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Software could shape up as the next big advertising medium as developers look for new ways to make money.
Software for the PC is becoming the newest venue for online-style advertising. Long dependent on the sale of their shrink-wrapped programs from retail-store shelves, software developers may soon find a chunk of their revenue coming from targeted advertising integrated into their applications in much the same way that banner ads are woven into Web sites.
At least that’s the vision of a trio of companies–Aureate Media, Conducent and Web3000–that are trying to create the equivalent of DoubleClick-style advertising networks to target and serve ads displayed within client software applications.
“This transforms software into media,” said Bob Regular, director of marketing for Sterling, Va.-based Conducent. “It’s much like the magazine model. The kind of advertising fees you can charge depends on your circulation.”

PAY PER VIEW
The trend essentially puts software makers in the same position as television producers. The more viewers they can attract, the more they can generate in advertising fees.
“In the eyes of the consumer, software is becoming less of a product that you buy on a store shelf and more of a service that you access through a browser,” said Jeff Ready, co-founder and vice president of marketing for Aureate Media, based in Mountain View, Calif. “As you move to that kind of business, an ad-supported model will be the way you make money as a software developer.”
Already, the 3-year-old Aureate delivers advertising in 300 shareware and retail software applications, reaching an audience of 13 million unique users monthly. Most of its ads are placed in shareware applications by companies such as Sprint, Visa and Amazon.com that are trying to reach a technically sophisticated audience inclined to download software applications.
The audience for software advertising is likely to expand significantly in coming years as developers selling software in stores begin to look for ways to offset the declining prices the products command at the retail level, Ready said.
“In the retail market, the consumer-oriented developers are getting hammered, spending $30 to sell a $25 product,” Ready said. “We want to help them become more Internet-centric to generate add-on advertising revenue.”

DELIVERING ADS ONLINE
As long as users have Internet connections, the process of updating advertising messages in the software is simple. Ads are delivered to registered software users during their idle moments online. The ads are stored on the user’s hard drive to be retrieved and displayed when the user launches the software application associated with a given ad.
If the software developer can convince users to provide personal profile information when registering their software, the data can then be used to target marketing messages to an individual’s interests or demographics.
“We believe we are going to transform the software development market the way DoubleClick revolutionized Web publishing,” says Gene Kavner, president of Redmond, Wash.-based Web3000. Kavner, a former Microsoft executive involved in the early development of the Microsoft Network, contends that advertising can generate enough revenue to eliminate the need for selling software products–ultimately making all software free to the user. “Traditional software distribution is dying off,” Kavner contended. “Everything is going to this model.”
Kavner speaks from personal experience. His company stumbled into the software advertising business in 1999 while trying to find ways to generate revenue for a shareware Internet accelerator product called NetSonic. While many users don’t pay the fees they should for downloading shareware, Web3000 discovered they are willing to accept ads integrated into free software.
Over the first three months of distribution of NetSonic, Web3000 built a sizable user base that is now generating about 6 million ad impressions daily–an average of 30 ad impressions per user per day.
In November, Web3000 began to build on its success, launching an advertising network to handle marketing messages for a string of shareware developers.
In a move to attract high-profile applications, the company has offered a prize of $1 million annually to software makers that meet selected distribution and traffic targets.
The company’s goals are ambitious. Now, starting virtually from scratch, Web3000 is aiming to have 2 million users a day tapping into software associated with its ad network within a year.
Conducent, meanwhile, already has 100 applications featured within its network and has set a goal of registering 10 million users within the next year.
So far, the three companies have reported ad rates comparable to those offered in traditional online venues with click-through rates roughly equivalent to Web banners, which average less than 1 percent.
“What we can do is reach people on the desktop and drive them back to a specific destination online,” said Regular of Conducent.

ADDED ATTRACTIONS
In some cases, developers will offer a
carrot to users willing to accept advertising within software. For instance, a user may be able to unlock selected premium features of an application or extended demos of related products by registering for the advertising.
When a user’s machine begins downloading new ads, it also sends the advertising network usage information detailing how many ads an individual has viewed and how he or she has responded to them. The data can be passed along to the advertisers and software developers.
For developers, advertising does more than just generate revenue. It serves as a way to measure just how widely their software is being used. Applications with steadily increasing advertising volumes are likely to be gaining momentum in
the marketplace.
Conversely, declining ad volume can alert developers to a downward trend in usage. Much like declining ratings for a
television show, the usage and advertising volumes can give developers early warning that the audience may be moving to a
competing software application.
“What we’re doing is creating a pipe that can be used to deliver data,” Regular said. “It’s a pipe that makes it easier
for developers to communicate with
end users.”