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There's a land grab under way in Silicon Valley. Not in real land (even in Tech Town, home sales are sagging), but on the Web. What's fueling the frenzy is something that couldn't sound more prosaic: widgets.

In the Web world, widgets are modules of software that people can drag and drop onto the personal page of their social network or onto a blog. There, widgets typically look like a little window or box, packing a bit of the functionality that you would get with a stand-alone Web site or software package. The result can be as mundane as the WeatherBug, or a YouTube clip of your favorite video of a bulldog riding a skateboard, or your wish list from online jewelry retailer Blue Nile (NILE).

But widgets also can be storefront windows for selling products and services or digital billoards to which customized ads can be affixed. Create one that plays your favorite song and it can send visitors through to Amazon.com (AMZN) to buy the band's album. Random House Inc. has a widget that lets you click through to buy new book releases from the company's online store. You might even share a slice of the proceeds.

The land grab comes from the sudden realization by software developers, media companies, and retailers that by widgetizing their programs, news snippets, video clips, and products, they can stake out some prime Web real estate. People are increasingly spending their time with like-minded souls at blogs, online communities, and social networking sites such as Facebook, MySpace (NWS), Hi5, and Tagged. In a sense, creating widgets is like unleashing a cloud of benign viruses. They carry your storefront or video clip or ad to anyone's Web page or profile. And those who like them can share them with thousands of people. They multiply, and as they do, they alter the very geography of the Web.

That leads some technologists to conclude that these humble bits of code--or applications, as widgets are also known--could turbocharge a third phase in the Internet's development. In the first, users typed in addresses of Web sites or portals to find things. Then came search engines in the mid-1990s, which gave surfers a faster way to ferret out information and products. Widgets don't signal the death of portals or search engines, but they're giving even more power to individuals to become distributors, publishers, and arbiters of content. "We've got to push it [content] out to where they are," says CBS Interactive (CBS) President Quincy Smith. "We can't drive everyone to CBS-dot-com-backslash-CSI-backslash. Nobody is around."

Marc Andreessen has seen one Web epoch. He co-founded Netscape Communications Corp. (TWX), which ignited the Web revolution back in 1994 when it developed a commercial version of the Web browser. Now he's convinced something similar is happening. "I think the Internet is going through a major, major shift," says Andreessen, who is now co-founder of Ning Inc., a service that lets people create social networking sites. "Concepts are now able to spread on a million Web sites. It's super exciting because you can get huge scale very quickly. The big widgets have the potential to become the new networks."

The scramble began on May 24, when Facebook Inc. announced it would crack open its site and hand over significant economic and distribution power to widget developers. While MySpace.com had let outsiders paste applications on its site, Facebook, the No.2 social network, went a few steps further and let developers tap into its user profile database to increase a widget's usefulness. Facebook also created discrete areas on its site where developers can keep 100% of the revenue they generate from advertising and e-commerce.

Here's how it works now: Click the Flixster movie widget that you installed on your Facebook profile page, and it zaps you to a place where you can list the movies you've seen, along with your rating and review, or look at pages that show reviews and ratings from your friends, what's playing in theaters, and film trailers. And when your friend Todd posts his review of the new animated flick Ratatouille, Facebook lets you know about it on your news feed page. Click on the link, "View Todd's Reviews," and up comes his movie page. By that point, all of your friends become aware that you have started using that program, and the cycle continues.

For many Web users, widgets are a form of self-expression. William Tinkler, a 23-year-old soon-to-be University of South Carolina law student, spends a couple of hours a week on Facebook. His page boasts five widgets in all, and his friends are alerted each time he puts up a new one. One shows the jackets of books he is reading, another tells friends who visit his page what movies he plans to rent from online movie store Netflix. (Next on Tinkler's list: The Science of Sleep.) He also has a world map featuring the places he has visited highlighted in blue. There's a politics meter on his site displaying where he stands on the conservative-liberal spectrum and a space where friends can convey their feelings about him with goofy gestures such as a virtual "high five." "I consider it another way of showing your personality," says Tinkler. It doesn't bother him that the movie widget includes a plug urging visitors to sign up for a free Netflix trial.

At software companies, Facebook's shift was greeted as though it were a starting pistol in a 100-yard dash. Hadi Partovi, the co-founder and president of iLike Inc., launched his development team on three weeks of 20-hour days to crank out a Facebook version of iLike's program, which lets people share their favorite musicians and songs with one another. Now, when Facebook friends say they are going to a concert, the iLike program automatically notifies you. Then it suggests other artists that your friends like. Click on a "who's going" link, and it brings up a page with names and photos of the 345 people planning to attend the show. The company also got an entirely separate area on the Facebook site on which to sell ads, albums, or concert tickets.

The results have been startling. It took iLike six months to sign up its first million users for the program that ran off the company's own Web site; iLike signed up another million in its first week on Facebook. The company, which has offices in San Francisco and Seattle, had to borrow two truckloads of computer servers to handle the stampede. Now iLike is the third most popular application on the site, with more than 4 million users. And it is selling ads and taking commissions from the sale of concert tickets and new releases. "We are already making more money from Facebook than our own Web site," says Hadi's twin brother Ali, iLike's CEO.

