Software Costs? Free - That's the Magic Word

SAN FRANCISCO (03/21/2000) - Texas-based GlobalScape wanted to let the world download its CuteFTP, a tool that helps you transfer files over the Web, and try it out for 30 days for free. It retails for $39.99 in stores like CompUSA, so the company wanted to disable some functionality when the month was up to encourage purchases.

But the question of how to make money during that first month remained. In a time when everything else - e-mail, PCs, ISPs - is free, software companies are struggling to find ways to release their applications and updates over the Web.

The solution? Connecting free content, in this case software programs, with ad dollars. Although some observers wonder what free really costs, execs think the model makes sense.

"We are like a DoubleClick for software," says Radiate cofounder Jeff Ready.

"But instead of letting you look at Web sites in exchange for seeing ads, we give you applications." The concept is simple. Radiate has a network of some 400 programs, including titles such as Solitaire, MP3 Fiend and LapLink FTP, which people can download for free at places like CNET's download.com or ZDNet.

To date, some 17 million people have done so.

Of course the programs aren't completely free. You have to share demographic information first so that marketers can target ads. Advertisers can purchase low-cost general buys or more-expensive targeted campaigns, and software publishers get 60 percent of the ad revenue. Perhaps Radiate's biggest competitor is Conducent, which is backed by Lycos and claims to have 200 titles in its network. After you download a program in its network, Conducent sends you ads, which rotate each time you go online. "When you aren't actively browsing, we use bandwidth to send new ads," says Bob Regular, Conducent's VP of marketing. "We also retrieve data on what ads you've seen."

Other players also are trying to monetize software distribution: Web3000 has 12 titles in its network and pays publishers a dollar per download and Cydoor, an Israeli company, also is moving into the space. Reselling customer data is an obvious form of revenue for these companies, but getting explicit permission will be paramount to staying squeaky clean in consumers' eyes.

Privacy is a huge concern for consumers, as Radiate recently discovered.

Radiate grew up in Indiana back in 1996; venture capital wasn't easy to come by, so the three founders took out a $50,000 bank loan and racked up credit-card debt to buy equipment and pay employees. They didn't stay in the red for long. "We had to make money," says Ready. CMGI @ventures took notice and last summer paid $5 million for a stake in the homegrown firm, which moved to Mountain View and recently changed its name from Aureate to Radiate, a rebranding effort with curious timing.

The name change came on the heels of an Internet company's worst nightmare: being accused of not respecting people's privacy. "Luckily, the whole thing died down pretty quickly," says Ready. "But it was ugly for a bit." The ugliness started when Dale Haag, a Texas-based security consultant, sent concerns to a mailing list for lawyers. His findings resulted in a torrent of newsgroup activity because people didn't like hearing that companies were "stealing" information from their hard drives.

Radiate execs maintain that the company only asks for but remains wary. "I think there are still serious security concerns," he says. But even observers who don't see a privacy problem think that there's a problem of perception.

"From what I can tell, the accusation that Aureate was using its software to gather information from hard drives turned out to be unfounded," says Internet consultant Richard Smith. "But these companies need to do a better job of notifying people."

In addition, performance could hamper free-software's adoption. "Some [software] runs when you are running your Web browser, so there's potential for more crashes," says Smith. "Bugginess is an interesting price to have to pay."

Despite privacy and bug concerns, the free-software model is increasingly popular with independent software makers because it gives information on users and offers a way to make money.

The big software vendors have yet to adopt it, but that could change. "The Microsofts and Adobes may want to license this network model," says Dave Nerrow, general partner at CMGI @ventures. "We expect Radiate to be announcing big customers in the next few months."

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