Yahoo! Breaking the Chains of the Browser

The purchase of 'widget' maker Pixoria could mean big things for browser-free content.
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Yahoo!

(YHOO)

bought a tiny, three-person software company called

Pixoria

that could have a big impact on how Yahoo! delivers its ever-sprawling content.

Palo Alto-based Pixoria developed a Java-script runtime engine called Konfabulator that runs tiny applications called widgets on a computer desktop. Much like music-playing software that employ shape-shifting "skins" -- that is, customizable and often stylish interfaces -- widgets allow people to view content like weather forecasts, stock prices and Wi-Fi connections as a floating image on their desktops.

So, what can Yahoo! do with Konfabulator? It can liberate its content from the confines of a browser and open it up to numberless applications not only on a computer desktop but on

TiVo

devices and Internet televisions. The effect that Konfabulator will have on Yahoo! will be limited by the appetite of Internet users to get Internet content outside of browsers.

In only two years, Konfabulator has cultivated a strong following of hard-core Internet users, many of whom have developed their own widgets that deliver traffic updates, monitor mosquitoes in a particular zip code and stream

Simpsons

quotes. Originally developed for

Apple's

computers and now integrated into its operating system, widgets have recently become cross-platform programs to work on Windows PCs as well.

The deal also extends Yahoo!'s pattern of buying cult companies. Earlier this spring, it bought Flickr, a hybrid photo-sharing and online community site that has developed an influential following among bloggers and shutterbugs. The company has discovered that cult-driven startups offer excellent value: They usually employ a small staff but have built up a strong audience for a proven product.

Yahoo! didn't say how much it paid for Pixoria. But in the interests of preserving ties with loyal users of Konfabulator, the company is refunding the fees that customers recently paid for the software. Yahoo! will not charge any fees for widgets used for its content, but it's a safe bet its engineers are trying to figure out how to inject ads into the widgets as seamlessly as possible.

The purchase of Pixoria is another piece of evidence that the selloff in Yahoo!'s stock following its second-quarter earnings last Tuesday may have been shortsighted. Also on Monday, Piper Jaffray argued that Yahoo! is undervalued after being punished for an in-line quarter.

"Over the last 10 quarters, Yahoo! has nearly doubled its ability to monetize the immense amount of traffic generated by its content and search sites," Piper said in a research note, noting that revenue per average daily page view has risen to 28 cents in the second quarter of 2005 from 17 cents two years earlier. "This pattern is critical as it should allow the company to narrow the gap with

Google

(GOOG) - Get Report

and continue to post strong growth -- above industry rates." Piper has no underwriting relationship with Yahoo!.

Shares of Yahoo! were recently up 1.5% to $34.04.