Tiny Widget Apps Can Lead to Some Big Bills

Because widgets have the ability to spread virally, they are often touted as an ad medium of the future, but there’s a downside to that virality: exponentially increasing costs.

Typically marketers pay a vendor for creating widgets, which are mini software applications with videos, games and other content that can be moved from site to site by Web users.

Marketers also are billed for serving that application onto Web portals like Yahoo! and MySpace, and every time a widget is grabbed and loaded onto anyone’s social networking page. It’s that installation or engagement fee, which can range from $1 to $5 per install, that some contend can exhaust an advertiser’s budget and limit the reach of the digital campaign. Since the most-activated widget so far (an application called Top Friends from Slide, San Francisco) claimed 6.2 million downloads, widget campaigns have the potential to cost big money.

“Everyone has their hand out for payment along the way and it can be a real drag on a campaign,” said Daniel Taylor, senior analyst of digital advertising at The Yankee Group, Boston.  Debra Aho Williamson, senior analyst at eMarketer, echoed Taylor’s sentiment: “When I look at the widget marketplace, I think back to the days of the Web when Web developers had their hands out for everything too.”

Marketers are projected to spend $40 million this year, up from $15 million last year, toward creating, promoting and distributing widgets, per eMarketer, New York. That figure represents about 2.5% of the  $1.6 billion expected for U.S. social network ad spending, up from 1.6% of the $920 million spent on social network advertising last year.

The emergence of widgets as the future of Web marketing is based on assumptions that the Web audience will continue to fragment; social networks will continue growing and that consumers will want to spread information, even advertising, virally. Aho Williamson is not surprised that developers are looking for any way to generate revenue in a developing market. So when a developer creates a widget that attracts deep interaction with users, she says they should be paid for it.  But Peter Kim, CEO of widget developer Interpolls, Pasadena, Calif., contends billing for engagement could slow widget adoption.

“The client or ad agency will have difficulty figuring a budget for that widget because they can blow through that in a short period of time or if the widget doesn’t succeed, they could be left with unused money at the end of the campaign that they could have spent simultaneously on other media,” said Kim.

Interpolls develops widgets, hosts them onto the Web and charges clients only for impressions per CPM. Knowing the upfront cost convinced hotelier La Quinta to launch its first widget campaign during May. The effort with Interpolls repurposed TV spots from the “Wake up on the brighter side” campaign created by Mullen, Wenham, Mass., and included city and state search boxes for reservations and news about property upgrades. Of the people who have loaded the application on their personal pages, 78% have interacted with the La Quinta widget by watching the video, taking the survey, reading the comics or having visitors to their page click on it. Some hotel bookings can be traced to those engagements.  “Not knowing how much to budget would have delayed our response or engagement with getting widgets out there,” said Ted Schweitzer, La Quinta’s vp-ecommerce.

Not every engagement fee business model carries uncertainty, however. Gigya, a Palo Alto, Calif., widget distribution network, assesses clients between $1-2 per installs only on the Gigya Ad Network launched last January. Advertisers can budget for a specific number of installs within a prescribed period and viral pass-alongs outside the network are free.

“Part of the problem with a new medium is getting clients to understand that it isn’t easy to get your widget in front a large audience and get the them to install it to their page. The only way you’re going to have an impact with your widget is to get installed in scale,” said Liza Hausman, Gigya’s vs-marketing. In the meantime, Taylor said other widget makers need to create a model that works: “The media and advertising worlds will be far less tolerant of taking a decade to see if widgets work. If widgets don’t perform, we’re not going to see them in the long term.”