviews," and up comes his movie page. By that
point, all of your friends become aware that you have started using
that program, and the cycle continues.

For many Web users,
widgets are a form of self-expression. William Tinkler, a 23-year-old
soon-to-be University of South Carolina law student, spends a couple of
hours a week on Facebook. His page boasts five widgets in all, and his
friends are alerted each time he puts up a new one. One shows the
jackets of books he is reading, another tells friends who visit his
page what movies he plans to rent from online movie store Netflix.
(Next on Tinkler’s list: The Science of Sleep.)
He also has a world map featuring the places he has visited highlighted
in blue. There’s a politics meter on his site displaying where he
stands on the conservative-liberal spectrum and a space where friends
can convey their feelings about him with goofy gestures such as a
virtual "high five." "I consider it another way of showing your
personality," says Tinkler. It doesn’t bother him that the movie widget
includes a plug urging visitors to sign up for a free Netflix trial.

At software companies, Facebook’s shift was greeted as though it were a
starting pistol in a 100-yard dash. Hadi Partovi, the co-founder and
president of iLike Inc., launched his development team on three weeks
of 20-hour days to crank out a Facebook version of iLike’s program,
which lets people share their favorite musicians and songs with one
another. Now, when Facebook friends say they are going to a concert,
the iLike program automatically notifies you. Then it suggests other
artists that your friends like. Click on a "who’s going" link, and it
brings up a page with names and photos of the 345 people planning to
attend the show. The company also got an entirely separate area on the
Facebook site on which to sell ads, albums, or concert tickets.

The results have been startling. It took iLike six months to sign up
its first million users for the program that ran off the company’s own
Web site; iLike signed up another million in its first week on
Facebook. The company, which has offices in San Francisco and Seattle,
had to borrow two truckloads of computer servers to handle the
stampede. Now iLike is the third most popular application on the site,
with more than 4 million users. And it is selling ads and taking
commissions from the sale of concert tickets and new releases. "We are
already making more money from Facebook than our own Web site," says
Hadi’s twin brother Ali, iLike’s CEO.

Facebook founder and CEO Mark Zuckerberg, 23, is taken aback by the
response to his new platform. "We thought it would take a little longer
to ramp up," he says. Wearing his shorts and sandals at Facebook
headquarters in downtown Palo Alto, Calif., Zuckerberg says that more
than half of Facebook’s 28 million members have installed at least one
application. He muses that Facebook has the potential to become a sort
of operating system, helping communities add more and more complex
services, much as Microsoft Corp.’s (MSFT
) Windows is a platform that millions of developers write programs for.
Then Zuckerberg catches himself and says that metaphor might be a bit
much. "It’s still early" in the game, he admits, and it’s hard to tell
how far the application movement can go.

Even MySpace is feeling the heat. Ever since Rupert Murdoch’s News Corp. (NWS
) bought it in 2005, the site has been looking for ways to make money
off its 70 million members. That has led to some run-ins. This spring,
MySpace temporarily blocked access to one widget by Photobucket Inc.
because it violated the company’s prohibition against advertising on
the site. Now MySpace says it’s developing a pilot program to allow a
handful of developers to integrate with its platform. But it won’t open
up to all; its executives say they’re concerned about security and
spam. "We want to open up to the best and most important applications,"
says MySpace CEO Chris DeWolfe. "Depending on how that goes, we’ll open
it up further."

Skeptics point out that widget fever bears many of the signs of
previous Internet fads that generated tons more excitement than money.
A few years ago, after all, geeks hyped podcasting as the next
revolution, but the technology so far hasn’t crossed over to the
mainstream. There are already signs of overexuberance about widgets. On
July 10 the venture capital firm Bay Partners drew guffaws from some
quarters when it launched a multimillion-dollar fund devoted entirely
to backing widgets made for Facebook pages. And the blogosphere is
chattering about "app fatigue."

