Spiceworks has thrived in recent years in a tumultuous b-to-b media market. The Austin, Texas-based company has a unique twist on a media business model: It gives away a powerful technology management tool for small and midsize businesses and then monetizes its 2.7 million users through sponsorships and other marketing programs. CEO Scott Abel and three other software industry veterans founded Spiceworks in 2005. He recently sat down for an interview at Spiceworld, the company's annual user conference.
BtoB: How did the Spiceworks business model originate?
Scott Abel: We originally planned to be like Salesforce.com, with a monthly fee to use the software. Then (co-founder) Jay Hallberg asked what would happen if two guys from Stanford built a similar app and competed with us on price. I thought, "My God, that's not an if, it's a when. We'll be irrelevant." We set out to find a new model by first designing out the things we didn't like about software. The traditional go-to-market models were gone. We came up with a media model that essentially monetized the audience's attention rather than the software.
BtoB: But none of you had any experience running a media company, correct?
Abel: None, and we made lots of rookie mistakes. For example, I didn't understand that you need ad inventory to generate the kind of revenue we wanted. We were off by a factor of five the first year. The fact that we didn't know anything was actually a blessing. We'd ask anybody who'd listen to please tell us how the model works. Lots of people helped us, but there were also lots of embarrassing moments.
BtoB: You fiercely protect your members from unwanted marketing pitches. How do you resist pressure to cater more to your advertisers?
Abel: All employees are educated about the high regard we hold for the Spiceworks users. We know we're here because our users trust us to put their interests first. But they also know we have to make money on their attention. Some people told us at the beginning that we should spend three years building audience with no advertising and then start slapping ads on the site, but we thought that would be a bait and switch. Our philosophy is to tell users exactly what we plan to do and ask them to tell us if they don't like it. When you think first about how something benefits your audience and second about how to make money, people will embrace the change 90% of the time. Almost every change our users suggested was better for the advertiser anyway. They loved being asked to help define the product.
$43.6B U.S. agency revenue
BtoB: Your growth rate in enterprise IT organizations is now four times that of the core SMB customer. How are you addressing the unique needs of that audience?
Abel: We see the Spiceworks suite as a platform rather than a software application. That gives us the flexibility to serve both audiences through extensions without turning Spiceworks into bloatware. We don't discourage enterprise users. The beauty of free software is that you don't have to ask anybody's permission. No company had a meeting to choose Google as its search engine. If the tool works for you, you just use it. A lot of enterprise customers are choosing Spiceworks for free, even if they have the money to choose something else.
BtoB: You're beginning to extend the product into other areas. Could you ever see using your model to take on a company like Salesforce.com?
Abel: We get asked that all the time, but IT is a $3.5 trillion market and systems management is a $15 billion market. We have a lot of headroom in the space we're in. Other companies like ResearchGate and Wave Accounting are beginning to adopt the Spiceworks model in other industries, and we think that's awesome.
BtoB: Do you think of yourself as a media company?
Abel: We think of ourselves as a software company, but the media model is also accurate. We're careful about using that term because classic media is such a small part of our model.
BtoB: You've raised more than $50 million. How are you dealing with pressure for a liquidity event?
Abel: We told our first investor that this was a risky model. Don't come back in three years and tell me we have to start charging for software. And all credit to him, he went with it. We had a board meeting a couple of quarters ago where we brought up the question of going public. To a person, the directors said don't rush this. Just find new revenue streams. Our model is similar to LinkedIn's. We have three major revenue streams: a media model, a marketing platform and enhancements like mobile device management. The board is with us because it's going well. They understand there's a $3.5 trillion opportunity out there and not a lot of other ventures have this kind of upside.