Perspective, Pontification and Propoganda about Entrepreneurship and Venture Capital, brought to you by David Hornik of August Capital.

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Mike Berkley

Dave, very well written summary of the business model challenges we face in this space. These challenges are not insurmountable. The companies that survive will be the ones that provide enduring value beyond (or, I should say: behind) the widget itself. It is fair to ask: is a widget a product, or is it a strategy?

We're going to see a lot of creativity over the next 6 to 12 months in new models for monetizing distributed players / widgets.

I appreciate your inclusion of SplashCast in the discussion. However, I do take issue with the "widget aggregrator" label. :-) SplashCast is a rich media publishing platform, chalk full of robust feature awesomeness.

Cheers, Dave!

p-air

David, let me suggest another eventuality that we're seeing being played out here. The dominant destination sites are allowing the widgets to exist only to determine which ones make sense to add to their own inventory of offerings. Note yesterday's report that MySpace may be trying to acquire Flektor (http://venturebeat.com/2007/05/15/rockyou-says-its-rocking-slide-but-both-face-trouble/), as a sign that big sites use these widget builders as their R&D labs. From here they can determine what works and what doesn't, what to build and what to buy (as Yahoo! has done numerous times now), at such time as they see the monetization oppty. I'm not sure we will see many more of the tremendous multi-year successes we have seen w/YouTube and Photobucket, as the majors are now looking out for these widget providers to take out or shut down, or to leave alone if they are of no consequence.

Nathan Furr

David,

Great thoughts. I found it interesting that the recent post on Venturebeat highlighted a similar parasite / host tension with the potential challenges or opportunity RockYou may face as My Space looks into acquiring Flektor. They made a comparison between RockYou and Paypal (that eBay tried to create its own payment system and so in the end acquired Paypal, and so might happen to RockYou). One key dimension Venturebeat failed to recognize that you touched on is whether you are generating revenue on your own. Paypal was clearly generating a great deal of revenue which one could argue allowed it to both continue as a "parasite" as well as give a reason (all the transaction revenue) for eBay to acquire. On the other hand, sites like RockYou don't have quite that proposition.

I think you highlighted the fundamental tradeoff: do you monetize now or later. Monitize now and how might that slow your adoption. On the other hand, monitize later runs the risk that you truly get breakthrough adoption and are a must have synergy with the host.

Again, great thoughts David.

CEO

The problem is that there are so few pieces of real estate for the widgets to live on. MySpace is 80% of the social networking market (hopefully Facebook being more open will help that), and blog growth is flat... Perhaps desktop apps like Apollo will help fuel the widget economy.

FredDestin

Fox Interactive probably primarily acquired PhotoBucket as it failed in its internal development of a photo sharing service (as eloquently covered by hitwise -- see link below). In my view the primary reason why News moved on PB was defensive. In many ways a photo sharing service is much harder to switch away from than a social network, as it contains so much of your digital archive.

The question that is interesting to me is whether the acquisition of widget companies actually makes any sense at all, or whether it is still based on an outdated, portal centric vision of the past. Arguably it would be much more sustainable as a social network to never acquire any widget companies but instead make sure that you have the most vibrant community, a community that knows that your platform will evolve in an open fashion to always allow its users to integrate the latest hot widget.

The web of course is a story of continuouns reintermediation, as some meta player always emerges on the back of a success story. Think Netvibes effectively reintermediating all its partners and looking to create and harness its own community and THEN creating widgets itself that can be exported to social networks.

My personal view is that focus pays off and that it is going to be very hard to beat a dedicated photo or video platform and that users will want the ability to create a best of breed environment in which to express themselves and interact with their friends. The composite social network, increasingly open and allowing all sorts of applications to be deployed -- and monetized -- is the most sustainable way forward.

The real question as a venture capitalist becomes one of how to generate sufficient upside. By being highly disruptive on business model again (versus the likes of MySpace) and effectively creating a very low margin - very high volume affiliation business, how large do you need to get to generate a homerun exit ?

Link to Hitwise (not mine J):
http://weblogs.hitwise.com/leeann-prescott/2007/04/photobucket_myspace.html

charlie

David,

Sigh.

My take has always been that the partnering is key before 'giving away' the widgets. Especially when distribution is so big here.

Alas, technologists prefer to build before taking care of the business, so you get a lot of widgets without a future.

But, who's listening to me over here?

Sigh.

Tchau,

Charlie

PS Heh heh, this article has been sitting in my short read list for ages. Glad I finally got to it.

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I found it interesting that the recent post on Venturebeat highlighted a similar parasite / host tension with the potential challenges or opportunity RockYou may face as My Space looks into acquiring Flektor.

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The question that is interesting to me is whether the acquisition of widget companies actually makes any sense at all, or whether it is still based on an outdated, portal centric vision of the past. Arguably it would be much more sustainable as a social network to never acquire any widget companies but instead make sure that you have the most vibrant community, a community that knows that your platform will evolve in an open fashion to always allow its users to integrate the latest hot widget.

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Its like you read my mind! You appear to know so much about this, like you wrote the book in it or something. I think that you could do with some pics to drive the message home a little bit, but other than that, this is great blog. A great read. I will certainly be back.

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