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