Who could possibly benefit from ad-funded applications?

Who could possibly benefit from ad-funded applications?

Summary: Supporters of Microsoft seem to believe that ad-funded applications will be the solution to all of the vendor's major woes. But they're not recognising what users and advertisers want.

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TOPICS: Microsoft
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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.

Topic: Microsoft

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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22 comments
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  • Define "extortionate pricing"

    What about Oracle, IBM, Sun? What's the definition of "extortionate pricing"? Could consulting fees from IBM Global Services be considered "extortionate"? What about the $1500 per year per server support contracts from Redhat which is 3 times the cost of a Microsoft perpetual license? Is that "extortionate"?
    george_ou
    • Definition of extortionate

      Hi George, thanks for the comment.
      I'd say "extortionate pricing" is excessive pricing that takes advantage of market constraints, ie the near-monopoly position of Windows and Office. I accept that Microsoft has a duty to shareholders to maximise returns - that's capitalism in action. But if it's losing the battle to sustain its current prices in the face of pressure from OSS, piracy and developing nations' governments, then isn't that a sign that Microsoft is asking for more than the market is willing to pay? In which case, switching to advertising isn't going to help any.
      Interestingly, there's a new story from Ina Fried today that says Microsoft has already lost the battle on products like Works and Money, which bring in $2 or less when bundled with a new PC:
      http://news.zdnet.com/2100-3513_22-5954406.html
      phil wainewright
      • I don't see it that way

        Works (which includes Word 2002) and Money are good examples of Microsoft charging low prices.

        Windows XP Pro costs $90 for the OEM CD. I've had XP for 4 years and counting. People have paid for at least 3 versions of Mac OS X during the same period of time.

        MS Office 2003 standard costs $85 for the student/teacher version and about $180 for the OEM CD.

        MS SQL doesn't charge for dual-cores and is very reasonably priced. Have you priced Oracle lately? You can also forget about multi-core processors with Oracle.

        My point is that you're forgetting all the other commercial software vendors in IT makes Microsoft look good. As for Open Source, I for one don?t feel entitled to someone?s hard work. If someone wants to make a little money writing software so they can put a roof over their head, that?s fine by me. I?ll take free software if it is the best solution for the job (my time is worth more), but I don?t feel entitled to it.
        george_ou
        • Couple of questions there, georgie

          >>>Windows XP Pro costs $90 for the OEM CD<<<

          Since we're not an OEM how much will it cost us? I've noticed all you MS apologists freely quote prices for MS software that are not available to any of us. Why do you never quote the real price?

          >>>MS Office 2003 standard costs $85 for the student/teacher version and about $180 for the OEM CD<<<

          Since we are not all student/teacher types and the OEM is not available to us, why don't you quote the price for the rest of us? Your price quotes are meaningless and deceptive.

          >>> I for one don?t feel entitled to someone?s hard work<<<

          Right. Attempt to make it sound like piracy. The truth is nobody is entittled to someone else's hard work. Of course that is not the case here. If the software authors did not want us to have it they simply would not offer it. I know it is extremely difficult for the extremely greedy to understand that some people actually enjoy writing software and giving it to others simply because they want to. Just as they are free to choose to give their software away, you are free to choose not to use it. But why do you expend so much energy in your childish efforts to convince others not to take advantage of it? What are you afraid of? Why do you fear that so?

          >>>my time is worth more<<<

          So you claim. What proof do you offer? If your proof is the pro-MSBS you flood these pages with then you are much more deluded than you can imagine.

          Your opinions are simply that, opinions. The fact you choose to pray to your Redmond demi-god publicly in no way makes your opinions more valuable than the opinion of any politician, pervert or criminal. Nor does it make your opinions valid.

          And from the other nonsense you choose to pollute these pages with:

          >>>What about Oracle, IBM, Sun? What's the definition of "extortionate pricing"? Could consulting fees from IBM Global Services be considered "extortionate"? What about the $1500 per year per server support contracts from Redhat which is 3 times the cost of a Microsoft perpetual license? Is that "extortionate"?<<<

          What do Oracle, IBM or Sun have to do with this? What is this? A feeble attempt to deflect from the issue?

          I have also noticed you MS apologist seem to have a great deal of difficulty understanding the difference between software and support. Case in point: you are comparing a Red Hat support contract to the cost of MS software. Lets focus on this a bit. First, Red Hat is not the only Linux vendor. Is this something you MS apologist are not aware of? Seems Red Hat is the only one you ever mention. Second, you mention the cost of support from Red Hat. How much is the equivalent support contract from MS? Third, you quote the price of MS software. The problem with that is you fail to mention the software is virtually useless without a truckload of client licenses. Its been a few years since I was saddled with the torture of having to admin an MS network so, are they still $50 a pop? Or are they more now. So, for a small enterprise with 100 users the $1500 for support from Red Hat is a real bargain compared to the $5,000.00 in just client licenses you need, on top of the cost of the software, to make the MS software actually useful. Then, if you use Exchange you need still another client license. Are they still $75 a pop? Then, if you use MS SQL server you need yet another client license. How much for that? Are we up to $15,000.00 in just client licenses now? Then, if you want to use MS SQL for you backend database on your web site the cost was $10,000.00 / processor. Is that the current license fee? And still, if you want support, you must pay MS, or someone else, even more, which is $$$ how much? I don't know what now but, at the time, with the government discount, it was $6,000.00 / year / server. Quite a bit more than the measly $1500 Red Hat charges.

          georgie, you may be a legend in your own mind but don't allow that to delude you into thinking anyone, other than a few other MS apologist, place any worth on your 'wisdom'. The fact you leave out important details, such as the true cost of MS software, and stoop to deception, such as attempting to lead people into believing that MS comes with free support places anything you say into question. It is obvious you do not want the truth known. My question is...why?

