This guest post about the widget economy was written by Michael Jones, an angel investor, the CEO of Userplane and a Senior Vice President of AOL.
Userplane, which was acquired by AOL in August 2006, is a communications widget provider (add chat and other services to sites) and a large advertising network.
Mike Jones’ personal blog is here.
Companies facing a slowing economy are looking for more cost-effective ways to reach customers. Forrester’s recent post on the role of social media during economic recessions supports the idea that social media can help companies survive and thrive in tough economic times. And Josh Bernoff’s full report on the subject calls for an end to “toe-dipping” by interactive marketers and advises a more serious look at cost-effective and measurable social marketing programs. A key take away:
…since interactive marketing programs are now fueled by measurable results, not dot-com madness, we believe that they can thrive in a recession. Social applications in particular, such as communities and social networking sites, are cost-effective and have a measurable impact on prospects’ decisions in the consideration stage, which will be important to companies under recessionary pressures. Interactive marketers should stop toe-dipping and invest only in programs that can deliver on measurable metrics.
Additionally, Forrester analyst Jeremiah Owyang points out that social marketing costs far less than traditional marketing. So when purse strings are tightened, marketing execs will become more excited about social media’s potential of reaching exponentially more people with fewer dollars.
While the recession-proofness of social media is a case study in the making, the idea that social applications can thrive in tight economic times because they are a cost-effective, precise way for companies to interact with customers and prospective customers, is right on the money – quite literally.
Widgets: The Macro Promise of Micro-markets
The top widget providers are proving that widgets can be big business. Slide and Userplane, of which I’m CEO, are two successful providers of distributed applications. Slide’s recent $500M valuation gives credence to the huge potential of these small attention grabbers. The success of today’s widgets is largely a function of the hundreds of millions of ad views they garner each day.
In April 2007, comScore estimated that widgets reach 177M people every month, or 21% of the worldwide online audience. Currently, only a fraction of widget traffic – perhaps as little as 0.5% – is being monetized. And that 0.5% is being monetized most frequently through traditional CPM models. In order for widgets to pay off in the long term, however, new models are required that will drive revenue beyond the top few widget providers and generate significant returns for all customers investing ad dollars.
Brands are changing the way they view online advertising and are becoming more concerned about reaching audiences based on their interests and actions, through so-called behavioral targeting. Traditional brand affinity concerns are taking a back seat to a willingness to meet users on their own terms. And, it doesn’t stop there. Marketing will align with individual social graphs as well.
The idea of a brand’s squeaky-clean “image” appearing next to a porn star would have been cause for reprimand in the old school of media buying. Yet in online advertising, it seems to slide. The new model of advertising, which is focused on customer behavior, makes it not only okay but necessary to meet customers within their preferred areas of interest, or “micro-markets”.
Widget providers are gathering the kind of intelligence that allows for this sophisticated behavioral targeting. They can assure brands before investing ad dollars that particular users are interested in their product or service. If behavioral intelligence demonstrates that a particular consumer is effectively engaged by the brand in proximity to MySpace vampires with blood-coated fangs, the new breed of media buyers will be more willing to put their old placement fears aside.
The Changing Nature of the Media Buy
The convergence of behavioral intelligence, distributed advertising models, and micro-markets is helping to create a sweet spot for widgets. eMarketer predicts an increase in the behavioral targeting market to $3.8B by 2011 from $350M in 2006. This is the kind of market that is driving activity in companies like AOL with its acquisition of Tacoda, as well as companies like Revenue Science and Lotame.
The very definition of CPM is also changing as new models for media buying emerge. New ways to purchase and monetize connections between brand and consumers will emerge, including opportunities to move the point of purchase to these distributed applications. Not only will widgets incorporate ads based on individual behavior and areas of interest, but widgets will likely become e-commerce services as well. There is no reason why a social marketing program for a specific product can’t incorporate distributed shopping carts across sites where likely buyers congregate. The revenue opportunity for a widget-based checkout function distributed across social mega sites is already there.
New Media, New Optimism
Even with the less than positive economic news of the day, there is room for continued optimism about social media. What better way to navigate wavy financial waters than with low-cost, high-reach, targeted platforms that bring companies and consumers closer? Widgets are the conduits to our markets, and ultimately, people that matter to our business. Leveraging them humanizes not only the brand but interactions with the customer as well.