Software // Enterprise Applications
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12/13/2007
06:45 PM
John Foley
John Foley
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The Man Behind Ad-Supported Software

Spiceworks CEO Scott Abel admits the approach was an afterthought but one that's reshaping the software industry.

Spiceworks was founded on the idea that network administrators would embrace easy-to-use management tools. Giving those tools away was an afterthought, but one that has forced people to rethink long-held assumptions about software distribution and licensing.

Scott Abel, CEO, Spiceworks

Scott Abel
CEO, Spiceworks
Launched in January 2006, the company introduced its Spiceworks IT Desktop six months later. The product produces an inventory of PCs and software on a network, generates reports, and performs network monitoring and troubleshooting. It's an IT help desk for small companies--and it's free. "It went like gangbusters from there," says CEO Scott Abel.

Spiceworks makes money by placing ads in IT Desktop's user interface. Abel won't say exactly how much, but revenue has soared 900% in the past 12 months, while Spiceworks' user base as climbed above 200,000.

A software veteran--eight years as a developer, a stint with Apollo Computer, and seven years at NeXT--Abel admits the ad-supported model wasn't in the original plan. He and co-founders Jay Hallberg, Greg Kattawar, and Francis Sullivan set out to create tools for overworked, underserved IT administrators. Giving the software away removed any chance of being undercut on price.

Spiceworks' advertisers are an industry Who's Who: Hewlett-Packard, McAfee, Microsoft, Netgear, Symantec, and a dozen others.

Where else in business software will the ad-supported model work? It's a question Abel gets asked regularly. Two keys are that users spend time with the application and have IT purchasing power. "This is a depth-of-relationship type product," he says.

More than anything, the technology has to be good. Spiceworks has had eight software releases since the middle of last year, including last week's release of IT Desktop 2.0. Says Abel, "This model will not work if people don't love the software."

Q&A With Scott Abel
InformationWeek: Spiceworks signed more brand name advertisers in the most recent quarter, including Microsoft and Symantec. How are you doing that?

Abel: I was very confident that the model would take, I just didn't think it would take this fast. It can take a couple of years before an ad agency will pay attention to you. I didn't expect one would pick up the phone and call us, but that's what happened. About half our business comes from technology companies and half from ad agencies, which really surprised me. I expected a lot of niche advertisers. That first call was from an agency that represented Hewlett-Packard. We had done two small ad runs. They were our first major advertiser.

IW: What was the genesis of Spiceworks, the idea behind it?

Abel: The product idea is the one we started with. Our founding team has a deep background in systems management, 35 or 40 years of experience, including Tivoli. It just bugged them that they had never been able to build products for the little guy. We thought nobody had built a tool simple enough that they could use. Administrators are a jack-of-all-trades, master of none in small business. We wanted to create the iTunes of network and systems management.

IW: How did you latch onto the idea of ad-supported software?

Abel: The original business model called for some Salesforce.com type subscription services; it was a pretty traditional software-as-services model. Then, one of our co-founders said, 'What happens if four kids in a garage knock off our idea and give it away?' We'd be irrelevant. I turned to [co-founder] Jay Hallberg and said you need to figure out how we make money by giving it away for free. He came back with this ad-supported software model.

IW: Where else might the ad-supported model work?

Abel: We get asked this question a lot. The defining characteristics are that the application engages the user for a long period of time. In some markets, you have to make a trade off between reach and depth of relationship. This is a depth-of-relationship type product. People are in it hours per week, potentially hours per day.

Second, our users control this huge amount of spending for their company. They decide what technology they buy. The guy in front of Spiceworks decides. You have an advertiser that wants to get at that person badly. The small business market is an incredibly difficult market to reach.

One of the things really important is that this model won't work if people don't love the software and use it. I only make money when you use it all the time. A mistake a lot of competitors make is to say, "We can put lipstick on our product and make it look like Spiceworks." But they don't take time to make it usable. You have to think about the end-to-end experience for the user.

IW: You just released Spiceworks IT Desktop 2.0. What significant about the release?

Abel: The big message is it's ready for prime time. It's had hundreds of thousands of people use it, and tens of millions of impressions have passed through it. We've made the app really rock solid. We're focusing on performance and usability. The more useful it is and easier to use, the longer you stay in it.

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