The blogosphere is covered with posts that would have us believe that desktop applications and software are already dead (cloud, mobile, SaaS); however, retail sales for desktop applications and software are a multi-billion dollar industry. In April 2009, the NPD Group reported that PC software retail sales were around $3.4B per year and holding steady. The major change, however, is the impact the web is having on how desktop applications and software are distributed.  According to NPD, web application and software distribution has increased from 11.5% to 17% in the last 4 years.

Following I explain how the web has influenced software bundling.  I start with a brief background of OEM software bundling.  Next I discuss a new type of software distribution that we call recommendation based distribution, and conclude with answers to frequently asked questions regarding recommendation based distribution.

Software Bundling

Software providers (OEM – original equipment manufacturer) for decades leveraged value-added resellers (VARs) for driving sales of their software as part of a hardware/software package.  These marketing partnerships result in what is often referred to as a “bundle” due to the fact that complementary services are bundled together.

A common example is a new computer that includes Microsoft Windows®.  A few other applications routinely bundled include Office®, security, internet browser, and toolbar applications. 

This type of distribution is big business.  Here are a few examples:

1. HP & WildTangent – WildTangent became an immediate force in the casual game world because of the huge bundle distribution agreements that they signed.
2. Storage devices bundled with back-up software such as Carbonite with Seagate and Memeo with Western Digital Technologies.

User acceptance over the practice varies based on the type of users a VAR sells to as well as the quality and quantity of applications that they bundle. The two primary concerns raised by consumers are system performance and the nuisance of removing unwanted software.

Recommendation Based Distribution

Is software bundling fundamentally flawed?  Do users want to receive a more affordable package by having additional software marketed to them?

Now that many users are connected to the web, software can be merchandised effectively without preloading on the users’ systems in advance.  W3i research showed that software bundling is not fundamentally flawed.  Users are however, most receptive to receiving software offers if they are involved in the application selection process.  Users can see recommendations for other applications when they first run a new computer, attach a new external device, or download an application from the web.  The recommendations can call out to the web to retrieve the files required for presenting the recommendations, downloading, and installing.

W3i to facilitate this process created its own proprietary technology, InstallIQ, which supports a fully web-capable solution allowing us to create a software distribution experience that resembles an online shopping experience. 

Here is an example of a website, Wallpapers.com, that runs InstallIQ during installation:

Note the consistency between the initial website and continued branding through the installation process.  We call this feature installer skinning.  By leveraging the website’s brand equity and style in the installer we create a transparent and consistent experience that enhances usability and increases conversions (see our post Creating Consistency to Increase Conversions).

The same flexible technology is used to improve the presentation of software to users:

Notice above that the user has a clear and consistent navigation experience.  This navigation style was influenced by a case study, published by TRUSTe, as well as improvements such as a shopping cart feature that was added based on user feedback.  The cart shows specifically what applications were accepted followed by a check-out process where the user can review all of their selected applications and change their selections before the process is completed. 

Some providers struggle with clear and consistent navigation because it is challenging working with their existing installation packaging technologies.  Their user navigation requires very different buttoning when a recommendation is presented. This is something I like to call “opt-irritating”.

In summary, the web is enabling an evolution in software distribution and software bundling.  It is so different from how VARs bundled in the past that we feel a more appropriate category descriptor, for this methodology is recommendation based distribution.

Frequently asked questions

• Is this business model right for my software?  How will my users respond?

Software with a low propensity for users to purchase have the most to gain. Frequently, developers are experimenting with multiple business models and a hybrid approach wins out. For example, a leading security application offers a free light version which gets heavy downloads, generates revenue from advertising using installer recommendations, and later pitches premium paid services to its users.

The response by users vary greatly from one implementation to another. A software or application provider’s reputation is highly influenced by the quality of software they provide. Distribute high quality software which is monetized through a high quality bundle experience and users can and will be very satisfied.

W3i has an experienced staff that works closely with software providers to define the solution which best suits their needs, including support on decisions such as the:  

• • Customizable look and feel
  • Select which, and how many, applications you want to recommend
  • Determine when you want to present the recommendations, whether it is with new installations or with special upgrades
  • Data-driven recommendations for optimization
• Who should I form a marketing partnership with?

