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Summary:

Widgets, Facebook Applications, OpenSocial Web 2.0 gee gaws – you got one of those, well you can get funded. And when I say funded, I mean really funded, even though many of these companies are still struggling to find a business model. This lack of a […]

Widgets, Facebook Applications, OpenSocial Web 2.0 gee gaws – you got one of those, well you can get funded. And when I say funded, I mean really funded, even though many of these companies are still struggling to find a business model. This lack of a business model at a time when social media advertising is taking a bit of a nose dive, makes me wonder what the investors are thinking.

All this negative thinking is a result of pondering over the $18 million in Series C funding raised by Mclean, Va.-based Clearspring from New Enterprise Associates (NEA), Novak Biddle Venture Partners and other current investors. Competitors include Musestorm and Gigya, that have come up with platforms that allow publishers to publish, distribute and monitor their widgets.

Their total funding to date is $35 million. Other investors include Steve Case, former CEO of AOL who is said to have put in a big dose of cash. One of the other investors is said to be Adobe Systems, mostly because Clearspring is a big proponent of Flash-based widgets, and at one time ADBE was rumored to be buying the company.

More than the funding, the pre-money valuation is what made me gulp hard. It is said to be in high double digit millions – somewhere north of $60 million. Why is that? Because the company is said to have some astonishing numbers…

* served over 34 billion widgets to date; that’s up from 3 billion in May of 2007
* serves nearly 4 billion widgets per month
* has 126 million unique views per month worldwide
* had 50 million unique views per month in the U.S. alone; that’s up 6.5% from February

…. not that they really matter. Because they really don’t tell the story about Clearspring. First time I met Hooman Rafdar, CEO & Co-Founder of Clearspring was back in Fall 2006 at the Widgets Live conference that was co-orgnaized by me. His idea was that as widgets phenomenon spread, the widget makers would need infrastructure – platform and analytics – to publish and distribute the widgets as they grew in numbers. Then later they started old media companies and sports leagues with development of widgets and then they launched a widget ad network. So from that perspective this company is a infrastructure provider + consultant + ad network. In other words it doesn’t really own the widget impressions, per se. Not that the company has to!

Radfar didn’t give me any revenue numbers (typically no start-up talks about it) or divulged the percentage of widgets on his network that carry ads. He did mention $5 CPMs, which is much higher than the CPMs being reported by some of the other social media operators. Many of the widgets that carry CPM ads, have low CPMs – somewhere in the $0.15-to-$0.20 range, down from nearly 40 cents in late 2007.

I think there in lies the bigger problem with the widget sector as a whole: no one seems to have come up with a business model that makes sense. The widgets have become too successful, and have created too much inventory that keeps growing but doesn’t perform as well, forcing advertisers to re-adujust their efforts. Yet you have companies like Sprout getting funded, which tells me that there is a mismatch between market reality and VC expectations and lack of understanding of this sector.

The big opportunity is in analytics that lead to a better widget advertising system does a great job of behavioral targeting. The other opportunity is in developing new kind of ad formats that can be scaled. Radfar’s company plans on building better analytics that will improve the widgets and widget-based advertising. Lets hope for the sake of Radfar’s investors he is right and gets there. That is before Google does.

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  1. Ted Rheingold Wednesday, May 21, 2008

    I recently read about a widget maker that will embed a 1×1 pixel camera widget next to each full size widget, and the camera widget will track user eyeball movement to confirm the widget was actually looked at vs. just served up.

    Yes, I’m kidding ;>

  2. technology pr Wednesday, May 21, 2008

    “low CPMs – somewhere in the $0.15-to-$0.20 range” that is ridiculously low. why is it so less when many good blogs and sites can demand an average of $10 per CPM.

  3. @Tech PR — There’s a reason why Lookery got a couple billion pages a month of demand for our $0.125 CPM Facebook app guarantee. The number of “good blogs and sites” that average those high rates is less than a thousand globally. Widgets will average much, much less. More soon.

  4. Clearspring Raises $18m | Mobilitee Wednesday, May 21, 2008

    [...] Mashable Venture Beat CNet and to round it out, a skeptical view by Om at Gigaom [...]

  5. Future of Online Advertising – Clearspring Raises Big Round – Social Media and Social Advertising « Furrier.org – Business & Technology Blog Wednesday, May 21, 2008

    [...] Future of Online Advertising – Clearspring Raises Big Round – Social Media and Social Advertising May 21, 2008 Posted by John Furrier in Technology. Tags: clearspring, online advertising, social advertising, twitter trackback Clearspring just secure what is being talked about is a big round. Ok I have an opinion on this. At PodTech we were one of the early players in having a deployable widget (player) with content emebbed. I can tell you that there is a big revenue model coming. Some just don’t see it yet. [...]

  6. @ Ted … damn it dude, i wish i thought of it first and i could have raised millions :-)

  7. @ Scott,

    And I am being generous with those numbers. you are spot on – prices are declining.

  8. Om, Thanks a ton! I’ve been looking to build a widget for a couple weeks now. Your referral to Clearspring opened up a ton of options to me!

  9. Marc’s Voice » Blog Archive » Another day, even more blogging Wednesday, May 21, 2008

    [...] just love the notion of Clearspring going ‘more’ social. Om is right, Clearspring is infrastructure provider + consultant + ad network. Now they need to show “where’s the [...]

  10. Om,

    “Yet you have companies like Sprout getting funded, which tells me that there is a mismatch between market reality and VC expectations and lack of understanding of this sector.”

    Can you elaborate on this point?

    You also mentioned “The other opportunity is in developing new kind of ad formats that can be scaled.”

    We believe that all these widget and ad distribution networks have a massive bottleneck with content in the format they need today (Flash ads and widgets). Sprout is focused only on the content creation and we want to evolve the marketing into using new ad formats (more on that later this year).

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