Seemingly overnight, everyone is in love with widgets.
Consumers love the tiny software applications that let them share music, photos and videos, and even throw virtual sheep at one another, on social networks. And social networks love widgets because they help boost traffic and ad revenue on their sites.
On Facebook alone, users have installed nearly 13,000 widgets approximately 765 million times, according to Adonomics, a Web site that tracks widgets on the social network. Adonomics estimates the combined value of these widgets to be $374 million. There are also rumors that major media companies, notably News Corp. (nyse: NWS - news - people ), want to add developers to their stable of properties.
As a result, the number of individual hackers and companies that develop widgets has mushroomed to an estimated 100,000 worldwide, begging the question of whether the sector is in a bubble. Industry experts, however, say the concern is misplaced--for now--and that the fast ramp up is no different from what has happened in past generations of software development.
"It's too early to call it a bubble or a success," says Ross Levinsohn, the former News Corp. executive who oversaw the company's celebrated acquisition of MySpace. "You're really talking about the last six months as the real beginning of the growth of applications. It's just the beginning of what we're going to see over the next 12 to 18 months."
David Weiden, a partner at Khosla Ventures, which has invested in widget companies Slide and iLike, says a modest number of developers--about 20--received venture funding in 2007. He says investors are much more prudent now, and want to avoid the bubble conditions of a decade ago. "If there were widget companies that are public and have no revenue, I would say that's a financial bubble," Weiden says.
Slide founder Max Levchin likens the flurry of activity to the 1980s software-development boom. "It's very similar to shareware and freeware," says Levchin, who also co-founded online payment system PayPal. But widget development is a lot faster, he says. "It's like the 1980s played out in half a year."
The widget sector kicked into high gear last May when Facebook created an open platform for developers. Google (nasdaq: GOOG - news - people ) followed suit in November, announcing its own platform, OpenSocial. Applications for OpenSocial, however, have not been released yet, and development is said to be slow.
Jia Shen, co-founder of widget company RockYou!, says widget development is similar to Web site development, and thus, widgets are being valued the same way. "The metrics are about reach and not about how much money they're making," Shen says.
But unlike the dot-coms of old, many widgets are making money, mostly through advertising. Shen declined to discuss RockYou!'s revenues, but said that widget shops with just a few developers are raking in $80,000 a month in ad revenues.
Shen also says that some widgets have the potential to morph into full-fledged Web sites that can generate even more revenue. "There's been a lot of criticism of the applications as toys," he says. "One of our applications was Zombie, a goofy application that lets users ‘bite' friends virtually. After awhile people got bored with it, so we built it into a full-fledged game with virtual goods."
Indeed, corporations are viewing widgets less as frivolous gadgets, and more as business tools to boost traffic and ad revenue on their sites. "Six months ago, the thought of someone altering his or her homepage to incorporate someone else's widget into their brand [was considered] dilutive," says Jay Adelson, chief executive of social network Digg. "There's been an acceptance by traditional media that widgets give them some reciprocal benefit. In 2008, you'll see traditional brands that have controlled every element of their page open up."
To meet rising demand, developer shops are adding engineers and working round the clock to make new and better widgets. Flixster, which says its movie-review widgets have been installed on Facebook more than 13 million times and is also developing applications for Google's OpenSocial, has doubled its engineering staff to 12 since November.
But competition for engineering talent is fierce. "Most people have several options," says Flixster Chief Executive Joe Greenstein. "We pay reasonable salaries and give people generous stock options, but do we have to compete with the relatively high salaries from Google and Yahoo! (nasdaq: YHOO - news - people )? Yes."
Digg's Adelson says he has resorted to looking outside Silicon Valley for engineers. "We are trying like mad to hire more engineers," he says. "It's really, really hard. I pretty much have to import people from other states."
Levinsohn, now a partner at venture firm Velocity Interactive Group, says 2008 will be a big year for media-company acquisitions of Web 2.0 companies. In 2007, just a few tiny widget shops were absorbed by bigger ones, such as Slide. "There are a lot of good ideas that could benefit from big media," Levinsohn says. "You have a lot of companies that hit a wall and can't get beyond a certain level. They need the infrastructure and distribution of a large company."
Still, widget developers know they can't all be winners. "Not all the developers will survive," or get acquired, says Slide's Levchin. "I can look back to the '80s playbook and know what's going to happen."
Widget Wave
Bubbling Widget Growth
Wendy Tanaka, 01.02.08, 12:01 AM ET