Most consumers and developers are in agreement that security and trustworthiness are key when choosing a marketing partner.  Users’ trust is earned by providers who define, educate, and simplify the process so users can effectively take control.

There are a few techniques you might consider when selecting marketing partners.  How recognized are their brands? How useful is their software to your users? What comments, reviews, or ratings have been written about them? Ask your users what they think about the partner or think about how your user persona would most likely respond.  What commitment do they make in educating users about their practices and policies?  Do they have any third party validation and monitoring in place such as certification in the TRUSTe Trusted Download program?

Brands continue to play a key role.  Partners should stand behind their practices with full disclosure and branding.  They should proudly make visible who their marketing partners are instead of burying themselves in a privacy policy or by engineering their technology so it cannot be distinguished on its own.  Be cautious of providers with little or no reputation or experience.  If very few people say something positive or negative about them and they have significant distribution volumes, it says something about their commitment to creating awareness with their users.

• How many additional offers should I present in any single installation?

W3i conducted a test where 0, 1, 2, 3, 4, and 5 offers were tested.  The results showed that the quantity had a minimal impact and that the relevancy of the offers was more important.  Relevancy impacts whether the user will complete the installation of the software, keep and use the software, and whether they will accept offers.

Be sure to consider not only how many offers you distribute but whether or not you will allow the offers to include other offers in their updates or a subsequent run process.  W3i’s policy, which it enforces, prohibits advertisers from promoting additional offers.  Some companies say they only distribute one offer but they do not have policies against what their advertisers distribute and so in reality, users that accept a single offer actually end up getting pitched more than one offer, often within moments of downloading and installing.

As you can see online recommendation based distribution borrows from but also significantly enhances software bundling to make it more appealing to users. The solution continues to evolve but the basics laid out above are the foundation for successful online software distribution.

By mastering recommendation based distribution, your applications can leverage a proven model that enables you to be relevant through effective distribution and monetization.

Get more in-depth information about software or application distribution through W3i’s blog, newsletter, or reaching out to us directly.

Ryan Weber, Vice President of Corporate Strategy & Co-Founder, W3i, LLC
Entrepreneur and pioneer of Internet marketing focusing on increasing revenue and distribution for digital downloads.

During a leading casual game publisher’s recent earnings call, the CFO cited that one of the primary reasons their quarterly revenue fell (Q1 2009 versus Q1 2008) was that they were generating less revenue from distributing the Google Toolbar offer with their downloads.

This is precisely the problem game publishers are faced with when having only a single offer to leverage with software recommendations from their installer, versus a marketplace of third party offers such as those provided by W3i’s Install IQ process. Had this game provider been a client of W3i’s Install IQ platform, they would have been able to recommend other offers with their downloads instead of relying solely on a Google Toolbar, and therefore closed the gap on their lost revenue from users which had now already all received the Google Toolbar offer in the prior year’s downloads.

Other companies with Windows applications should take note of this provider’s challenges, and proactively integrate with W3i before these revenue decreases show up in their quarterly financial numbers.

Today, I attempted to download from this provider to see what business models they were leveraging.

1. $9.99 Monthly Recurring Subscription – The most prominent business model is to get you to register with your credit card for a free trial to their paid membership. You have 30 days to try the membership, after which time you will be auto-billed monthly at $9.99.
   
   To cancel the trial membership, I was instructed to call their 800 number and provide my account number. I wasn’t too enthused that I could register online but was required to make a phone call to cancel. However, the customer support rep was immediately available and didn’t make life too difficult. Overall, I was pleased with their customer support.
2. Display Ads On Website – After subscribing to the free trial credit card subscription, you can then browse their catalog of online and downloadable games. The website has numerous banner ads on display which help them in generating revenues.
3. 60 Minute Try Before You Buy Downloads – Even with a membership I was still encouraged to download 60 minute trials of various game titles.
4. Toolbar and Other Software Recommendations – The first downloadable trial game came with Google offers including a Toolbar and Desktop Search option.

The Google Toolbar, when first opened, spawned an alert offering to change my default search as well as enable PageRank, further driving value to Google.

I tried downloading additional trial games and only one additional software recommendation, for Google’s Chrome Browser, was offered.

