Ad-supported applications: just say no

Ad-supported applications: just say no

Summary: The CEOs of NetSuite, WebSideStory and WebEx all agree with the majority of TalkBack posters -- ad-funded on-demand business applications make no sense at all.

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TOPICS: Tech Industry
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I asked several on-demand CEOs for their views on ad-supported applications last week. Everything they said bears out what seems to be the majority opinion of TalkBack posters who've been commenting on my posts (1, 2, 3 and 4), John Carroll's (1 and 2) and ZDNet's news coverage of the topic (1, 2, 3 and others) over the past week or two.

The first person I asked was zach_nelson.jpgZach Nelson, CEO of NetSuite, one of the leading on-demand application vendors. NetSuite targets small and mid-sized businesses with an integrated suite of on-demand business applications. This exactly the type of customer Microsoft is talking about targeting with its promised Office Live! on-demand services. So what does Nelson (pictured) think of the notion of funding these with ads?

"There is no way on God's earth you can fund business applications with advertising."

No mincing of words there. In fact, Nelson was so astonished at the idea that he's convinced there must have been some kind of misinformation or misunderstanding of what Bill Gates and Ray Ozzie were supposed to have said. He can't believe they seriously mean it.

I then asked WebSideStory's CEO Jeff Lunsford. I'll be writing more about his company, which offers a suite of website traffic analysis, search, content management and marketing tools, in a separate post later on. Suffice to say here that it's a leader in its field, posting $34.2 million trailing twelve months (TTM) revenue in its most recent quarter — not a cent of which comes from selling advertising.

But when WebSideStory started out in 1997, its entry-level product was ad-funded, and some low-end players in its field still have ad-funded offerings today. So Lunsford speaks with the benefit of experience.

"We used to give away analytics for three or four years. We changed to subscription because the ad revenues were too volatile," he said, adding that he has no regrets about abandoning the ad-funded model. "There’s not a track record of dramatic success for the ad model. There have been free web analytics ever since we started and we're still doing OK."

My third conversation was with Subrah Iyar, the CEO, chairman and co-founder of WebEx, which with TTM revenues of $292.4 million is arguably the biggest fish in the pond of on-demand application vendors (bigger even than Salesforce.com, which just reported $273 million TTM).

WebEx is another company I'm going to be writing about in another posting shortly, because it's currently at an interesting stage in its evolution, adding new services around the core online meetings capability for which it is famed. Ads would completely undermine that service, said Iyar:

"Do you think anybody that's meeting with their customers wants to have ads on display?" The main reason the ad-funded model doesn't fly, though, is much more fundamental than that, he continued: "Accountability by the vendor to the customer is going to be critical for business." If there's no contract, what comeback does the customer have when things go wrong?

That point was amply demonstrated last weekend when Google halted sign-ups and new profiles to its newly introduced traffic analysis service amidst widespread dismay at the delays users were experiencing in accessing their traffic data. No wonder WebSideStory's Lunsford is unfazed by Google's introduction of a new free service on his company's patch. "We don’t think Google’s desire to give away this solution really impacts things," he told me. "There are dramatic differences in the depth of [the two] product[s]."

The fact is, there's no such thing as a free lunch, or a free application — not even on the Web. Maybe the ad-funded model is good enough for certain low-end, content-centric consumer applications. But any business or professional user looking for a serious, functional application is savvy enough to know that you get what you pay for, and if you don't pay for it, you'll never be able to rely on it. Don't give into the temptation: it's just not worth it.

Topic: Tech Industry

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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19 comments
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  • We shall see

    We're getting nickled-and-dimed ot death out here. Add up your IT bill and it gets to be ridiculous with what every software vendor wants you to pay. Your internet connection. Your support warranties. Your application subscriptions. Your firewall/filtering/whatever subscriptions. It was a lot simpler and cheaper to run things on paper. The IT overhead is ridiculous. Maybe if you're a large corporation, you can afford to pay these things, but the small and mid-sized guys will probably welcome a ad-suuported alternative. Right now, a lot of them go without because the costs are ridiculous. You guys are so focused on large corps, you've lost touch with reality. But even they're starting to dry up as evidenced by the big vendors now pushing for the midmarket and small market.
    ordaj@...
  • We shall see

