November 15th, 2005
Who could possibly benefit from ad-funded applications?
I see that ZDNet’s resident Microsoft apologist, John Carroll, has penned an explanation of why Microsoft will, against all common sense and logic, attempt to (and indeed succeed, he believes, where many others have failed) in funding its promised on-demand applications with advertising. John, it must said, does not in any way represent Microsoft’s official viewpoint. He just writes what he thinks.
As ZDNet’s resident on-demand software apologist, I too write what I think, and I would like to present the opposite point of view. There are several different ways of funding on-demand applications. Putting ads in them is one, but it’s not the basis for building a viable, durable business. Bear with me for a moment while I quickly run through John’s alleged reasons why ad-based versions of Windows and Office make sense, and put my counter arguments why they don’t.
1. Lower prices. John mentions how some people prefer to use open source software as an alternative to paying Microsoft’s extortionate, monopoly-based licence fees, and that ad-funded Microsoft apps would be an alternative source of ‘free’ software. The flaw in this argument of course is the amount of advertising Microsoft would have to sell to recoup its absurdly high prices. All this advertising would be so intrusive, John ends up admitting, that there would be a strong incentive for customers to subscribe to the ad-free version (or, more to the point, use a reasonably priced, ad-free alternative— probably running on open-source code — from some other vendor).
2. Lower prices. John goes on to explain that Microsoft’s unreasonably high prices encourage piracy, and that if well-heeled advertisers instead of impoverished consumers were the ones lining Microsoft’s pockets, there would be less incentive for users to turn to pirated copies (he neglects to consider the possibility that the advertisers themselves might choose to go elsewhere).
3. Lower prices. Microsoft wants, John says, to charge lower prices in the developing world, but if it did, this would undermine its extortionate pricing in the developed world. Advertising would neutralize this problem since it would be the developed world’s advertisers paying Microsoft instead of third-world consumers (although he neglects to say how advertisers would recoup their outlay).
4. Hidden penalties. In the end, though, John seems to realize that Microsoft might find it difficult to hit its revenue targets through common-or-garden advertising, so instead he comes up with the idea that users of Microsoft’s advertising-funded ‘free’ software will actually have to give Microsoft sensitive, personal information about themselves before they are allowed to use the ‘free’ applications.
"All in all, I think it’s an idea worth considering," John concludes. Well, I can see why Microsoft would find it appealing. But I don’t see anything here that is actually in the interest of advertisers and users, who are the people who are supposed to be the actual customers for this proposition. Having a plausible business plan is one thing. Actually succeeding in the market is quite another. I know that some vendors are convinced of the merits of ad-funded applications, but all the evidence is that they simply don’t cut it as a real-world business model.
Phil Wainewright is a commentator and strategist on emerging software industry trends. See his full profile and disclosure of his industry affiliations.
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| 11/16/05
