Advertisements make free-to-air radio and TV viable, and
they're a boom industry online. As the Web 2.0 world expands, will
business apps be next?
Forget the economic downturn: Internet Advertising Bureau
figures suggest that Australian advertisers spent $1.5 billion on internet ads in the year ending 30 June: a 27 per cent increase over
the previous year.
With consumers spending more and more time
online, commercial messages are making their way into every corner
of cyberspace and even, if some companies have their way, into
the very applications that run your business.
For many companies, the idea of selling advertising space on
corporate desktops is wrong in so many ways that it doesn't even
bear discussion. Years of evolution have gotten large organisations
used to owning their own applications, after all, and after
shelling out hard-earned money, the last thing most users want to do
is suffer through a constant stream of online ads.
"Larger customers want to pay a little bit and get full control
of their applications," says Harvey Sanchez, online services lead
for Microsoft Australia. "They don't want users clicking on ads
all the time, and they don't want their apps to be hosted
anywhere; they want to control the hosting and management of their
Yet as more and more businesses turn to embrace Web 2.0
services, and emerging Web 2.0 giants slowly but steadily make
inroads into the small and medium business (SMB) market with free
business applications, the possibility of extending advertising
models into these applications is looming just over the
Microsoft, Yahoo and Google, whose battle for online eyeballs
continues to dominate the Web 2.0 agenda, have already tested the
market by successfully building advertising into their respective
free email services, and Microsoft also peppers ads across many of
the rest of its Live portfolio of consumer-focused services.
Google's Gmail service was created from the ground up around
discreetly inserted advertisements, and Yahoo followed suit in mid-2007.
With tens of millions of users, it's clear that consumers are
happy to tolerate a bit of advertising in exchange for free access
to the services they need. And while the top end of town is certain
to spurn the idea of advertising space on its core applications,
Microsoft and Google are testing the pain threshold for
cash-conscious SMBs keen to keep their overheads as low as
Microsoft's decision to offer its Works productivity software
on an ad-supported basis was a major step in this direction. With
Google's rapidly evolving Google Apps online productivity suite
dropping the price of entry-level applications to zero, Microsoft
had to parry, and last year reportedly began planning to experiment
with Works, a low-powered version of its flagship Office suite that
has long been bundled with new PCs.
There was more to the decision than just a desire to compete
with Google, however: as far back as 2005, Microsoft was already
noting flagging sales of consumer software spending as a sign that
radical new approaches were necessary.
The company was only making a couple of dollars for each copy of Works bundled on new computers, so
shifting it to an advertising-supported model made economic sense.
Ad revenues, after all, are ongoing and long-term, while one-off
software purchases deliver a certain amount of instant profit to the
software vendor and nothing more.
"There's a lot of money in the advertising pie," says
Microsoft's Sanchez. "It's important to look at how we can play
in that space; we can probably make more money out of advertising
revenue than we can out of the royalty based licensing model."
Microsoft's Harvey Sanchez (Credit: Microsoft Technet)
Just how true that is, however, may depend on the product being
offered; if the experience of Qualcomm is anything to go by, the
shift to advertising-supported software is actually just one step
on the long road to obscurity.
Qualcomm's Eudora email client,
extremely popular but gradually made redundant by free online email
services and the ubiquity of free applications like Microsoft
Outlook Express and Mozilla Thunderbird, was released using an
advertising-supported model in 2000 before it was finally
discontinued in 2006 and handed to Mozilla and the open source
Whether or not Microsoft will eventually open source Works is
anybody's guess, but it's clear that advertising-supported client
applications have done anything but soar.
SpeedBit's popular Download Accelerator Pro still uses ads in
its free version, for example. But GlobalSCAPE's CuteFTP, a shareware application which once embraced the ad-supported model, eventually moved away from it and now charges for the product despite a slew of equally capable, free competitors.
Vendors pushing advertising-supported software have had to fight
the association of legitimate advertising-supported software with
"adware", which has regularly been associated with the far
nastier "spyware" and tinged with implications of nefarious
Users are already well acclimated to seeing advertising online,
however; could this undo the stigma of adware and provide a fresh
start for companies using advertising to offset the costs of
delivering ever more feature-rich Web 2.0 applications?
Not necessarily, says Alan Noble, Australia and New Zealand
engineering director with Google, which has extended its Gmail
advertising experiment to a number of its other business-focused
"At the end of the day, we offer a menu of ways to pay for the
products," Noble explains. "You either pay directly in the form
of a subscription, or pay indirectly in the form of advertising.
Right now, we are focusing on the subscription approach. It's
really a function of your business requirements."
But will SMEs buy it?
Ultimately, these business requirements, which most vendors see as getting as much software as possible for
as little money as possible, may push many SMBs to accept
advertising as a trade-off for access to emerging Web 2.0
Many small businesses already rely on Google Spreadsheets, for
example, if only because it facilitates collaboration by allowing
many users to work on a spreadsheet simultaneously.
are embracing advertising-support software like SpiceWorks, which
claims more than 400,000 users of its network management platform.
Such capabilities are well out of reach for SMBs who struggle to
justify the cost of commercial network management products from the
likes of HP, BMC and CA.
Yet there are issues for SMBs to consider before they accept ads
with their business applications. Ads create a significant unknown
in the workplace with employee time-wasting, management overhead
and security risks including the potential insertion of malicious
code or deceptive ads designed to trick employees into revealing
sensitive passwords and other information.
Then there's the more
substantial risk of corporate information being compromised by the
same behaviour-monitoring, ad-personalisation code that gave adware
such a bad name.
Of course, companies are already managing such risks when their
employees surf conventional websites, so building ads into online
corporate applications wouldn't be a big step in that respect. It
would also, Sanchez points out, help SMBs sidestep many of the
dangers of piracy, since cost-sensitive businesses would no longer
feel the need to risk fines and security issues by using
Indications are that some customers are warming to the
possibility: one survey last year, by McKinsey & Co. and Sand
Hill Group, found that fully one-third of 475 surveyed IT and
business executives were planning to be using ad-funded software by
Ultimately, experimentation and evaluation will lead SMBs to
decide whether ads on their employees' desktops are a fair
compromise for lowering the barriers to entry for Web 2.0
Conventional software licensing certainly continues
to be the favoured approach, but with so much online advertising up
for grabs it's likely that the market will see more advertising
trials in the future, particularly as businesses really start
embracing the possibilities of Web 2.0 for their businesses.
"Users are seeing value in these collaboration and
communication features, and they're wondering why they don't have
those capabilities in their business applications," says Google's
"It's good for businesses to be able to take advantage of
the same things that are available for free on the internet, and
there are going to be early mover advantages for businesses that
do. If you're not looking to move business applications to the
cloud, increasingly you will be saddled with inefficiencies and