At the D6 Conference this week in Carlsbad, Calif., I ran into Userplane founder Mike Jones, who sold his company to AOL in 2006 and now works for AOL. During our conversation, I marveled at the amount of money being pumped into the widget ecosystem while at the same time fretting about the paucity of revenue opportunities. My skepticism about the sector was outlined in an earlier post that focused on Clearspring’s latest round of funding.

While Jones generally agreed, he was quick to point out that when you serve a gigantic amount of ads in social media, you can actually make money. Userplane has been selling widget ads for a while, and Jones said that his company is doing about a billion widget-ad impressions a day. That makes it one of the top 30 ad networks as ranked by comScore.

While a majority of the ads run in Userplane’s own widgets on MySpace, Facebook and Friendster, Userplane sells ads for other widget makers as well, putting it in competition (somewhat) with some of the other players who sell ads to widgets that run in social networks — Scott Rafer’s Lookery, Seth Goldstein’s Social Media, Appfuel and 83Degrees’ fbExchange.

If you assume that the company can get CPMs in the range of, say, 10 cents, that translates into $100,000 a day in revenue. Assuming it shares half that with its partners, that pencils out to $50,000 a day, roughly $1.5 million a month or $18 million a year. Jones wouldn’t comment on my back-of-the-envelope math.

Volume seems to work…for now. I still don’t think there’s enough money to support the widget ecosystem, which has been overfunded in many ways. (That in another post soon.) The current banner-type advertising is a losing game: CPMs will continue to decline as inventory keeps increasing. And how effective are banner-type ads? No one says good things about them, so clearly there’s a problem.

In previous chats, industry sources indicate that video-ads seem to perform better and get higher click-through rates. In other words, more engaging (and targeted) advertising that goes beyond the current banner paradigm could find traction in the market. As I wrote earlier:

The big opportunity is in analytics that lead to a better widget advertising system that does a great job of behavioral targeting. The other opportunity is in developing new kind of ad formats that can be scaled.

If Userplane, Platform A and Bebo — all three AOL companies can work together — there could be many ways AOL could skin this cat.

Photo courtesy of Mike Jones

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ComScore’s tracking methods are debated (see also Techcrunch: “The Widget Kings” and GigaOM: “ComScore Widget Metrix, more like a Jellybean Contest”), but clearly widgets offer an opportunity to create a positive brand experience. Take a moment to review comScore’s latest rankings of the most-viewed widgets (released in January):

Now, what can you do to make sure your widget has the best chance of success? I have some pointers…

10 Tips for Using Widgets (Well!) to Build your Brand
1) Make your widget engaging. Successful widgets let the user DO something. Beyond bling, they facilitate some social action on the part of the user – picture sharing, sharing of tastes in music, sharing a contest or poll – anything and everything social.

2) Use flexible formats. Offer your widget as a square, a rectangle, in various colors, sizes and shapes to appeal to the personalization desires and expectations of social media users.

3) Don’t Hesitate. Deploy your widgets fast and often. The best way to garner traffic and engage site visitors is to be one of the early developers and deployers of a widget. Being an early adopter lets you leverage the loudest phase of word-of-mouth.

4) Don’t be a one-trick pony. Have new widgets ready to follow. A single look/feel/function for a widget will wear out its welcome after a time. So plan follow-on widgets or upgraded functionality to expand upon the widget’s initial capabilities without forcing the user to change code. Make your widget part of a larger campaign, not a static event.

5) Maximize Adoption. Let visitors to your widget’s users pages also adopt the widget without registration barriers. A “best of” widget works well in this capacity (aggregating the most interesting from your widget user base for others to showcase on their pages).

6) Keep it Simple. Make the code for the widget so easy to copy and integrate that your baby brother could do it. Offer rewards or incentives for people to pass it on.

7) Promote, Promote Promote! Just because you build it doesn’t mean they’ll come. You have to actively promote widgets in order to increase findability and shareability. This involves a little marketing for the marketing.

8) Make sure it works! This sounds obvious, but all of us have had the experience of inserting code that doesn’t work. Few things bug Internet users more than taking the time to install something on their site only to have it show up as a blank box, cause problems they didn’t have before, or just plain not work as described. Test your code in various environments and within as many types of social media sites as possible before offering it to users.

9) Push the envelope. Go beyond the normal boundaries of what’s possible within the widget and also how it connects and enhances any given social graph. Connect your brand and value proposition to your customers’ areas of interest and enable something they couldn’t do before. Or improve something your customers are already doing enhance their online or offline experience.

10) Manage and cultivate the existing community. Killer widgets aren’t introduced and then forgotten about. There’s a sense of community building that needs to take place in order to keep people active — and also increase the buzz factor of word of mouth marketing.

* Widget Definitions (from comScore):The current universe of widgets is defined as embedded Shockwave Flash objects, certain JavaScript objects, and Facebook applications. The comScore Widget Metrix service will evolve in its tracking of widget file types as the market dynamics and content delivery systems change. The report currently focuses on the individual widgets, and not the platforms that deliver them. Desktop widgets are not included in the reporting.

Mike Jones is the CEO and cofounder of Userplane, a premier provider of communication software for online communities such as MySpace, Friendster and eHarmony.

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