When they teamed to develop a new software company, the four co-founders of Spiceworks had already been involved with several IT management applications during their careers. No one was very excited about doing the "same old" enterprise software company. So they decided on the name "Spiceworks," aiming to "spice 'IT' up."

In less than one year on the market, Spiceworks may be doing just that. The application delivers IT and network management for small and mid-sized businesses. The product is much more simple and easy-to-use than the traditional IT management products which are designed for large IT organizations.

The best part? It's free.

Spiceworks' gamble to pursue an ad-supported model appears to be paying off. Since launch in July 2006, the Spiceworks user base of hard-to-reach, IT managers in small businesses has grown to more than 80,000.

The fact is that acceptance of ad-supported software in the business world is growing. One-third of enterprise software buyers surveyed in a McKinsey & Co./Sand Hill Group survey said they would use ad-supported software in the next two years.

In January 2006, when Spiceworks founders Scott Abel, Jay Hallberg, Greg Kattawar, and Francis Sullivan came together, software as a service (SaaS) and open source were the buzz models of the software industry. But as the team studied the economics of each model intensely, it quickly became apparent that price points were dropping and that preparing for a "free world" of software might be the right move.

Spiceworks received $5 million in venture backing from Austin Ventures in 2006. The company now has 21 people in Austin, Texas, and is enjoying its pioneering position in the ad-supported software world.

SandHill.com spoke with CEO Scott Abel about the unique value of Spiceworks, the decision to go ad-supported, and what other software CEOs should do when launching a "new model" company.

SandHill.com: What new or unique business value does your company offer today's enterprises?

Scott Abel: Nobody has ever built an integrated IT desktop for an IT manager in the way that a Salesforce.com works for salespeople.

When we started this company, we didn't want to do another enterprise software company. We were very intrigued by the small and mid-sized business market (SMB). But it is a very hard market to penetrate. It is expensive to reach, advertising-wise, but more than that, the tools are very expensive and the products are too hard to use.

We believed that that the market needed the "iTunes of systems management", functionally. We went out and did research that validated our hunch. We found that most IT administrators in SMBs had evolved into the job, learning as they went. They aren't techies - in fact, 78 percent don't have technical backgrounds. They're very smart and good at their jobs but never had a technical education.

If a SMB IT director went out and bought a system like Tivoli, they wouldn't need 80 percent of the functionality. We set out to build a product that would easily and simply meet the needs of these tech buyers.

SH.com: What developments in the industry have enabled your product to come to market?

SA: The ad-supported software model is only now emerging. When we say free, we don't mean free trial or free for 6 days or 25 devices. There's no up selling. We're just free and earning revenue from ad sales.

We wanted to build a business application with relevant technology ads in it. Conventional wisdom is that network administrators are probably one of the most anti-ad populations. But it turns out they need to learn about new products and services to help them do their jobs. And in the consumer world, everything has ads. I feel like, we're all consumers, why can't this work in the workplace?

As the numbers show, less than one year later, we've passed the 80,000 registered user mark. Clearly, IT professionals are adopting the application. We have proven that there is great demand and value created for SMBs and IT pros who can access a useful tool to manage their network effectively.

Effectively, we have been able to give the application away free, provide good support, monetize it with advertisements, and build a community of users which has exceeded our expectations in terms of passion and loyalty.

SH.com: How do your offerings differ?

SA: We are the pioneers in this broad category. Literally nothing in the IT management space is ad supported. The only notable examples of ad-supported software are Google's enterprise applications and Microsoft's Live offerings. But these products are oriented towards a knowledge worker.

Adobe's online version of PhotoShop is ad-supported and aimed at a more specific user: the graphic design professional.

The ad-supported model seems to be moving from the consumer apps, to apps for knowledge workers - will we see it in CRM for salespeople next? Or other specific functions in the company? Will there be new offerings from established players or from new entrants into vertical markets? It is difficult to say.

The economics are attractive with IT professionals because they buy technology products. More advertisers will pay more to reach IT targets than they would to reach, for example, salespeople.

SH.com: What does the next 12 months hold for your company?

SA: We are aiming to expand our ad model. When we launched the product, we just ran Google AdSense ads. They're good: there's a huge variety, you can tap into that "long tail" of advertisers, and they run as part of inventory.

Because Spiceworks offers this unique context and delivers the tough-to-reach SMB market, we started selling ads directly to high-profile advertisers. We now have a dozen-plus direct and top-tier advertisers on board.

We now offer display ads on the right side of our page. They are unobtrusive and educational. Next, we'll be expanding that so that advertisers can offer more product/service education - white papers or archived webcasts to end users.

I have a somewhat contrarian view. Lots of new companies want to get the product out the door, and then go back to the same customer and sell more things. It is easy to get more revenue.

We don't. Our customers have too much functionality in front of them already. We're trying to make their job simpler and easier. We're focused on making the functionality they have easier, more automatic. The most powerful piece of functionality is the one that just works, that you don't even know you're using. Again, think of it like iTunes. You don't see a bunch of new functionality, it just gets easier and easier to find the music you want, play it, rate it and review it … even buy it. We treat systems management the same way.

SH.com: What would you like others in the software business community to know about your company?

SA: We have many exciting partner opportunities. Primarily, for vendors trying to reach IT professionals in small and mid-sized businesses with information about new hardware, software or services, Spiceworks can be an effective way to reach those product purchasers. We'd like to urge those vendors to contact us to see how we can help them with their marketing goals.

SH.com: Any final words of advice for other software executives looking to launch a company?

SA: Don't be timid. "Burn the ships." This is focusing strategy right out of Sun Tzu's Art of War. Basically it means "We better make this strategy work, because the ships are gone and there is no other way home.

In a situation like this, it is tempting to go halfway and maintain a backup plan - sort of a "Let's try this new way and in the background, we'll sell software" model. Or use ad-supported software as a loss leader to sell a premium version of the software.

Sure, the ad-supported model is scary. There is a higher return but also a high risk. While having a backup plan might make sense, it also takes resources, focus and time. In the end, failure of the new thing becomes a self-fulfilling prophecy because you never committed in the first place.

One of the things I learned from Steve (Jobs) was that if you want to change an industry, you have to have a clear vision of that future and be totally committed to it. You can't go half-way. You have to go all in, put all your focus and energy behind that one big idea, and bet everything on it. Yes, you might fail. But at least you'll fail gloriously!


Find out more about Spiceworks at www.spiceworks.com.