Widgets: The Future of Online Ads

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The two companies have come up with a myriad of explanations, but the reason is actually very simple: Web users are setting a higher bar for advertisers to lure them to another site.

In fact, many users are starting to ignore ads altogether, a phenomenon known as "banner-ad blindness." At the same time, with advertisers shifting more and more of their marketing dollars online, the cost of an "impression"—placing an ad on a site—keeps rising. The net result is that online advertisers are now paying more to get less.

Beyond Online Billboards

So how should advertisers adjust to this new situation? First, let's look at what they're buying when they place an online ad. They are buying a piece of real estate on a Web page that's essentially no more than a link to another Web site. But that rectangle of space can also be exploited to function as a site within a site. Instead of just replicating a billboard on the side of the highway in a bid to get users to click and go somewhere else—something they hate to do—the ad should actually let them do something right then and there. Right in that little box, without switching sites, users should be able to browse products, customize orders, and eventually make a purchase. This concept of a little Web site embedded within another Web site is called a widget.

Widget ads are just the first step. Instead of simply trying to build brand awareness, marketers now have the ability to reach out to customers with useful features to enhance their personalized pages on social networks. An athletic gear company could offer an application that lets a group of running buddies track how their times and distances compare. An airline could offer a "come visit me" application that displays the latest fares for a trip between the hometowns of viewers and Web page owners. Even better, an airline might offer a widget that lets users track their frequent-flier miles and search for award trips right from their iGoogle pages. These types of applications can be useful, engaging, and viral—when you see one on your friend's profile, you are likely to install it as well.

Advertisers and consumers have played a game of cat and mouse for years. As we've learned from the ongoing upheaval in the entertainment industry, online advertisers have to adapt their approach to match consumer behavior, or risk irrelevance. They need to move beyond glorified billboards and deliver useful, engaging applications people will want to use and share.

Peter Yared is a serial entrepreneur and the founder and CEO of iWidgets, a San Francisco startup helping brands deliver next-generation Internet advertising.