This demonstrates that even today the company has not yet diversified its dependence on Google’s very limited number of offers to be leveraged by their software recommendations.

Ryan Weber, Vice President of Corporate Strategy and Co-Founder, W3i, LLC
Entrepreneur and pioneer of Internet marketing focusing on increasing revenue and distribution for digital downloads.

St. Cloud, Minnesota, February 13, 2009 – The freemium business model can increase your bottom line.  In 1865 when King Gillette started giving his safety razor away for free, creating demand for his high-margin, disposable blades, the freemium business model was born.  Without using the freemium business model, Gillette would not have built his empire, and it is now a commonly used business model especially in the marketing of digital content. 

The freemium business model has many names—try-before-you-buy, shareware, tiered service, trial—to name a few.  Basically, it means giving something of value away for free, supported by revenue earned from the sale of an upgrade or complimentary product.  This is a very common business model in the software industry.  Software marketers promote a free version of their software supported by the premium, paid version.  The trick is to create the right mix of features, offering enough utility to the free user to create credibility, and promoting highly attractive features that will persuade the free user to become a paid subscriber.  

To create profit, the financial model looks like this:  the lifetime value of paying customers must be greater than the cost of acquiring and supporting both free and paying customers.  Reported conversion rates to the premium version vary by product, but range from .05 and 5%; the average being 2%.

There are several reasons why you should consider a freemium business model.  Here are some of them:

1. When done right, quality trials build loyalty and trust.
2. Reduces risk by giving the user a chance to experience the value of the software.
3. Expedites a large customer base, increasing network effects and efficiencies resulting in:
   • more brand awareness
   • collective intelligence
   • faster product adoption
   • a more defensible business model, and
   • more efficient marketing, as costs are spread out over a larger base.
4. The cost of distribution and the support of digital content are never lower, allowing this model to increase in popularity.

There are also several reasons why this model has its limitations:

1. People value what they pay for and will make more effort to discover how it will benefit them.
2. It is difficult to cover the acquisition and support costs if only 2% of those installing your software are actually paying for the product.

There are other “free” models that you might consider:

1. Give a “desired” product away for free when a customer commits to a long-term subscription with you.  The mobile business uses this extensively when they give a cell phone away for free if a user signs up for a long-term contract.
2. Ad-supported free – Many magazines are free or highly discounted because of the revenue-generated from their ads.
3. Giving a product away for free while charging for a complimentary, high-margin product.  King Gillette had this down to a science.  Also consider that every time you go into a theater the cost of the ticket is subsidized by the profit the theater makes when you purchase popcorn and other high-margin snack items.

Whichever business model you choose to pursue, W3i can piggyback with your offer to layer on an additional revenue or distribution stream.  Through W3i’s Download Network you have the ability to increase distribution and revenue for your downloadable content.  By using W3i’s proprietary Windows Installation System, Install IQ, you can increase distribution for your download by being one of the value-added software offered during the installation process.  Or you can increase your revenue by using the demand for your download to be combined with other value-added software offers during the installation; and you are monetized when the user selects your software as well as the additional software.  You can then earn money on 98% of users that would otherwise get away.  Software offered through Install IQ converted by as much as 60%.  Contact W3i to learn more. 

Josh Fiedler is the Business Development Lead at W3i Holdings.  As a leader in innovative ways to increase revenue and traffic for downloads, he focuses mainly on downloadable games and utility software.

About W3i:
W3i delivers proven, integrated desktop and browser marketing solutions.  With solutions tested and optimized on over 200 million installs–currently 4.2 million installs monthly, W3i can increase revenue and traffic for downloadable software, applications and digital content or provide a receptive consumer base for customized, targeted distribution programs.  W3i’s solutions utilize Install IQ, a proprietary Windows installation system and download manager developed by W3i.  Install IQ is the first installation system to be certified in the TRUSTe Trusted Download Program.  To learn more about W3i, visit www.W3i.com. 

