Distributing friend connections across the web has been quite a hot topic in the Web 2.0 community as of late. MySpace, Facebook, and Google have all come out with their own initiatives for sharing social graph data with any number of websites. And there appears to be a struggle over just who will ultimately control the aggregated data – if anyone.

So it may or may not come as a surprise that Gigya, a startup known for distributing widgets across social networks, blogs and other social media platforms, is getting into the mix by launching a service into public beta called Gigya Socialize.

I first heard of Gigya’s plans to invert social networking in February when it was called “Wildfire Social”. President Rooly Eliezerov described it then as “better than anything we’ve done so far”. He even conjectured that whoever owned the aggregated social graph could become the next Google…which is ironic in hindsight, of course, given that Google itself beat Gigya to the punch.

Regardless, Eliezerov insists that the announcement of Google Friend Connect doesn’t change Gigya’s strategy, and that Gigya Socialize is actually quite different in some ways. He points to two areas in particular: the availability of an API for seamless integration, and the ability to import friends from email contact lists.

Gigya Socialize can be implemented by websites in either of two ways. They can drop in a set of plug-n-play components, like a news feed or sharing panel, that are based in Flash and visually configurable. Or they can work with an API that provides a short list of commands for retrieving and saving user activity and friend data.

While currently you can only import friends from Gtalk, Orkut and (soon) Hi5 with Google Friend Connect, you can invite them from your list of contacts on Gmail, Yahoo, Hotmail or AOL with Gigya Socialize.

Gigya intends to keep a low profile with this social service. Branding on individual components is kept to a minimum, and users are only brought back to Gigya’s site for account management purposes. The Palo Alto-based startup has no plans to aggregate friend activity across participating sites in one FriendFeed-like hub.

As for monetization, Gigya is thinking about releasing support for inserting sponsored items into the news feeds of participating publishers’ sites. The idea is that advertisers would be able to broadcast their own users’ behavior elsewhere on the web as a form of lead generation. This functionality, however, would be entirely opt-in on the part of publishers.

No websites have yet to roll out Gigya Socialize, although EA Games is said to be working on an implementation and RockYou has shown interest as well.

It’s not often a partner at a successful venture capital fund leaves to do anything except retire (although there is some evidence to the contrary). But Will Price, a general partner at Hummer Winblad Venture Partners, has resigned from his firm and, as of today, is the CEO of widget startup Widgetbox.

The company has raised $14.5 million from Hummer Winblad, Sequoia Capital and Northgate Capital. Hummer Winblad has been around since 1989 and has invested $620 million of so in startups. Price feels that Widgetbox is poised to take advantage of the huge surge in widget usage. And if the AOL acquisition of Goowy and the recent Slide valuation is any indication, there’s lots of room to grow for Widgetbox.

I asked Price to write a guest post telling us why he made the decision to leave a very safe and very lucrative job and enter the very unsafe and risky world of startups again. His post is below, although it can largely be summed up in this post, too. If you want to follow Price’s regular updates, his blog is here.

My name is Will Price and until yesterday I served as a General Partner at Hummer Winblad Venture Partners, an early stage venture capital firm that was founded in 1989 (investments include TheKnot, Napster, HubPages, Omniture, Powersoft, Hyperion and others). While passionate about the firm and the venture industry, I am leaving Hummer Winblad today to take the CEO role at one of the startups I invested in – Widgetbox.

Michael Arrington kindly offered me the chance to explain my decision to leave venture capital and to join Widgetbox as the CEO. While the detail follows, in summary the combination of my personal aspirations to return to an operating role and my passion for the widget market and the company (which I helped seed fund) made this a no-brainer move for me.

My logic:

The best markets and the best companies ride the tide of history. Widgets are such a market.

The Web’s tide is open, distributed, standard, user-defined, and, in many ways, the most powerful force of the modern era. Widgets are not a fad, or web 2.0-hype, but fundamentally they are the unit by which users are assembling and defining their web experience.

Widgets are portable applications that are user-defined, user-assembled, and consumed independent of the source of the underlying content, commerce, and application functionality. The combination of user-control and decentralized interaction to important services represents an important paradigm shift in how users discover, select, and consume the best of the web.