          One more thing. MS thinking ad-filled software is going to save their butts is, to put it bluntly, id10tic. It shows just how desperate MS has become. Nothing more. That is my opinion and, since my time is much more valuable than yours, my opinion is worth much more than yours. That is my opinion. Of course I won't give it to you since you seem to have a morbid aversion to anything without a high price tag. Of course you may call 800-555-OU812 with credit card in hand and make a $500.00 payment. Then you may have my opinion.
          JusPassinThrough
    • Hey Phil...

      You forgot George as an MS Appologist as well. :)
      ju1ce
      • Name calling isn't productive

        We have many proponents of Mac, Linux, OSS, and Sun here. Are they Mac/Linux/OSS/Sun appologists? Don't even start with that.
        george_ou
        • But it is

          >>>Name calling isn't productive<<<

          I beg to differ sir. It reveals your true character. It tells us whether one can go toe-to-toe with another or, as you do, attempt to deflect by bringing something else into it. The difference between two children caught stealing candy and one of them accepts his responsibility and consequences while the other, you, says, "little Johnny did it, why can't I?"

          >>>We have many proponents of Mac, Linux, OSS, and Sun here. Are they Mac/Linux/OSS/Sun appologists?<<<

          Not all. Just those that publicly pray to their respective favorites in the same manner you publicly pray to your demi-god in Redmond.
          JusPassinThrough
        • Yes

          at least here on ZDNet :)
          Patrick Jones
    • 80% profit margin

      Consider the profit margin of Windows and Office and that would seem to be pretty darn close to a definition of extortionate.
      Robert Crocker
  • Advertising :)

    How are you going to push your advertisements when people hardly have a solid internet connection, as is a fact of life in most third world countries. Also provide them with a free internet account?

    It is a fact that MS doesn't support most languages in third world countries, how are they going to use the software if there's no support for their native language?

    Advertisements seem interesting to make software cheaper, but wasn't it Opera that actually decided to get rid of their advertisements to get a larger share of the market?

    What MS is forgetting is that most of the advertisements for Google are around their internet based offerings. I just checked it, but neither Picassa, nor Google Earth have advertisements. If MS is going to give us internet office for advertisements (assuming I will be able to access it with Firefox ;) ). I will be happy to use it occasionally, but than again, i probably won't see any advertisements.

    Sure advertisements can bring in money (see google), but whether MS can change its mindset to seek this new line of business, I wonder?
    tombalablomba
    • Advertising

      I don't know how others feel, but I've about had my fill of uncontrolled adverting. Every day my mail box is full of SNAIL SPAM, a couple obnoxious advertisers (What in your wallet?) are now putting there advertising in a plastic type mailer that can't be put into a typical home shredder (unless you want your shredder damaged). And then there is that thing called the boob-tube. Hey, I pay for the cable bringing that into my house, I should have a say over what is brought in, right? Today I ran through the channels and found advertising on EVERY ONE of my 70+ channels at that moment. That's uncalled for. At least with my computer I can utilize Outlook to trash SPAM before I ever see it, but not TV. Our No Call sure stopped the telemarketers here in Indiana, although a few still try to sneak through now and then.
      How about a law that says you cannot transmit unwanted ads to any person, in any method, at any time, unless that person has specifically asked for that ad?

      Van
      doc_cotton
  • Advertising Cap & Application Value

    I'm not sure what the figures are, but the Ad Industry market cap is probably not close to the Revenue that would be in Microsofts Biz Plan to sustain any given application for free.

    Last I read, about 10% of all ads are online anyway, [maybe more] so I guess there is room to increase the online revenue, but there is still some cap, and to get all that, will take a long time, as I concur with the comment on people even being able to see the ads. Heck, I still see Dial up internet pricing on TV in NYC.

    Besides, people don't mind paying for a good App. The point is not what it costs, the point is does what it does to contribute enough to my business plan success, and as a result become a nominal cost overall, hence ROI.

    No one I have ever met believes that anything free, for any reason, will have long term business gain.

    Wes
    aecondemand.com
    wsmith@...
  • Dicredit the man in the first sentence...

    I suppose that does in some feable way boost your position in your own mind.
    No_Ax_to_Grind
    • The only discredit ...

      ... rebounds on me, I think. It was a cheap jibe and poorly judged. But I stand by the rest of it.
      phil wainewright
    • Dicredit the man in the first sentence..

