YouTube Users’ Reaction to Ads Could Affect Future Software Business Models

The reaction by diehard YouTube users to news that Google will overlay some video with ads to make the site profitable might signal an interesting shift to future software business models.

During the past year, Google has been redefining how software gets consumed by not only individual users, but the enterprise as well. Google apps, its web-based collaboration software suite, is available for free to both individual users and companies. Google uses ads to subsidize their experience. Should companies want a more spiced up version of Google Apps that allows them to turn off ads and includes support, then there’s a fee of $50 per user.

What’s important about this model is that users don’t have to pay very much, if anything, out of pocket. It flies in the face of how software has been sold for quite some time. Users of Google Apps free edition have likely been willing to put up with the ads for a couple reasons: One, they haven’t been intrusive enough to bother them. Second, their product (and in this case, I mean gmail) is so superior to other e-mail carriers in the consumer space (and the enterprise ones are so bad it’s really no contest either) that, visually, the ads a small price to pay.

But that’s e-mail, which, by nature, will be viewed by a less harsh audience. A site as new and progressive as YouTube draws a different crowd. Many of them are the business and IT managers of tomorrow who view e-mail as a formal technology for letter writing. They prefer IM and blogging. Their reaction to how an add is placed to subsidize their experience will ultimately matter very much because they’ll be making managerial and budgetary decisions down the road.

Obviously, they won’t be able to have both free software and have it be ad-less (despite what many of them might say). But as Google changes the paradigm for how we buy and consume software, the input from those users will very much matter as to how they price and tailor their software in the future.