When it comes to the widget ecosystem, lavishly funded companies like Slide, Clearspring and RockYou hog the limelight. But it is Userplane, now a subsidiary of AOL, that seems to be revving up the money engine without much fanfare. The company that started out offering a web-based chat system has now morphed into a many-faceted business, including owning what might just be one of the largest widget ad networks out there.
At the D6 Conference this week in Carlsbad, Calif., I ran into Userplane founder Mike Jones, who sold his company to AOL in 2006 and now works for AOL. During our conversation, I marveled at the amount of money being pumped into the widget ecosystem while at the same time fretting about the paucity of revenue opportunities. My skepticism about the sector was outlined in an earlier post that focused on Clearspring’s latest round of funding.
While Jones generally agreed, he was quick to point out that when you serve a gigantic amount of ads in social media, you can actually make money. Userplane has been selling widget ads for a while, and Jones said that his company is doing about a billion widget-ad impressions a day. That makes it one of the top 30 ad networks as ranked by comScore.
While a majority of the ads run in Userplane’s own widgets on MySpace, Facebook and Friendster, Userplane sells ads for other widget makers as well, putting it in competition (somewhat) with some of the other players who sell ads to widgets that run in social networks — Scott Rafer’s Lookery, Seth Goldstein’s Social Media, Appfuel and 83Degrees’ fbExchange.
If you assume that the company can get CPMs in the range of, say, 10 cents, that translates into $100,000 a day in revenue. Assuming it shares half that with its partners, that pencils out to $50,000 a day, roughly $1.5 million a month or $18 million a year. Jones wouldn’t comment on my back-of-the-envelope math.
Volume seems to work…for now. I still don’t think there’s enough money to support the widget ecosystem, which has been overfunded in many ways. (That in another post soon.) The current banner-type advertising is a losing game: CPMs will continue to decline as inventory keeps increasing. And how effective are banner-type ads? No one says good things about them, so clearly there’s a problem.
In previous chats, industry sources indicate that video-ads seem to perform better and get higher click-through rates. In other words, more engaging (and targeted) advertising that goes beyond the current banner paradigm could find traction in the market. As I wrote earlier:
The big opportunity is in analytics that lead to a better widget advertising system that does a great job of behavioral targeting. The other opportunity is in developing new kind of ad formats that can be scaled.
If Userplane, Platform A and Bebo — all three AOL companies can work together — there could be many ways AOL could skin this cat.
Photo courtesy of Mike Jones
Well, we tried Userplane for our on-line chats. The experience wasn’t good enough and after suggestions from our users we moved to the very good and old IRC (Internet Relay Chat).
We have a 24/7 chat channel, no advertising, a Java client in our chat page, but people can access with *ANY* IRC client – not a proprietary Flash-based one. We also have a bot that monitors the channel so no profanity and spam are sent out by users – at the same time calculating statistics.
The channel is always busy with people most of the times of the day.
The worst feature on Userplane? Advertising. I don’t know what they show in the U.S. but in Australia and New Zealand they had those annoying smiley ads, IQ tests and *lots* of popups.
Those Userpane popups immediately put me off and I removed it.
Great idea, bad implenentation and lacking features that the good old IRC provides – a human touch.
You want to know the future of social network ads? CPA. Done. And those rates keep climbing.
Great post. What’s really good is the back of the envelope math. What would be good to see is one more piece of math – if the $18m is the gross number – what’s the net after you subtract other costs like hosting and bandwidth?
Again, nice post!
I think there is more than just the CPM or CPC revenue pushing these companies to be the biggest ad server. I think a lot of it goes back to simply being the largest… moving the most ads… becoming the mountain that everyone else has to scale. There is a lot to say for being the biggest, just ask Microsoft and Google.
@ M Freitas
What you say is a problem with almost all ads out there not just Userplane. Myspace is full of those kind of annoying ads.
I would like to suggest the following exercise:
Everyone who is interested in “widgets” from a business perspective defines as precisely as possible what a “widget” is.
The results will likely demonstrate that the current definition of “widget” is so broad as to be essentially meaningless in terms of anyone then being able to assess the “widget” ecosystem from a business perspective.
So I submit that discussions of widgets, widget business models, etc are in turn meaningless until a better definition of “widget” is agreed upon.
I find Userplane´s advertising system very annoying.
Those ads are annoying because they’re bottom of the bottom of the remnant barrel. I bet that back-of-the-envelope is at least 5x too high, maybe 10x too high. That sort of shotgun-type advertising creates tons of inventory but almost no real money.
CPM, CPA, CPP whatever.
As long as viewers are kept out of the money flow fueling ads, they will ignore widgets and banners. Untargeted advertising is no more than spam except you are locked in, can’t block or ignore. Widgets don’t solve this.
Share the CPM bucks with the viewer (pay for view and extra pay for click). Then you will see monetization.
Do you think widget guys like Userplane and Gigya as well as ad networks are willing to pay for play? Don’t count on it.
At the Google OpenSocial I-O conference it became quite clear that widget monetization was dead at birth – the parents are clueless.