Making software pay

By Paul Rubens

Consumer software businesses are increasingly abandoning attempts to sell their products and are searching for other ways of making money.

Most home computers are sold with Microsoft's Windows, Internet software and many other programs pre-installed, and people have become used to downloading free programs from the Internet.

The result is that many potential customers feel no need to pay for programs that replace perfectly adequate free ones.

Some companies, such as California-based Qualcomm, are hoping that advertising can at least partly replace license sales revenues.

Qualcomm has been selling its Eudora email software for over ten years, but now competes directly with Microsoft's free Outlook Express, included with Windows.

Free software has made public reluctant to pay

Persuading potential customers to pay for Eudora when they already have a free email program is extremely hard, says Bill Ganon, Qualcomm's vice president, Eudora Products Group.

"People love things for free, and free is a hard price to beat," he says.

Qualcomm has ditched attempts to sell its full Eudora product, and now makes it freely available to download. In its free "sponsored mode" it displays banner ads, but these can be made to disappear if customers are willing to pay to switch to the ad-free "paid mode".

This new strategy is designed to get as many people as possible to use the product without paying, and then, because license sales are far more significant than ad revenues, converting them to paying customers.

"The problem we faced was how to get the broadest possible impact in a slanted playing field," Mr Ganon says.

People love things for free, and free is a hard price to beat

Bill Ganon, Qualcomm

"Outlook Express is bundled with every operating system, and that is a fairly formidable distribution method."

Norway based browser maker Opera also competes against Microsoft - this time with Microsoft's free Internet Explorer browser.

Opera originally planned to sell its browser, but quickly discovered that consumers were not interested in paying for the product in significant numbers, according to Jon von Tetzchner, Opera's chairman.

"The price of browsers has been set to zero," he says.

Browser give-away

Instead Opera gives away its browser, but generates revenue from it through a partnership deal with California-based Google, Opera's default search engine, and by placing banner ads in the browser.

But Mr von Tetzchner says that these alternative revenue streams are not a replacement for healthy license sales.

"We can just about fund development from advertising revenue, but it is not generating the revenues we would like to see."

The browser has been downloaded over 25 million times, but only about 200,000 customers have paid to remove the ads, he says.

Animated paperclip assistants were intrusive enough - ads would definitely drive me mad

Tanya Hempenstall, Maverick Media

Products such as Eudora and Opera have to judge their potential customers carefully to ensure the embedded ads are intrusive enough to interest advertisers and to be worth paying to avoid, but not so intrusive as to put people off using the software altogether - many people refuse to use software which includes embedded "spyware".

And before customers pay they have to be convinced that they prefer the product to the free alternative.

Many do not: "I have never purchased any software at all - I just use the software that came with my computer," says Tanya Hempenstall, a producer at London based production company Maverick Media.

"I have used Eudora and RealPlayer (a free media player) with advertisements and I definitely wouldn't pay to get rid of them," she says.

"I just put up with the advertising. You get used to pop up ads on the Internet, so finding ads in software you've downloaded isn't so surprising."

Several companies have concluded that while consumers may be increasingly unwilling to pay for software or to avoid advertising, they will pay for what they perceive to be content, or additional services which enable them to get more from their free software.

Jon von Tetzchner's Opera browser has 200,000 paying customers

These include Washington-based RealNetworks, which gives its RealPlayer away free and offers programming by subscription, and California-based Webshots, which develops software for managing and storing photographs and converting them in to screensavers.

Webshots was forced to abandon its shareware licensing model in 1998, deciding instead to make the software free but to try to generate revenue through advertising on its web site.

When this proved disappointing the company switched its emphasis to generating revenue from its large stock of photos by placing restrictions on the number of images which can be downloaded per day.

By paying a subscription fee members can download an unlimited number of photos every day and access higher resolution images, and paid membership also removes the banner ads.

Narendra Rocherolle, Webshots' chairman, says advertising and subscription revenues are now almost equal, and the software has been downloaded 100 million times.

Games still cost

The company also generates revenue from the sale photo prints and gifts, by hosting photos for auction and providing a wireless photo sharing service.

Are there any types of software that consumers will continue to be happy to pay for in the normal way?

Games are probably just such a category, as they are heavily branded and not readily substitutable.

And Ms Hempenstall believes that word processor software and other home office applications could also be exceptions.

"I can't see anyone putting up with ads in a word processor. Animated paperclip assistants were intrusive enough - ads would definitely drive me mad."