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How Spiceworks competes for IT marketers' dollars

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Since the dawn of the Web, media companies have faced new competitors for advertising—such as portals and search engines—that do not fit into the traditional media models of print, television, radio and outdoor. Another nontraditional competitor, founded in 2006, is Spiceworks, which offers free IT management software for small and midsize businesses and monetizes the operation via advertising.

Now, Spiceworks.com is becoming a social networking destination for this elusive audience, with a user community of more than 1.2 million IT professionals worldwide. It is attempting to leverage this community to bring in revenue from IT marketers who are increasingly budgeting for social media efforts.

“Spiceworks is a software company, but we monetize our products in a medialike way,” said Jay Hallberg, co-founder and CMO of the company.

Targeted to IT managers in companies with 20 to 1,000 employees, Spiceworks is a work-flow tool for network management and monitoring, IT reporting, requests for help and inventory management. As the founders were developing their business model, they looked at SalesForce.com, one of the most successful software-as-a-service companies, which charges a monthly fee from $5 to $250.

“If we were going to charge, we would have had to market to IT pros at small and midsize businesses, and they're a very hard audience to find,” Hallberg said.

It would take several years, and a significant upfront marketing expenditure, to reach the critical mass that would make that model profitable. So Spiceworks made the elusiveness of its target market an advantage by putting the Spiceworks software on the Web for free and monetizing the operation by selling advertising.

Hallberg said the company's No. 1 revenue stream is CPM-based display advertising, followed by monthly fee-based ad programs, sponsorships of optional add-ons to the software, white paper downloads and opt-in e-mail marketing programs.

With the release of Spiceworks 5.0 last month, the company is offering many improvements for users while laying the foundation for additional product and brand marketing opportunities through its purchase list management feature. Currently Spiceworks 5.0 allows users to list products that need to be purchased and in the future will provide even more resources, Hallberg said.

Within its IT community, Spiceworks is already facilitating product purchasing with ratings and reviews submitted by other IT pros, free buying guides, white papers and product trials. Even though the community of IT professionals has become an important aspect of the Spiceworks offering (to advertisers as well as users), it wasn't a critical part of the original business model. “We had the community functionality at the beginning, but it was designed to support users of Spiceworks,” Hallberg said. “It wasn't until we hit about a quarter-million users that people started talking about other things.”

As soon as the management team saw this spontaneous expansion of the community, it immediately dedicated resources to building out the functionality. More than half of the company's 75 employees are developers, so Spiceworks developed its community platform in-house using the open-source framework Ruby on Rails.

The Spiceworks community is not social; rather, it is a b-to-b forum where IT professionals at SMB companies, who have fewer resources than their big-company peers, help each other solve IT problems. IT professionals would find the community's functionality similar to peer-to-peer IT sites such as Experts Exchange and IT Toolbox, which enable individuals to earn points and badges based on their contributions to the community and ratings by their peers.

At Spiceworks.com, the system has 15 levels tied to peppers—the hotter the better. So, a pimiento goes to someone who has earned fewer than 100 points, cayenne to a member in the 10,000-to-15,000 point range and “pure capsaicin” is for those with 250,000 points or more.

Although Spiceworks is not yet profitable, Hallberg said it is expected to turn a profit in 2011.

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