November 29, 2005
Microsoft Will Be an Adware Vendor
By Eric Goldman
Microsoft is considering migrating some of its software titles to an ad-supported model instead of a consumer licensing fee model. This isn't exactly a new idea--this development has been anticipated for at least a decade. However, if Microsoft decides to scrap a licensing fee model (even for a limited number of software titles), this will be a Big Deal. Microsoft has made billions in licensing fees, and giving up upfront cash for the hope of ongoing ad revenues could radically shift their basic economic structure.
Ad-supported software makes a ton of sense to me. CNET reports that Microsoft makes only $2/copy from its Works product, and its Money software loses money. With the $2/copy revenue number, I'm convinced that Microsoft could do better--way better--with ads. Depending on CPCs, Microsoft could make that amount from as little as one click. Surely they can get several clicks during the years that a user uses that software install. Heck, I would gladly pay Microsoft $2/copy for the opportunity to plug Google AdSense into the software. If Microsoft cuts out an intermediary, the profits would be even greater.
From the consumer's perspective, I think ad-supported software is a good move. First, consumers won't have to pay upfront for software they may not even want. (Right now, consumers implicitly pay some license fees as part of the bundled price when they buy new computers). Second, the ads could have significant utility for consumers, especially if they are contextualized based on the consumer's behavior and data.
As for Microsoft, I think the move towards ad-supported software reinforces that Microsoft is a media company, not a technology company. Microsoft may currently sell functionality, but eventually it will be in the business of selling attention.
As that process matures, I expect to have a tough time recognizing the differences between adware and Microsoft ad-supported software. Many adware vendors already provide some software functionality as part of their adware bundle, and Microsoft will do the same. Therefore, the way I see it, Microsoft inevitably will become an adware vendor. Perhaps this confirms that adware is an essential part of our future information economy, current anti-adware sentiments notwithstanding.