Why does ad-supported software inspire such antagonism?

Phil Wainewright "responded" yesterday to my defense of ad-based software, or to be more specific, Microsoft's ruminations regarding the viability of offering free or low cost versions of some of their products using ad sales as a revenue source.

Phil Wainewright "responded" yesterday to my defense of ad-based software, or to be more specific, Microsoft's ruminations regarding the viability of offering free or low cost versions of some of their products using ad sales as a revenue source. I used quotes around "responded" because he delivered his arguments while doing the verbal equivalent of unloading his Tommy gun Valentine's Day Massacre-style into my chest (okay, perhaps I exaggerate, I do know that more money can be generated from targeted advertising.but I do think it's not necessary to chop your debate partner's head off - it makes things messy at the restaurant). But hey, I've faced the Talkbacks, and the Talkbacks are worse. Besides, I'm sure a blogger brawl would make good theater.

Anyway, I'll go through his response point by point. Just to add some perspective to my original post, I never said there was an open and shut case for ad-supported Microsoft software. It may NOT be a good idea.

I am sure, though, that if it is a bad idea, the harm will fall more on Microsoft in the form of lost revenue, and not on customers, who at worst get a free product that proves to be mildly annoying due to excessive use of ads. So, I fail to see why the proposal inspires such antagonism. Microsoft takes all the risk. All everyone else has to do is decide whether or not to use ad-supported products.

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.

Perhaps, but I'm not suggesting Microsoft ditch entirely a business model built on sale of software. Ad-supported versions of Office would exist alongside more traditional purchased software. As I noted, such free software might attract more users, thus creating new revenue opportunities for Microsoft, not to mention giving people legal access to software to which they otherwise wouldn't have access.

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.

It always astounds me how much fans of, say, OpenOffice, will out of one corner of their mouth argue OpenOffice is better than, and fully compatible with, Office, then out of the other mutter that the market is locked up irretrievably by Microsoft Office and thus government must pry it open to competition.  Irrespective of that, it's a fact that the price is set at a point that the market will bear. There is a case to be made that the price may have to go down in response to the coming-of-age of free alternatives. It's NOT the case, though, that alternatives don't exist, and that people have no choice but to pay the prices Microsoft charges for its products.

Either open source software is a competitor, or it isn't. You can't have it both ways.

Ad-funded software already exists, though it's most successful on the web. Google makes stacks of money from ads, as does MSN, MSNBC, CNN...or even ZDNet. Where this model has had more mixed success is in standalone software. Gator pretty much destroyed the image of ad-supported free desktop software, but that doesn't mean others haven't done it well. Paltalk, a voice chat tool I use when I'm in a mood to get into an argument about politics, economics or religion, offers free accounts supported by ads. Paltalk seems able to make reasonable amounts of money.

Is the ad model perfect? Not hardly. But it works if CAREFUL thought is given to its implementation. Web sites have expended the effort to figure out what works (Yahoo and Google are both companies almost completely supported by ad revenue). I fail to see why it is impossible to do the same in standalone software.

The flaw in this argument of course is the amount of advertising Microsoft would have to sell to recoup its absurdly high prices.

How absurdly high are the prices? How much do most consumers of Windows pay for the operating system? About $30, because most get it pre-installed on new machines from bulk-resellers such as Dell. $30 over the course of a few years (the lifespan of a particular version of Windows) is not a lot of money to have to recoup through ad sales.

Office is a bit more difficult, because the price is much higher - about $500 for the full suite. Again, though, many buy Office pre-installed on new machines or else through volume licenses to corporations, which means they pay much less per person than the full list price. Furthermore, averaging out the up front cost over the usability lifespan of the product makes the yearly cost per user quite low. The amount Microsoft would have to bring in per customer each year starts to seem reasonable.

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).

I didn't go that far. People for whom the benefits of "free (as in cost) software" are outweighed by the nuisance of ads will have an incentive to pay for the ad-free version of the software. I don't think, though, that the trend would be towards people opting for the ad-free version. More likely than not, Microsoft would lose more paying customers to the ad-supported (and free) version than they would gain from those annoyed by ads.

As for moving to the more "reasonably priced" open source alternative, that option exists today, even if its fans love to declare the unassailability of Microsoft's "monopoly" when it suits them to do so. I should think that if the entire market isn't picking up stakes and moving to the open source side of the tracks now, they will have less of an incentive when free versions of Microsoft products exist.

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)

Nice rhetoric, but you never explained why the point was wrong. Why wouldn't well-heeled advertisers not serve as a revenue stand-in for impoverished consumers who aren't paying to buy Microsoft software, anyway (hence the problem of piracy in the developing world)? When you say that I neglect to consider the possibility that the advertisers themselves might choose to go elsewhere, are you saying they would have no interest in getting product placement ads on the desktop used by most users of Personal Computers (Windows) or the set of products (office automation software) that, after web browsing, are probably the most common tools used on a PC? Why do you think that?

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).

First, it wouldn't be the developed world's advertisers who would have exclusive access to marketing opportunities (at least, not in my opinion, no idea what Microsoft executives are thinking). Rather, I could see local African companies paying for ads as well. Granted, they would pay less than western companies, but then again, few consumers in the developing world pay for Microsoft software NOW. Certainly a system that yields SOME revenue from the developing world is more financially secure than one that yields practically none...and creates new marketing opportunities to local companies, at least those targeting people who can afford access to a computer.

As for how advertisers would recoup their investment, how do they do it with web ads? Are you saying that all that money advertisers dump into Google, Yahoo, MSN and AOL is about to evaporate in a few years? I simply don't agree. I would argue that the advent of TiVo and the growing percentage of free time spent on the Internet will lead to Internet ads - or software ads in general - becoming even more valuable.

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.

I'm not sure if Microsoft will find it difficult through garden-variety advertising. I do know, though, that more money can be generated from targeted advertising. I'm not sure whether consumers would accept that, but it HAS been done before. Every time you sign up for a Yahoo email account you give boatloads of personal details, details they use to target ads at you.

Again, this isn't anything unusual, much less revolutionary. This is common practice on the Internet. What you haven't explained to me is why the lessons of the Internet don't apply to desktop software.

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.

Fact 1: Advertisers currently pay lots of money for web ads. Are you saying that money is wasted? If you think it is, I'd point you to Google's share price as proof that lots disagree with that analysis.

Fact 2: Customers would get free versions of Microsoft software, albeit versions supported by ad-revenue. If consumers find the nuisance-factor too high a price to pay, then they won't use it. Evidence suggests, though, that consumers won't find it too high. Most people get their news from free sites like CNN, MSNBC or CNET, not from subscription sites maintained by major print magazines.

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