    We're getting nickled-and-dimed to death out here. Add up your IT bill and it gets to be ridiculous with what every software vendor wants you to pay. Your internet connection. Your support warranties. Your application subscriptions. Your firewall/filtering/whatever subscriptions. It was a lot simpler and cheaper to run things on paper. The IT overhead is ridiculous. Maybe if you're a large corporation, you can afford to pay these things, but the small and mid-sized guys will probably welcome an ad-suuported alternative. Right now, a lot of them go without because the costs are ridiculous. You guys are so focused on large corps, you've lost touch with reality. But even they're starting to dry up as evidenced by the big vendors now pushing for the midmarket and small market.
    ordaj@...
  • Ad-supported applications

    I think the idea may work, but my only concern is if a client decides to stop using an ad-supported application. Will the ads stop popping up, or is there software embedded somewhere in the PC, so the ads will remain even after the software is gone? I suppose that's what test machines and test beds are for...
    X Marks The Spot
  • 4 major problems...

    1) Spyware/adware has already poisoned the well. Too many people are too p***ed of at porno ads popping up on their home machine while they're trying to show the kids how to use the computer.

    2) Business (even small business) broadband is significantly different from residential broadband. You get better support and and an SLA instead of "best effort". In turn, you pay a higher base rate *AND* you're charged for bandwidth used. The bandwidth for downloading singing/dancing ads could easily wipe out any "cost savings" from ad-supported software.

    3) As a boss, do you *REALLY* want your employees being distracted by ads?

    4) Hello, is that ACME Deluxe Widgets? This is the Joe Blow & Schmoe ad agancy. For a competitive price, we can place an ad for your product in front of millions of people who are either too cheap or too poor to buy an office suite...

    CLICK!

    Hello... hello... hello ?
    Knorthern Knight
  • M$ doesn't even do well with ads

    M$N offers FREE ad time to the company I work for. I guess they don't have enough advertisers, and they (at the very least) want SOMEONE to fill their ad slots. Imagine - M$N runs out of paying customers and has to *gasp* put out BLANK pop-ups! What a DRAG!
    Roger Ramjet
    • Only one problem...

      None of these companies have the user base or the clout that Microsoft has. :P
      ju1ce
  • Because the following happens:

    #1: Money-free, ad-free service.

    #2: Pay, ad-free service with better stuff to compete with #1, which eventually dies out

    #3: Money-free, ad-supported service to compete with #2, which eventually dies out.

    #4: Pay, ad-supported service because all other competitors have left the scene, so you might as well get more money from ads, right?
    voice_of_all_reason
  • 1, 2, 3, and 1, 2, 3, 4 as links...?

    Can you follow the accessibility guideline at:
    http://www.w3.org/WAI/

    Those with screen readers will not understand which links take them to.
    Grayson Peddie
  • if they are well targeted, there is no problem

    Most people just hate spam ads.
    Google has gotten very good at targeting technology.
    If you have a single appropriate ad with a high sales conversion rate, this gives a lot of sales to the advertiser, and can even be beneficial to the user.
    hipparchus2001
  • Ok. No.

    I have no interest.
    BitTwiddler
  • MS will try it Anyway

    Despite the absurdity of it, MS is big enough and has enough money to try it anyway. People have become used to adware, spyware, viruses, trojans, worms, porn, scams, spam and all the other ilk on the Internet. We continue to use the Internet and will continue to use it despite all the annoyances. So... why won't people get used to ads in MS Word, Excel, Powerpoint and so on? If it doesn't work out, so be it. MS can absorb the loss and move on. Then again, it just might work...
    jpr75_z
    • why is it absurd?

      Think broader in terms of software.
      This website is software. As is slashdot and sourceforge and CNN and USAToday, hotmail, and google.

      All the above (and many more) are advertising funded, and millions use them already.

      I find the annoyance factor depends on quantity of ads (I like a simple clean look). Opera would be better if it had one or two ads on it.