Press Contact:
Deborah Manthei
W3i Holdings, LLC
deborah.manthei@W3i.com
320-257-7571

Most software marketers know that they can see big results in their advertising campaigns by focusing on the continuous innovation surrounding the various components of their user’s initial experience with their application. Specifically, by focusing on how their users are progressing through the various steps of their user experience (often referred to as a “funnel”), software marketers are able to identify key obstacles preventing the success of a user’s initial experience. Once obstacles are identified, the marketer can then focus on eliminating these bottlenecks in the funnel to maximize the return of their advertising dollars. Most often, these steps consist of a landing page, a download, an install, and the actual first use of their software application.

At W3i, we focus on creating a marketplace through our Download Network to help software marketers and publishers maximize the effectiveness of working together. As we end 2008, and look ahead to 2009, we promise to leverage our network’s growing scale to provide even more robust tools than ever before, in order to enable the successful mass distribution of digital consumer desktop software through strategic bundling alliances.

“Big things are accomplished only through the perfection of minor details.” –John Wooden

Happy New Year!

Rob Weber, Vice President of Business Development and Co-Founder, W3i, LLC
Rob is an Internet marketing pioneer with over eight, profitable years evolving W3i (owner of Freeze.com) in the Integrated Interactive Media industry.

Software bundling is a way to increase money from your downloads-software, games, widgets-or any other popular application that has a sizable number of installations.  By bundling relevant software you offer the user a bonus while increasing your revenue.  Software bundling, done right, is a benefit to the user. 

Bundling is a marketing tactic whereby several products are combined in one installation or sale increasing distribution and maximizing profit.

Back in the early PC days, most new users first heard about new software because it was pre-installed with their PC. Overtime, users started complaining because the software became less relevant to them. Today users can learn about new software through digital software bundles offered with their favorite downloads. Unlike the early PC days, digital software bundling has the opportunity to create much greater relevancy for the user by taking advantage of more sophisticated targeting techniques.

Software bundling was used as a marketing tool since the late 1800’s when Herman Hollerith, the father of automatic computation, used it to sell his punch-card tabulating machine.  It has continued to be used by Internet leaders, Microsoft, Google, Yahoo!, Apple and nearly every major software brand in their quest for users promoting their toolbars, instant messenger applications, and other product du jour. 

When done right, software bundling has some great advantages:

• Increases revenue from your download
• Rapidly increases the distribution of your product
• Reduces the cost of directly marketing to the consumer
• Becomes a value-add for your user

 There are also some obstacles:

• Difficult to find companies that will pay you for bundling their software
• Time-consuming to negotiate contracts
• Testing and monitoring to determine the quality of the bundled software
• Complexity of ensuring that you are following industry best practices, including Disclosure, Consent, User Choice and User Control
• Development time finding the best installer featuring the flexibility needed during the installation process and setting up the installations properly

If bundling downloads in house, here are a few pointers:

• Find relevant bundle partners
• Negotiate terms
• Review the terms of the agreement, tracking and payment
• Prepare and optimize creative images
• Optimize the file size
• Review the download to ensure that it is compliant and trustworthy and only performs functions disclosed and acceptable to the user
• Be sure the download is easy to uninstall, using the Windows Add/Remove program functionality. The uninstall process should be complete and not leave behind components that affect the functionality of the user’s computer.
• Review it from the end-user’s perspective. Is this an acceptable user experience?

Sound complicated? You can also find an out-sourced solution available through W3i.  W3i has installed over 200 million installs since it started in 2000, and is now installing over 4.5 million downloads each month bringing companies and products together with a turnkey solution, the W3i Download Network (WDN).  WDN utilizes proprietary Install IQ technology, which makes software bundling a whiz.  Install IQ is the first installer to be certified in the TRUSTe Trusted Download Program.  W3i has built a network of partners and an expertise in software bundling. 

Join the respected Internet leaders, Microsoft, Google, Yahoo! and Apple -increase the distribution and revenue from your downloads by using software bundling.

About W3i

W3i, owner of Freeze.com, delivers proven, integrated desktop marketing solutions.  With solutions tested and optimized on over 200 million installs–currently 4.5 million installs monthly, W3i can increase revenue and traffic for downloadable software, applications and digital content or provide a receptive consumer base for customized, targeted distribution programs.  W3i’s solutions utilize Install IQ, a proprietary download manager and installation system developed by W3i.  Install IQ is the first installation system to be certified in the TRUSTe Trusted Download Program.  To learn more about W3i, visit www.W3i.com.