Deal Radar 2009: Spiceworks

Founded in January 2006, Spiceworks developed the industry’s first free ad-supported network/systems management tool for IT professionals in small- and medium-sized businesses. Based in Austin, Texas, the company was founded by Scott Abel, Jay Hallberg, Greg Kattawar and Francis Sullivan, who after working for enterprise software companies, wanted to do something new, different and above all, fun. After watching enterprise organizations dole out millions of dollars for IT management software, Abel came up with the idea for developing software that is powerful yet simple to use. But instead of attacking the enterprise IT management market, which was heavily serviced by IBM and several other companies, he decided to focus on the small businesses segment.

Today, Spiceworks offers small businesses a simple to use software package designed to address their specific needs. The software can be downloaded and set up in minutes. Further, the company embedded social networking and collaboration capabilities (similar to what Facebook, Twitter and LinkedIn have) directly within the Spiceworks software to create the first “social business application for IT.” This helps users not only stay on top of their networks but also collaborate with other IT pros facing similar challenges. Users can share ideas on best practices, collaborate on IT projects, rate and review products and vendors, and form groups around particular areas of interest. This information can be streamed in real time into the Spiceworks user interface, just like updates on your friends are streamed into Facebook or received via Twitter.

Spiceworks says it is the first company to offer social networking and community collaboration features within an IT management software application. The company has witnessed great results of this move. Users have developed growing library of knowledge covering more than 35,000 topics in 300 special interest groups and reviews on over 12,000 IT products.

When Spiceworks started out, the founders planned to pursue a traditional SaaS subscription model. But they decided make the software free and monetize it with an ad-supported business model when co-founder Jay Hallberg asked how they would defend a $20/month subscription if three programmers on the other side of the world decided to offer a similar product for $10/month or for free.

Spiceworks is targeted at the $750 billion a year SMB IT market, which is made up over 5 million IT pros. The company offers several types of advertising and sponsorship options, including banner ads, community sponsorships, white papers, product listings/reviews and more. Spiceworks has 600,000 SMB users and 100+ advertisers, including HP, Microsoft, Sony, Dell, Xerox and more with 85 percent of its advertisers are repeat customers.

The company has raised $13 million in venture capital so far: a $5 million Series A with Austin Ventures and an $8 million Series B with Austin Ventures and Shasta Ventures. The company’s year-over-year user growth between 2007 and 2008 was 156% and its advertiser growth during the same period was 200%. Spiceworks witnessed 558% revenue growth and is on track to triple its revenue in 2009. It does not plan to raise any more capital as of now.

Suggested Reading:
Deal Radar 2009: Service-now.com
Deal Radar 2008: Zyrion
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This segment is a part in the series : Deal Radar 2009