In Nov 2007, Comscore reported that 650m global uniques, or 65% of the web universe, interacted with a widget. The growth in widget adoption and social media speaks to users’ unmet needs and frustrations with traditional web models. Today, brands, developers, media companies, and established Internet players are racing to understand the forces driving user behavior and the power of a more componentized and distributed web. While widget penetration is at 65% of Internet users and growing, spend in the widget category in 2007 was less than $20m, or 0.1% of the total online ad spend
market.

The 650x differential between spend and the record growth in user adoption is very powerful to consider. Users are always ahead of the market, as evidenced by the systemic under-allocation of ad dollars on-line; 21% of media consumption is on-line vs. 7% of ad spend. However, this 3:1 imbalance is steadily eroding and the widget market will prove to be no different and no less transformative. Traditional portal models that aggregate users and resell that aggregation are fundamentally at odds with the emerging paradigm of user and community defined experience and distributed consumption.

Marketers need to fish where the fish are, however, in an early market there are often more questions than answers. While widgets are enjoying end-user success, the commercial relevance of widgets remains unclear to many. Are widgets a new marketing channel? If so, are they effective? How do you build them, buy them, track them? What is the unit of value; an impression, an install, an engagement…? What type of ecosystem will form around the phenomena? In order to move beyond fad status, an economic model for the widget ecosystem needs to be better developed and measurable value delivered to both end-users and marketers.

Widgetbox, along with Slide, Rockyou, Goowy, Clearspring, Gigya, and others, is working to enable users, developers, brands, media houses, and incumbents to ride the tidal wave of web componentization.

Widgetbox, backed by Hummer Winblad, Sequoia Capital, Northgate Capital, and Michael Dearing, is the web’s largest gallery of widgets. Widgetbox’s growth in the past year has been extraordinary, with a current monthly audience of 30m uniques, 400m monthly widgetviews, and widgets installed across 230,000 domains.

For those of you who read my blog, you know that I am passionate about the venture capital industry and its importance in supporting innovation and entrepreneurship. As a General Partner at Hummer Winblad, I enjoyed the exposure and access to some of the key innovators and drivers of the new economy; company’s like Omniture, Move Networks, Mulesource, Widgetbox, and many others. At 36, however, I felt a persisting and important pull to embark on a new journey of growth, discovery, and learning.

In my career to date, I have found that if you follow your heart, work tirelessly, and fish in good waters, good things will happen. For Widgetbox and our colleagues in the space, good things will continue to happen if we stay true to the web’s architecture of openness, distribution, and standardization and to users’ passion for empowerment, expression, and need for community.

Spottt, which went into private beta at TechCrunch40, launches to the public today. The product is part of the Adbrite advertising network, but is being run as a separate brand.

It is a reincarnation of sorts of LinkExchange, an advertising network that launched in the mid nineties and was later acquired by Microsoft in 1998 for $265 million. LinkExchange co-founder Tony Hsieh (also the CEO of Zappos) is advising Adbrite on Spottt.

The basic idea is that you place the Spottt 125×125 ad unit on your site, above the fold (no adult content). They provide a simple embed code, or you can use your own ad serving software (we use OpenAds). For every two ad impressions that you serve, you’ll get one free ad somewhere on the network (you can see the ad unit here on TechCrunch, we’ve added it into the sponsor’s area to the right to test it), and it is also on CrunchBase.

That leaves Spottt with 50% of the ad inventory for itself. For the first year they’ll just place their own ads on sites. After a year they’ll add the extra inventory to Adbrite and let advertisers purchase it.

This isn’t for everyone, of course. Sites that can sell ads will want to do so to make the money. But Adbrite founder Philip Kaplan notes that there are millions of websites that cannot afford to advertise, and this gives them a way of doing so without paying. And even sites that have advertising units on their site may want to add this to get some inventory on other sites. “I think this is the coolest thing we’ve ever built,” he said.

Spottt is also providing real time statistics for users, including the number of ads you’ve shown, the number you’ve received (half of that) and the number of clicks on both ads you are showing and those you are receiving. Click on the image for a larger view of sample stats.

