Business Models: Software Sales vs Advertising: Which is better?

In my opinion, I think the advertising model is better than single license sales primarily because you can get recurring income from advertisers vs single sales with software licenses. In my example, the software is free and you sell ad spots.

For example, you charge $50 monthly to advertise on your website. You sell four ad spots, thus, you are able to receive $200 per month. If you have a better website you could charge even more. Ex: Charge $100 a month and as the previous scenario you sell four ad spots netting you $400 per month. The bigger your website (traffic, daily views, etc) the more you can charge and the more advertising models you can use (weekly, daily, monthly, etc).

Though you may make less than selling your software, the big idea to the advertising model is recurring income. Imagine selling 5 licenses one month, 2 licenses the next, and then no licenses the month after that, charging the same $50. You have only made $350 in two months vs $400 to $800 if you were using the advertising model.

An advantage: You don’t have to worry about pirates.
And to keep users coming back: Just open a forum or open a blog and post regularly, though a forum would be better for the advertising model. (as users have to view pages to post and read posts)

What does one have to do with the other? What does license/no license have to do with whether you advertise on your website/forum/blog?

Basically if you don’t sell licenses but still want to make money from your software, advertising is the only way to go. Even if you sell licenses, you can still advertise, though it is a bit more riskier because of those pirates. It’s all about risk and reward. The free software/advertising model is less riskier but you get recurring rewards.

There are certainly many interesting ways to monetize software and support a fun career making the stuff. That said, if you did a real world case study and provided some actual numbers, it could be as or more valuable than many of the Gartner studies I’ve seen :-).

Then you have people like me who will not use software with ads. I’ll pay for the ability to remove ads before using a free app. I only put up with the ads on trial versions.

I have most ad sites blocked at the hosts file level (all the sites pointing to 127.0.0.1). I will not use an app with ads. Unless I am getting paid (actual paycheck) to watch the ads, I am not going to watch them. I dont want ads on tv. why would I want them on my computer?

Well there’s a lot of work involved in creating a site that has a unique audience to demand a better advertising rate. I personally prefer building software over content creation hence I’m not an avid blogger or podcaster.

There’s one major flaw with your advertising scenario. In a perfect world, it makes sense and sounds good, but in the real world of internet advertising, the ad rates keep dropping. So one month you might make that $200, but a few months later that will only be $150, and shortly after that $100. Internet ads (one websites or apps) are notoriously ineffective (and the more ads that deluge viewers the less effective they become). Google’s cost-per-click keeps dropping every quarter if you look at their financial reports.

So the bottom line is yes, you get recurring income, but there’s no guarantee that the recurring income will be the same. Then you find yourself doing things to expand your viewers and/or get more advertisers to make up the loss in revenue, and before you know it your “customers” are not the people who use your software, but your advertisers. That’s how we get websites with “slideshows” and 1000-word articles divided into 5 annoying pages.

For me, I’ll always prefer to support paid developers by buying their software because I want to be their customer. Apps that use ads make me feel like I’m not the customer and my voice has no place.

You are entitled to an opinion.

But did you make a real world comparison ?

  • Do you have a web site where you peddle free software containing advertisement, and another where you sell programs ?
  • Are you successful at what you do ? What is the traffic on both your sites, or one of them ? How many free copies are you circulating to hope the figures you cited ?

An opinion is just an empty statement if it rests on no experience. Listen to people around about their experience if they care to share.

And, as far as advertisement is concerned, beware of customers, who are fed up with so called freebies that look like billboards. It’s much easier to dump an adware than something paid for, be it a 99 cent program.

I have been a member of the Association of Software Professionals, formerly Association of Shareware Professionals for 20 years. Since Jim Button (who remembers ?), the model of a free program that leads to sales has been adopted by the whole industry. Does it work for big companies ? Probably, because they still invest in millions of advertisement. Does it work for the little guy ? It is at best arguable. After years of shareware, I have simply dumped the freebies. My gross sales barely regressed 5%. Meaning I was missing the point, entertaining leeches to no avail. I have since decided to continue creating programs I like and forget about posting everywhere to end up with a huge traffic in hot liks and no exposure.

The free model, adware, freeware with donations (ouch) or shareware is a business in itself, which has more to do with marketing than coding. I happen to like better coding. I am perfectly satisfied by sales, especially in the App Store. When comes time to create iPhone apps, I may consider adware, though. But for the fun of it. Not an opinion.

I’m a little confused here, the lines seemed to merged a bit are you talking about free software with advertising v.s. paid software or paid software v.s. a web site with advertising?

As for adverts on web sites, I have ad blocker in Safari (I’m tired of those stupid ads which play music or partially obscure the content).

I have a couple of free apps on the iPhone that have advertising in them, some of them I use enough to pay to hide the damned adverts and some I just accept. Then again, I’m not an implosive purchaser. I generally know what I already want and will spend months reading reviews or articles before I set down my cash.

However yes, I’m interested in way of monetizing my software, so I would be very interested to know if advertising within software is more profitable than charging for the software.

Like Michel, I’m more into wanting to build great apps, but I certainly have to spend some time figuring out a business strategy, especially on the App Store now, as we face the clone armies.

… snipped…

That’s better than clown armies
Can you imagine an entire army of Krusty the Clowns :stuck_out_tongue:

But to also chime in advertising on the net has become a “race to the bottom”
More ? better
Being able to VERY narrowly target ads may work better (say all programmers between age X and Y, all people in this area who own dogs, etc) but you pay a premium for that kind of targeting with most of the services I know of

Great apps sell themselves in many ways - great ads rarely sell the thing they are embedded in as they are trying to sell something else

I prefer apps that don’t have ads - I have a few freebie games on my iPhone that I play once in a while so ads are tolerable (mostly)
Ones I like I buy to get rid of the ads

So maybe that’s the model - load the app with ads, then charge to get rid of them?

[quote=47270:@Sam Rowlands]So maybe that’s the model - load the app with ads, then charge to get rid of them?
[/quote]

You forgot step 3:

  1. ???

If the app has value, people will pay for it. If it’s a reoccurring revenue stream you want, bake that into the pricing model. Ads are not what the user wants to see when they are using your software (unless of course it’s software for managing ads). If people won’t pay for the software, then it doesn’t provide enough value.

Indeed, if an app has value and provides a real service it will also provide reoccurring revenue stream through upgrades, or license fees (like Xojo, right ?). If the app has no value whatsoever, it will have no success anyway, adware or not.

What Shane Gibbs seemed to indicate was also revenue from adds on a site. I feel the same occurs for a site : if it does not provide good information or sensible usefulness, it has all chances to end up deserted. Quite frankly, I avoid sites with advertisement and am sure many people do so. Just see what happened to the likes of Yahoo and AOL who never understood that users wanted the uncluttered white space around their search as in Google…

My opinion is whatever business model, competence and lots of work remain necessary to succeed.

I agree. If the purpose of your website is to sell and support your products, the last thing you want is the customer distracted by ads selling something else. It’s unlikely that the ad revenue will make up for the lost revenue from the user clicking one of those ads and going elsewhere before buying your product.

At some point you will need to provide value to the advertisers or the users. If it is to the advertiser’s, it means that their ads are being seen and clicked on, which would mean the user is actually “using” the software. If the user is actually using the software then they see value in it and they would probably rather just pay a reasonable reoccurring licensing fee, rather than looking at ads.

The absolute downside risk is the user doesn’t use the software BECAUSE there are ads. Then neither you, the advertiser or the end user benefits. I would bet this is the case more often than not.