The Remora business model, or how widgets make money

If you have a blog or a Facebook account, I’ll bet you have plenty of widgets or applications on your pages. Ever thought of how the developers make money off these little tools? Photobucket sold to MySpace for $250-million, and myBlogLog was recently acquired for $10-million. The TripAdvisor supposedly paid $3-million for the “Where I’ve been” Facebook app.

Most social networks, like Facebook, do not allow advertising in their apps, so the web’s favourite revenue generator cannot be applied for these.

Dan Dodge, a funder affiliated with Microsoft, has coined the “Remora business model”. The remora is a fish that attaches itself to larger sea life and goes along for a free ride. It feeds on whatever comes by. But it can also detach itself from the host and survive solo. The question is: Are the widgets and applications like remoras, and can they survive solo?

Or maybe the question is: Who needs whom more? Facebook benefits from the applications, because they drive traffic, and make the site more “sticky”. They encourage interaction between members and add to the value proposition. On the other hand, if users spend so much time playing with fun third-party stuff, they spend less time interacting with Facebook’s advertisers.

Tough call.

There is talk now of some social networks charging a “widget tax” to the applications, or banning some altogether. (MySpace banned Photobucket, before it bought it.) But if the widgets get charged a tax, they need to make some money first. How?

The best option is the Freemium model, which relies on up sell. In other words, the use of the basic service is free, but you have to pay for premium features. Sponsorship, if allowed by the host social network, can also be lucrative.

The other option, of course, is to sell the widget on to somebody who has better use for the membership. The “Where I’ve Been” application had 2,3-million users at the time it was rumoured to have been sold, and I am sure it was causing a financial headache for the founder because of the server and bandwidth costs. TripAdvisor, presumably, can do a good job of selling on its services to some of these members.

Not quite sure how you can make money out of “Food Fights” or “Zombie Attacks”, but it wouldn’t surprise me if someone figured it out soon.