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Yesterday, one of my readers pointed me in the direction of a TechCrunch guest post by Mike Jones.
Jones was CEO of Userplane, "a communications widget provider" which was acquired by AOL in 2006. He is now a Senior VP at AOL.
In his post, Jones argues that widgets are the "marketer's recession survival tool" and 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."
I found his post to be interesting for all the wrong reasons.
First, he starts off by citing Forrester Research's recent post, "Why Social Applications Will Thrive In A Recession."
Jones goes on to state:
"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."
The argument that Slide's bloated valuation demonstrates that widgets "can be big business" is highly dubious.
Slide and its superstar founder Max Levchin, who previously co-founded PayPal, may have convinced investors that widgets will be big business, but none of the information I've seen indicates that Slide is generating profit, let alone much revenue.
Apparently Jones missed Bubble 1.0, as he apparently fails to recognize that investors giving a "hot" startup an exorbitant valuation does not mean that the company will develop a successful business model.
Jones goes on to note that widgets have considerable reach (177m people per day in April 2007 according to comScore) and that:
"Widget providers are gathering the kind of intelligence that allows for...sophisticated behavioral targeting."
He claims that
"the convergence of behavioral intelligence, distributed advertising models, and micro-markets is helping to create a sweet spot for widgets."
Jones even goes on to suggest that widgets "will likely become e-commerce services as well" despite the fact that, just like "transactional banners," there are some common sense reasons why they logically won't and haven't on a scale worth noting.
Of course, for all of the "sophisticated behavioral targeting" and "behavioral intelligence," there's no evidence that widget advertising is consistently delivering ROI for marketers.
To the contrary - the miniscule CPMs widget advertising campaigns are sold for is not merely a reflection that there's a lot of inventory, it's a reflection that the inventory isn't considered to be high-quality.
In other words, the sellers of this inventory know that for marketers to have any interest in advertising with them, the inventory has to practically be given away.
Of course, proponents of widget advertising are quick to argue that the "traditional" notion of ROI is outdated.
They bandy about words such as "engagement" and "interaction" - legitimate concepts that have essentially been bastardized by individuals and companies trying to convince marketers that campaigns they might otherwise claim no results from are working if measured creatively (read: flimsily).
Jones wraps up his post by asking:
"What better way to navigate wavy financial waters than with low-cost, high-reach, targeted platforms that bring companies and consumers closer?"
Unfortunately, widget advertising proponents like him fail to consider two things:
A campaign is not "
" just because it is cheap. Marketers may be able to reach lots of people at low cost using widget advertising, but if the ROI of the campaign isn't there, the marketer has still wasted money.
For instance, if a $100,000 $3 CPM campaign on a content property delivers more conversions for a marketer than a $100,000 $0.05 CPM campaign delivered through widgets, the $3 CPM campaign is still more cost-effective.
There's a good reason marketers aren't seeing returns from campaigns on social networks (where most of the widgets Jones is discussing live). Successful advertising is not only about targeting the right people, it's about targeting the right people at the right time.
Obviously, users are likely far less receptive to marketing messages when they're socializing (i.e. dealing with "MySpace vampires with blood-coated fangs").
Perhaps the biggest nail in the coffin of Mike Jones' argument, however, is that Slide's own Levchin recently told News.com that his company was "trying to shift away from advertising partially and going direct to consumers" in the face of recession.
He went on to state "nobody knows what's going to happen in the recession" and explained that his company's $50m round of funding was raised "for acquisition and for survival."
Clearly, Levchin's comments indicate that Slide's widget advertising business isn't as "big" as Jones thinks it is.
Levchin and Jones might want to speak. Either Levchin, while ironically speaking about his startup's own survival during a recession, doesn't know that he's sitting on the "marketer's recession survival tool" or Jones is simply trying to perpetuate the hype that has served his company well.
I'll let you figure it out.