Spottt is run from Amazon’s EC2 web service, and advertising images are hosted on Akamai (Kaplan says he wants to be able to scale quickly in the event it grows anything like LinkExchange did back in the day). They are also working with Gigya to enable the placement of the ad unit on MySpace and other social networks. If ads aren’t accepted on any particular social network, he says, they’ll just run their house ads on that site.

If you’d like to sign up for the service, use the code “techcrunch” and get 1,000 free impressions to start. The first 1,000 registrations qualify.

On Monday AOL will announce the acquisition of San Diego-based Goowy, a startup founded in late 2004 and which launched, incidentally, in my living room in late 2006 (we had a TechCrunch party where Goowy, Meebo, Sphere and other startups launched). The size of the deal is not being disclosed.

Their first product was a Flash-based webtop or alternative operating system. But later they went into the widget space with their YourMinis product, and that is the reason AOL has acquired them.

AOL SVP of Social Media, Messaging and Homepages David Liu said this was a deal they’ve been considering for the last nine months, and that they plan to integrate Goowy’s technology into both user-facing AOL products (to widgetize them) as well as their Platform A advertising network. Expect Platform A to launch significant new advertising products in the widget space soon, Liu says.

This is a significant win for Goowy founder and CEO Alex Bard, who has run a tight operation over the years. The company has just six employees and raised a single round of financing from Mark Cuban in April 2006 (the size of that round remains undisclosed, but it was almost certainly under $1 million). He says the Goowy team will remain in San Diego for at least the short term.

Goowy competes with a number of startups in the widget advertising space, including Widgetbox, ClearSpring and Gigya. VideoEgg, Slide and RockYou also compete in this area.

AOL has been busy acquiring promising young startups – they bought Israel-based Yedda last November as well.

Widget distribution company Gigya has publicly launched a distribution service for branded widgets, a premium service for advertisers that complements WildFire, its free service for the distribution of non-branded widgets.

As we described last April, WildFire helps to distribute widgets across the web by making it easy for users to install them on their social network profiles and blogs. Provide WildFire with your MySpace credentials, for example, and the service will install a widget onto your profile page, cutting out the cumbersome steps needed to install it manually.

Since Gigya has provided Wildfire as a free service for both users and widget providers, it has had to come up with a separate service to generate revenue. Gigya has opted not to incorporate advertisements into widgets, but rather to push branded widgets (think: widgets as advertisements) through its WildFire service. When WildFire users install regular, non-branded widgets on their profile pages, they will sometimes be offered branded widgets as they wait for their selected widget to install. Advertisers pay a “cost per install” that ranges between $2-5 every time a user decides to install a branded widget in addition to their original selection. The CPI is justified by the number of impressions the widget receives once spread virally over the internet.

Advertisers can track the distribution of their branded widgets with the same sort of analytic tools as provided with WildFire. They can view the number of installs and impressions (how many and where on the web), see where in the world the impressions are being made, and distinguish between original widget installations and those that have spread virally.

Gigya expects to partner with advertisers who are willing to make an investment of at least $5-10k in widget distribution. Sony BMG’s Jive Records, Kimberly-Clark and Disney have already opted to spread their branded widgets through Gigya’s distribution network, which has been running privately for a couple months. The company says that it distributes more than 300,000 widgets per day from over 400 widget production sites.

Gigya competitor Clearspring also distributes branded widgets but not in the same way as Gigya. Whereas branded widgets are suggested to users after they have installed non-branded widgets with Gigya, branded widgets are distributed as IAB standard advertisements with Clearspring. Clearspring also allows advertisers to embed their messages as “in-widget” ads.

We’re not exactly sure how long it’s been around (it appears to have launched late this Fall), but we recently came across a simple widget service with no press coverage to date called Hyplet that helps you create digital business cards and flyers. You can spread them around the web by embedding in blogs, social networks, websites, and emails.

Hyplet’s end product is nothing fancy, just a simple HTML snippet that references an image hosted on the company’s servers. Most of the service’s value comes from its user-friendly image creation tool that lets you arrange text and images, pick styles, and add links from within the browser. It’s obviously targeted at people with little or no knowledge of Photoshop or similar graphics programs. While Hyplet has templates for both business cards and flyers, you can modify them and add your own images to create widgets for any purpose.

