When owners of the big money tree use their excess profits to subsidize unrelated services, independent software vendors (ISVs) are driven out of business. Although such behavior got Microsoft into trouble in the past, ISVs shouldn't expect relief from search-engine-sponsored software from the U.S. Justice Department or the European Commission any time soon. These government agencies are notoriously behind the times, as proven by the fact that they attacked Microsoft only after it had won the browser war by cutting off Netscape's air supply.
A better ISV strategy is to target enterprise software : a smart CIO will insist on paying for real software for use inside the company. Free services are simply too costly when you compute the total cost of ownership.
Free Services, Big Costs for Companies
As an example of total ownership costs, let's consider the cost of a search-engine-sponsored service that the average employee uses for one hour per day.
Our current eyetracking studies show that users are extremely skilled at employing selective attention and ignoring ads and other extraneous enticements on the screen. I don't have the final results yet, but for some early study stimuli, we found that text-box ads accounted for 0.3% of the users' gaze duration. This may not seem like a lot, but it would amount to 11 seconds per day or 44 minutes per year in our example.
For a company employing 10,000 people with an average loaded cost of $50/hour, 44 minutes per user equates to a total cost of $367,000 per year.
(Note: We calculate the cost of ownership from the loaded cost of employees, not their take-home salary. In other words, we've added in the cost of overhead, benefits, payroll taxes, workers' comp, and so on. So, our $50/hour corresponds to about $50,000 annual salary in a company with average overhead.)
The $367K cost of a few fleeting eye fixations is nowhere near the total expense of this "free" service. Even though people rarely click on non-search ads, it does happen. So, let's say that the ads have an average click-through rate of 0.09%, and that a page has four ads, corresponding to a total CTR of 0.36% per page. With 60 page views per day, users would click a promotion 52 times per year.
Let's further assume that each time users click through, they spend 1 minute 49 seconds at the destination site (this is the average time users spend on a site where they don't end up doing business). Users would thus waste 1 hour and 34 minutes per year clicking through to useless stuff. In our example, that would cost the company $787,000 per year.
In total, the cost of having employees look at and occasionally click on distractions costs the company $1.2 million per year.
We haven't even computed the cost of clicking through to something users might want. If it's a business-related service, such time expenditures might be okay. Still, productivity would probably be better served if employees were deliberately seeking B2B services when they're needed, rather than when they're advertised. If it's a personal matter, then many more minutes -- possibly hours -- of productivity could be lost as employees visit non-business websites on company time.
As our example shows, "free" software can easily cost a company more than $1 million per year. Any CIO who falls into this trap is a sucker and should be fired.
(In this essay, "free" refers to services that are sponsored or interlinked with other sites and where users pay with attention instead of money. There's also totally free software that's released for a variety of non-commercial reasons, such as the developers' hopes for peer recognition. Examples include the Apache webserver and the Linux operating system. Such truly free software is not encompassed by the present analysis.)