How do you compete with free? Open-source alternatives to cash-cow software products such as Microsofts Office and Windows are quickly maturing, and the darling of the tech world, Google, is raking in advertising profits while giving its services away.
Both business models have to be keeping executives from Microsoft and other license-fee-supported software makers awake at night.
One possible response is advertising-supported software and services.
Microsoft is testing these waters, having launched test-phase Windows Live and Office Live initiatives, leaked internal memos indicating a shift toward Google-style products and business models, and spread the word that it is considering ad-supported versions of applications such as Office, Money and even Windows itself.
At first glance, the emergence of ad-supported software may not seem like a particularly attractive or useful development. Much of IT is now engaged in a struggle against unwanted adware.
In addition, previous incarnations of the ad-supported software model never struck the right annoyance/value balance. As an example, look no further than Operas banner-ad-bearing free browser version, which was discontinued.
However, Google has shown that advertising can be both profitable and unobtrusive. Google manages to target ads appropriately much of the time, which, along with most of the ads text-based format, certainly cuts down on the annoyance factor.
Much more important are the privacy and security risks that accompany ad targeting, which requires demographic or contextual information. Many of us will have a tough time trusting any vendor with this kind of information.
Serving up well-aimed ads while guarding privacy and ensuring security will be tricky. Consumers might be persuaded to allow collection of more information about them if they believe theyre getting good value in exchange.
What cant be open to negotiation, however, is that the companies serving up the ads must fully disclose which information is being collected and the parties with whom the information is shared.
With all the facts on the table—and appropriate enforcement of existing disclosure laws—users can make their own decisions about which ad-supported software and services to use.
If prospective ad-supported software and service providers dont achieve acceptable balances in these areas, users will reject the providers offerings, and the schemes simply will fail.
The nature of the Internet, with its low barriers to entry, will ensure that other companies can step up to try their hands at winning the trust—and business—of users.
All in all, we see great promise from ad-supported software and services. Vendors and publishers can find new sources of revenue, users can gain the benefits of software and services without license fees, and burgeoning Internet businesses—even down to individual sellers on eBay and Craigslist—can gain access to eyeballs of potential customers.
The Internet has changed the game—yet again.
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