There are right ways to use ad revenue to provide free goods and services, and there are wrong ways.
This brilliant revelation struck as I read all the buzz about the forthcoming free music download site SpiralFrog, which some are touting as a challenge to the reigning king of the downloadable music world, iTunes.
If you glance over the headlines, you might indeed believe that Apple faces a real challenge. Here you have a new company with an amusing name, teamed up with a dominant music company in Universal, providing music and video downloads absolutely free. That's 100% less than what iTunes charges per song. (Math majors: Please double-check my work.)
Shockingly, Universal isn't opening up its music treasure trove out of the goodness of its corporate heart; rather than having you fork over some cash for a tune or a video, you trade some of your time (and brain cells) by watching an ad.
If it stopped there, I'd say that SpiralFrog and Universal were onto something big (but that's not a very realistic model). But no; through the magic of DRM, the file you've downloaded will become unplayable after one month -- unless you visit the site again and watch an ad to refresh the license.
It's not clear whether you'll need to watch an ad per month for each file you've downloaded, and the PR person at SpiralFrog didn't respond to my e-mail. But that would be my anticipation, which makes the service even less palatable.
Pretend there's a fellow named Billy, who (like me) falls into the 18 to 34 year-old age range SpiralFrog is targeting. Billy visits SpiralFrog for the first time and loads up on 20 songs. He's a little aggravated by having to sit through 20 minutes of commercials to get his tunes, but hey, he's got free music. He then transfers his newly scored tunes to his non-iPod MP3 player. (Did I mention the files from SpiralFrog won't run on iPod, at least at first? Oh, and you can't burn them to CD, either.)
A month later, Billy's on the plane to Boise to visit Grandma Ethel. He's listening to his Creative MuVo when he suddenly finds that a bunch of his songs won't play. After worrying that his device is malfunctioning, he remembers those tracks came from SpiralFrog and had locked up. So once he gets back home from grandma's, he gets on his PC, goes to SpiralFrog, renews his 20 licenses by viewing a bunch of commercials, then transfers the newly re-licensed versions onto his MuVo to replace the locked-up ones.
Billy then reflects on whether it would have been worthwhile to pay $20 (or less) to get those songs from any number of music-download sites, rather than dealing with that aggravation.
As far as I can tell, the incentive to deal with that just isn't there, especially with so many ways to listen to music for cheap or free, from MySpace band pages to Napster to Yahoo Music.
Now compare SpiralFrog's ad-driven model to something like Google's new Web-based communications package, Google Apps for Your Domain. The Standard Edition gives your organization e-mail, IM, calendar, and a Web page creator, along with a management UI and freedom to swap services in and out for users. It's entirely free; revenue comes from ads.