How Software Is Quickly Becoming an Advertising Medium

Are Sponsored Messages Within Word-Processing, E-mail Applications the Future of B-to-B Marketing?

By Abbey Klaassen

Published: August 13, 2007

NEW YORK (AdAge.com) -- Trevor Nielsen used to spend much of his workday roaming from computer to computer at Pioneer Hospital, a Meeker, Colo., nonprofit, with an Excel spreadsheet, keeping track of the tech inventory, work orders and other tasks that fill an information-systems engineer's daily duties. Now, he does it all with one smart piece of software that he says only larger, better-financed IT departments normally could afford. For Mr. Nielsen, however, it's free -- underwritten by advertisers.

Spiceworks is an early leader in the nascent but growing business of ad-supported software.

The software is from Spiceworks, an early leader in the nascent but growing business of ad-supported software. The idea for the advertiser is that rather than simply interrupting your audience's day with a message of some type, you are offering them something truly useful -- something so useful, in fact, that it inspires the gratitude of people like Mr. Nielsen: "We're very happy. ... There are things it does that we just wouldn't be able to do without it," he said.

Up for debate
But whether ad-supported software can make a major play for marketer dollars is still up for debate. Discussion is unlikely to quiet anytime soon, however, thanks to the attention brought to the space by giants such as Google and Microsoft, which offer free, ad-supported e-mail and calendar applications through their respective Apps and Office Live products (as well as paid versions with additional features). More recently, Adobe offered basic, free web-hosted applications in exchange for allowing ads, and Microsoft has announced an ad-supported version of Works.

In a recent joint survey by McKinsey & Co. and Sand Hill Group, a software investor, 33% of software customers said they would consider ad-supported models.

"As the advertising business becomes more sophisticated, basic click-throughs or keywords are less interesting than focus sites or applications," M.R. Rangaswami, CEO of Sand Hill Group. Spiceworks, he said, is the best example of this to date.

Jay Hallberg, co-founder of Spiceworks

The company zeroed in on a specific market: the IT departments at small- to medium-size businesses. Jay Hallberg, co-founder of Spiceworks, said he's got 100,000 customers and is amassing a lucrative, hard-to-find audience. "It's easy [for marketers] to find Exxon or Citigroup," he said. Small- and medium-size businesses "are hard to get to."

"What I like is that it's very, very targeted," said Starlink's Vickie Szombathy, who chairs the American Association of Advertising Agencies' B-to-B committee. She has not advertised with Spiceworks but said the model makes sense.

Relevance
Mr. Nielsen, for his part, said he's clicked on ads in the Spiceworks application before -- when they were relevant. Advertisers using the platform include Hewlett-Packard, Dell, NetGear, Barracuda Networks and Sony Backup Solutions. He said early on, there was one issue with an ad from McAfee asking viewers how vulnerable their network was. It featured scantily clad women -- not that racy, he said, but not acceptable "when your CEO's standing over your shoulder."

David Koretz, CEO of Blue Tie, has shunned traditional web ads.

Another company with a different approach is Blue Tie, which offers web-based e-mail, calendars, contacts, files and instant messaging to more than 100,000 customers. CEO David Koretz has shunned traditional cost-per-click or banner ads, saying they're not profitable enough to pay for the services. Instead, he has coined a product called "featuretisements." The first is a deal with Orbitz in which Blue Tie's calendar product acts as an affiliate for the booking service: You drag in the time you want to fly, type in the route, and it'll search for available flights and overlay the results directly on top of your calendar. With a single click, the user can complete the transaction. He said he has several more of these partnerships lined up -- with the major restaurant-reservation engines, mapping services and even, possibly, ticket sellers.