      The ad that is show in any circumstance could change based on targeting algorithms. If the algorithm is very efficient, then sales conversions from adverts becomes high, and the value to customers and vendors becomes higher.
      This is something google is making huge advances on at the moment.
      hipparchus2001
      • I surf in a virtually ad free environment

        I block pop-ups except on sites where I want them to, I block images from known ad servers and I block flash advertisements. 99.9% or more of ads are simply not there. I also manage my cookies, blocking cookies from ad or tracking sites, or allowing them as session only.

        Although advertisers think their messages are coming to me, I don't even see them. They can do whatever they want to market to me directly, but good luck if I see it.

        If Internet users knew what I knew about blocking advertisements, we wouldn't have any. An advertiser isn't going to waste time and effort to create something nobody sees.
        George Jay
        • You are an exception that proves the rule

          If the advertising didn't work they wouldn't spend the money on the advertising no matter how small. But enough people click on spam and ads to make it worth their while.
          Google improved matters, and are improving matters further by better targeting, and far less ads.
          I actually want to see relevant ads because I'm a consumer. I just don't want irrelevant ads.
          hipparchus2001
  • AD SUPPORTED FUNDED APPLICATIONS

    The only draw back of Ad supported funding applications is the danger that is inherent in them. The danger of transmission of viruses. The words in the ads could be carrying executable files that are intended solely to spy on your business. The ads could be hidden software to copy every stroke you make on your keyboard with your blessing. You could become a victim of Pop-ups. I enter a lot of on-line sweepstakes. I've become a victim of popups that refuse to go away. One pop-up leads to another if you try to close it and if you try to close the second pop-up I get diverted to first pop-up. So i don't try to close any pop-ups. I just open the window I was working in. I time I've 20 windows open. By that time hopefully I've finished what I'm doing. Then I close all the windows. Many times by shutting up my computer.

    Hopefully this won't happen if you rent an application at a huge cost or by having your own application developed as they were meant to be.

    This can be changed by redeveloping the infrastructure as is recommended by
    http://www.newerawisp.blogspot.com

    When you adopt that approach you could have ad supported application. To tell you the truth all the software would have to be ad supported since there would be no browser in the device you use to surf the web. Got it?
    fakir005@...
  • AD SUPPORTED FUNDED APPLICATIONS

    The only draw back of Ad supported funding applications is the danger that is inherent in them. The danger of transmission of viruses. The words in the ads could be carrying executable files that are intended solely to spy on your business. The ads could be hidden software to copy every stroke you make on your keyboard with your blessing. You could become a victim of Pop-ups. I enter a lot of on-line sweepstakes. I've become a victim of popups that refuse to go away. One pop-up leads to another if you try to close it and if you try to close the second pop-up I get diverted to first pop-up. So i don't try to close any pop-ups. I just open the window I was working in. I time I've 20 windows open. By that time hopefully I've finished what I'm doing. Then I close all the windows. Many times by shutting up my computer.

    Hopefully this won't happen if you rent an application at a huge cost or by having your own application developed as they were meant to be.

    This can be changed by redeveloping the infrastructure as is recommended by
    http://www.newerawisp.blogspot.com

    When you adopt that approach you could have ad supported application. To tell you the truth all the software would have to be ad supported since there would be no browser in the device you use to surf the web. Got it?
    fakir005@...
  • Ads may not be unobtrusive

    Ads may start out small but later hinder getting work done. Just wait for this 30 second Flash ad before you can open your PowerPoint file...
    3dguru
  • Opera

    You know, Opera offers a free of charge version of its browser that is ad supported. It has a nice reserved banner area up in the toolbar. I tried it, and it wasn't too obnoxious, and the Opera browser was very nice. I use Mozilla/Firefox though, because I prefer open-source stuff, but my point is that it is possible for a company to do ad-supported programs if they don't go crazy.

    Unfortunately, I do not trust most companies to show the appropriate level of restraint. Advertisers seem to feel that it's their duty to become more and more obnoxious.

    And people should remember, the more ad-supported programs they use, the more bandwidth they will eat up. You will have to be connected to the internet (not a problem with Opera, really) unless the program stockpiles a bunch of ads on the harddisk, which goes back to the bandwidth eating.
    mobrien_12@...
  • RE: Ad-supported applications: just say no

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    Doved41