But major companies from media, publishing, technology, communications,
entertainment, and retail are jumping on the widget bandwagon. Reebok
International Ltd. recently created a marketing widget called "Shoe
Fight," which lets you design a sneaker and put it on your Web site,
while IBM (IBM
) is plugging widgets into its software, including one that lets
employees turn their unread e-mails into an audio file they can listen
to on the way home from work.

Google Inc. (GOOG
), the most powerful force on the Web today, is taking widgets
seriously. In June, it unveiled a program to attract widget makers with
$5,000 grants or $100,000 seed investments. Google is also testing
Gadget Ads, which lets merchants convert their static display ads into
a sort of widget by adding videos, animation, and real-time news or
marketing data to them. At WidgetCon 2007, a daylong conference that
brought together more than 150 marketers and technologists in New York
on July 11, Google business product manager Christian Oestlien said the
company is allocating the same amount of brainpower to developing
widgets as it is to search engines. As Google sees it, widgets allow
people to personalize their Web experience–and in the process produce
more effective advertising. "I actually see gadgets themselves as a new
form of advertising," says Marissa Mayer, Google’s vice-president for
search products and user experience.

Values of some top-tier widget makers have already been jacked up as
venture capitalists and big Web players throw money their way. On May
30, Fox Interactive Media (NWS
), the parent of MySpace, paid a reported $300 million for Photobucket,
which makes a photo-sharing widget, and bought Flektor, which makes a
video-editing widget, for a reported $20 million. Financiers and
entrepreneurs estimate there may be dozens of widget companies in
Silicon Valley right now commanding valuations north of $100 million.
"Widgets are a fundamentally important idea," says Vinod Khosla, one of
the Valley’s most respected venture capitalists, who has invested in
two widget makers, Slide and iLike. "I believe it has the potential to
create big billion-dollar winners."

Earlier this year, the National Basketball Assn. learned how explosive
these little doodads can be. The NBA created hundreds of trading
card-like widgets. The card displays a picture of your favorite player
along with their updated statistics and links to news stories and
videos about them, saving you a trip to Today, the NBA’s
widgets have generated more than 100 million views from 175,000
locations. "We see it as taking little pieces of and scattering
them to the wind and using them to bring people back," says Steve
Grimes, vice-president of NBA Interactive.

If widgets really take off, they could upset some big apple carts. They
undermine performance measures that the ad industry has tried so hard
to establish for measuring Web activity, such as page views and time
spent on a site. In a world where a Web site can be splintered into a
hundred little pieces, widgets reshape the definition of a Web page and
an audience. They also could accelerate a move away from big Web

The e-commerce implications are potentially huge. Instead of simply
building a destination site where people come to shop, sellers can use
widgets to bring the store to the buyers. Amazon and Wal-Mart Stores
Inc. (WMT
) have toolbar widgets that enable surfers to search their Web stores
while staying on their social network or other personal page. In May
the e-commerce market research firm Terapeak built an eBay (EBAY
) shopping widget that lets buyers search for items and shop from
Facebook. Says eBay CEO Meg Whitman: "EBay will always be a destination
site, but we will also do distributed commerce."

Widgets also can turn any blog or Web site, no matter how small, into
an ad platform. Tumri, an online advertising startup, has developed
widget storefronts for Wal-Mart (WMT
), online shoe store, Macy’s (M
), and Sears (SHLD
). Any little guy with a Web page can sign up for the Tumri widget
stores and pick which product categories to advertise or sell on their
site. A fashion blogger, for example, may opt to sell high-end handbags
from Macy’s. So long as the merchant doesn’t object to its goods
appearing there, the publisher plunks the widget onto his site. Tumri
often splits the revenue it receives for each click, 50/50, with the
Web site generating the clicks and ad impressions.

This is all heady stuff. Think what happens when social networks go
truly mobile. Widgets, with their bite-size appeal, are ready-made for
devices such as the new Apple (AAPL
) iPhone. Every so often the creative chaos of the Valley coalesces,
preparing the way for sustained profitability around a new business
model. The symbiotic relationship of widgets and the social Web
might–with a big emphasis on might–mark one of those moments.

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