      >>>I suppose that does in some feable way boost your position in your own mind<<<

      And axey rears his head to deliver to us yet another one of his snappy one-liners. I suppose that does, in some feeble, way, boost his position in his own mind.
      JusPassinThrough
    • Did you read the whole article?

      Because in the second paragraph he comes back with "As ZDNet's resident on-demand software apologist.." To me, he was just playing with what goes on in the talkbacks, people get called an "apologist" when they take a position on any subject.
      Patrick Jones
  • You're missing the most obvious criticism.

    Suppose Microsoft started obtaining all of its revenue from
    advertising embedded in its products. Then suppose all of those
    advertisers followed suit, deriving all of their revenue from
    advertising for other products--possibly even Microsoft's
    products--embedded in their own products. Where would it all
    end?

    At some point somebody has to get the customer to open his
    wallet. Otherwise the whole economy is just one big, absurd
    money-go-round.

    Would you go to work for a company that offered you
    advertising in lieu of wages?
    Immanuel Tranz-Mischen
  • Here's my theory...

    Do you remember in the old days, not so far back when anyone with a roof antenna or rabbit ears could get CBS, NBC, ABC, and Fox?(Well, it wasn't fox back then). And if you were lucky, you could get a couple UHF channels as well for public television. Then this great idea happened: cable companies came on the scene offering fee-for-service so we could see shows without commercial interuptions. Great idea. Then the network expanded, the prices went up and HBO, Cinemax and Showtime became "premium" channels. Now that the major networks only show news, oprah, and soap operas, we have no choice but to subscribe to at least a basic cable service if we want to watch something decent. All of this with commercials; sometimes with hours of infomercials at night and early morning. And we have to PAY for this service, sometimes at ridiculously high prices. Do you see where I'm going with this? Who can benefit? Microsoft and their "and now a message from our sponsor". It may start out as free, but you can be guaranteed that eventually, you will have to pay SOMETHING for it, and to get a totally pest free version, you can bet that they'll be charging much higher prices than they already charge...and will people fall for this? Haven't they always?
    feralcherub@...
  • Cui Bono?

    The only people who would ultimately benefit from Ad-based apps, or even a version of Windows that is Ad-based, would of course be Microsoft themselves. They'll start off free, just like MSN did, then offer paid versions of their software minus the ads after people get hooked on the apps and start hating the ads. I already HATE advertisements, I go out of my way to skip ads, and I find them obnoxious in the extreme. Most ads offer people stuff they really have NO need for, except the 'bling' factor. I mean really, who has need of an iPod? Music devices are a dime a dozen these days, but Apple sells theirs for around $400 a pop, but the components cost them $75. The markup is all marketing hype, middlemen that drive up the prices by handling the product in some fashion like the advertising agencies themselves. You don't really think Apple is going to use their own money to pay for advertising, do you? MSN started out free, but all the bells and whistles added to the base service make it supposedly more desireable to the masses, so MS charges them for increased storage space, and more features. But it costs them next to nothing to add more storage space, and the feature creep is more stuff that half the people never use in sending email and chatting to one another. They use YOUR money to pay for it, in one way or another. It's why they're in business. It's why I ignore commercials, ads, and take a cold hard look at what I want to do with a piece of hardware I paid for and want to control. I don't want to pay for my hardware just to have MS load up my hard drive with advertisements, spyware, and malware. Nor do I want MS or any music production house to fill my machine with DRM that will conflict with my software, make my machine into a slug, and crash it on a daily basis. If you want to play games, buy and Xbox or a game console. If you want to do apps for business, get a computer and load it up with apps you WANT, with features you use, and don't fall for the 'feature creep' that MS keeps loading on to your apps. 85% of the features in MS Word NEVER get used by most, and I am sure most of the features of most apps NEVER get used UNLESS the feature offers some real advantage to the end user. So who CARES if Word can do some obscure thing with text, if you NEVER have occasion to use it? Why pay for an app you don't use 85% of the features in? I'm pretty sure if you used the apps and ignored the ads, MS would come along sooner or later and try to make you pay for some 'new' features when they realized their business model was a total failure, and their revenue stream for doing NOTHING was in peril of being cut off. TANSTAAFL! There Ain't No Such Thing As A Free Lunch! The mook at the end of the bar has to pay more for his beer when the bar offers a 'free lunch' doesn't he? So why do you think MS would just 'give away' their product. You can be pretty sure that the 'free' version will BLOW bit time, and be pretty much useless, until you pony up and PAY through your nose ring for the useful stuff. Go ahead and get sucked in. See how far or how useful the 'Ad-supported' Windows or an application would take you. Like MS says: "Where do you want to go today?". Crippleware is still just that, and Ad-Ware would just be another sucky scheme to get them into your pocket book.
    Mil-spec-guy
  • Enough FUD

    We're sick and tired of hearing FUD from John Carroll and George Ou.
    Is ZDNET management that blind or ignorant to the facts that John Carroll and George Ou are a disgrace to ZDNET and journalists and nothing more than Funded Microsoft mouth pieces.
    How can ZDNET have any integrety or respect those two have motives to spread FUD?
    IT-sys