I can see individual MySpace users taking advantage of Hyplet to put flyers on each other’s profiles, but I can’t see the service being used for serious viral campaigns. The themes are too limited and the publishing options require you to manually add your widgets in one place at a time (there’s no help from widget distribution services like Gigya or ClearSpring here). There’s also the issue of monetization; Hyplet doesn’t appear to have any source of revenue yet so I’d be concerned that my hosted images wouldn’t be around in the future.

It’s also really easy to take out the part of the HTML that promotes Hyplet itself, which I did to the business card above so it could be floated to the left (and no, that’s not my real contact information).

Get your own Hyplet!

For developers designing for the other 99.9 percent of the web not running solely on Facebook, Gigya offers Wildfire, a simple interface for spreading, tracking, and monetizing your widget across 12 social sites. They’ve been chosen to handle distribution and tracking for 6 of the top 10 Widget properties (RockYou!, PictureTrail, BunnyHeroLabs, BlingyBlob.com, POQbum and Projectplaylist.com), as categorized by ComScore’s Widget Metrix. Combined, the 6 partners have a total audience of 193 million unique visitors.

Gigya’s “embed this” widget is a simple tabbed menu of social sites that lets anyone post your embed code to their page by just entering their credentials. It even works with Facebook applications. You can see the full list of partners here.

It’s a distinctly different strategy than what other widget tool startups are doing. We reported on another company, ClearSpring, which similarly helped developers track and spread their application. However, in contrast to Gigya, ClearSpring is open to any developer and focuses on widgetizing content, not easily posting them to social sites. Gigya is aimed at enabling large widget publishers low friction adoption on social sites.

Gigya recently closed a round of funding with Benchmark and First Round Capital $2.4 million on June 25th.

Getting a widget onto a website, whether its a blog or a MySpace page or anything else, is a bit of a pain. Users generally have to copy an embed code, log into their website, and paste it into the appropriate place. While that hasn’t proven to be an insurmountable obstacle, widget startups that have found ways to make it easier for users to add widgets to their sites have seen significantly higher growth rates v. their competitors.

Slide, RockYou and Photobucket were early experimenters in this space. Instead of forcing users to do the cut and paste, they simply asked them to input their MySpace (or other social network) credentials and then put the widget onto the site directly, on their behalf. When they first started doing this in 2006 everyone expected MySpace to cut them off for security reasons, but that never happened. MySpace let the companies log in as users and publish the widgets. Slide, RockYou and Photobucket saw growth explode. Competitor FilmLoop, who chose not to offer this feature, stagnated and is now in the DeadPool.

But offering this feature is a bit of a hassle. There are a number of large social networks to deal with, and they occasionally change their APIs or login procedures. When that happens, the feature breaks until changes are made. So most widget companies today simply stick to the tried and true “cut and paste” approach to widget proliferation.

Enter Gigya, an Israeli startup that launched a tool in November 2006 that allows people to email widgets to others instead of just posting them on websites. Their initial product is doing well, they say. And now they are launching a new product called Wildfire that will allow widget producers to directly embed their widgets into the bigger social networks (MySpace, Facebook, Friendster, Hi5, Xanga, Blogger and Tagworld are currently supported). There is a do-it-yourself option for small widget startups, and they are working directly with some of the larger ones.

Once Wildfire is implemented with a partner widget site, users simply select the social network they use, type in their credentials and the area of the site they want it to appear, and hit submit. The widget will then be placed on their MySpace or other social network page. I’ve embedded a very high level overview video of the service below.

Snapvine and Bolt/GoFish have already integrated Wildfire into their sites. A number of other widget startups will be launching with Wildfire in the next week.

Gigya isn’t charging partners for the service, saying they have plans for expansion into mobile and other areas where they can begin to generate revenue. Co-founder and CMO Rooly Eliezerov says they want Gigya to be a platform for widgets, and their first two products (Gigya and Wildfire) are just the beginning.

The company has done a lot without spending much money to date. They’ve raised just $650,000 in a single financing round from Benchmark Capital and First Round Capital in November 2006. Even though the round was small, those are tier-one investors who must see a good long term business plan.

Update: It has been widely reported that the company has actually raised $4m. This is incorrect. They’ve raised just $650,000 to date, in a single round of financing last November.