Facebook founder and CEO Mark Zuckerberg, 23, is taken aback by the response to his new platform. "We thought it would take a little longer to ramp up," he says. Wearing his shorts and sandals at Facebook headquarters in downtown Palo Alto, Calif., Zuckerberg says that more than half of Facebook's 28 million members have installed at least one application. He muses that Facebook has the potential to become a sort of operating system, helping communities add more and more complex services, much as Microsoft Corp.'s (MSFT) Windows is a platform that millions of developers write programs for. Then Zuckerberg catches himself and says that metaphor might be a bit much. "It's still early" in the game, he admits, and it's hard to tell how far the application movement can go.

Even MySpace is feeling the heat. Ever since Rupert Murdoch's News Corp. (NWS) bought it in 2005, the site has been looking for ways to make money off its 70 million members. That has led to some run-ins. This spring, MySpace temporarily blocked access to one widget by Photobucket Inc. because it violated the company's prohibition against advertising on the site. Now MySpace says it's developing a pilot program to allow a handful of developers to integrate with its platform. But it won't open up to all; its executives say they're concerned about security and spam. "We want to open up to the best and most important applications," says MySpace CEO Chris DeWolfe. "Depending on how that goes, we'll open it up further."

Skeptics point out that widget fever bears many of the signs of previous Internet fads that generated tons more excitement than money. A few years ago, after all, geeks hyped podcasting as the next revolution, but the technology so far hasn't crossed over to the mainstream. There are already signs of overexuberance about widgets. On July 10 the venture capital firm Bay Partners drew guffaws from some quarters when it launched a multimillion-dollar fund devoted entirely to backing widgets made for Facebook pages. And the blogosphere is chattering about "app fatigue."

But major companies from media, publishing, technology, communications, entertainment, and retail are jumping on the widget bandwagon. Reebok International Ltd. recently created a marketing widget called "Shoe Fight," which lets you design a sneaker and put it on your Web site, while IBM (IBM) is plugging widgets into its software, including one that lets employees turn their unread e-mails into an audio file they can listen to on the way home from work.

Google Inc. (GOOG), the most powerful force on the Web today, is taking widgets seriously. In June, it unveiled a program to attract widget makers with $5,000 grants or $100,000 seed investments. Google is also testing Gadget Ads, which lets merchants convert their static display ads into a sort of widget by adding videos, animation, and real-time news or marketing data to them. At WidgetCon 2007, a daylong conference that brought together more than 150 marketers and technologists in New York on July 11, Google business product manager Christian Oestlien said the company is allocating the same amount of brainpower to developing widgets as it is to search engines. As Google sees it, widgets allow people to personalize their Web experience--and in the process produce more effective advertising. "I actually see gadgets themselves as a new form of advertising," says Marissa Mayer, Google's vice-president for search products and user experience.

Values of some top-tier widget makers have already been jacked up as venture capitalists and big Web players throw money their way. On May 30, Fox Interactive Media (NWS), the parent of MySpace, paid a reported $300 million for Photobucket, which makes a photo-sharing widget, and bought Flektor, which makes a video-editing widget, for a reported $20 million. Financiers and entrepreneurs estimate there may be dozens of widget companies in Silicon Valley right now commanding valuations north of $100 million. "Widgets are a fundamentally important idea," says Vinod Khosla, one of the Valley's most respected venture capitalists, who has invested in two widget makers, Slide and iLike. "I believe it has the potential to create big billion-dollar winners."

Earlier this year, the National Basketball Assn. learned how explosive these little doodads can be. The NBA created hundreds of trading card-like widgets. The card displays a picture of your favorite player along with their updated statistics and links to news stories and videos about them, saving you a trip to NBA.com. Today, the NBA's widgets have generated more than 100 million views from 175,000 locations. "We see it as taking little pieces of NBA.com and scattering them to the wind and using them to bring people back," says Steve Grimes, vice-president of NBA Interactive.

If widgets really take off, they could upset some big apple carts. They undermine performance measures that the ad industry has tried so hard to establish for measuring Web activity, such as page views and time spent on a site. In a world where a Web site can be splintered into a hundred little pieces, widgets reshape the definition of a Web page and an audience. They also could accelerate a move away from big Web portals.

The e-commerce implications are potentially huge. Instead of simply building a destination site where people come to shop, sellers can use widgets to bring the store to the buyers. Amazon and Wal-Mart Stores Inc. (WMT) have toolbar widgets that enable surfers to search their Web stores while staying on their social network or other personal page. In May the e-commerce market research firm Terapeak built an eBay (EBAY) shopping widget that lets buyers search for items and shop from Facebook. Says eBay CEO Meg Whitman: "EBay will always be a destination site, but we will also do distributed commerce."

Widgets also can turn any blog or Web site, no matter how small, into an ad platform. Tumri, an online advertising startup, has developed widget storefronts for Wal-Mart (WMT), online shoe store Zappos.com, Macy's (M), and Sears (SHLD). Any little guy with a Web page can sign up for the Tumri widget stores and pick which product categories to advertise or sell on their site. A fashion blogger, for example, may opt to sell high-end handbags from Macy's. So long as the merchant doesn't object to its goods appearing there, the publisher plunks the widget onto his site. Tumri often splits the revenue it receives for each click, 50/50, with the Web site generating the clicks and ad impressions.

This is all heady stuff. Think what happens when social networks go truly mobile. Widgets, with their bite-size appeal, are ready-made for devices such as the new Apple (AAPL) iPhone. Every so often the creative chaos of the Valley coalesces, preparing the way for sustained profitability around a new business model. The symbiotic relationship of widgets and the social Web might--with a big emphasis on might--mark one of those moments.

By Spencer E. Ante, Heather Green, and Catherine Holahan


Steve Ballmer, Power Forward
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