http://nytimes.com/2004/09/19/business/yourmoney/19gator.html?pagewanted=print&position=
The New York Times
September 19, 2004
Barbarians at the Digital Gate
By TIMOTHY L. O'BRIEN and SAUL HANSELL
ARSTEN M. SELF, who oversees a children's computer lab at a youth center in
Napa, Calif., spends about a half-hour each morning electronically scanning
10 PC's. He is searching for files and traces of code that threaten to
hijack the computers by silently monitoring the children's online
activities or by plastering their screens with dizzying - and nearly
unstoppable - onslaughts of pop-up advertisements.
To safeguard the children's computers, Mr. Self has installed a battery of
protective software products and new Web browsers. That has kept some - but
by no means all - of the youth center's digital intruders at bay. "You
would expect that you could use these systems in a safe and sane way, but
the fact of the matter is that you can't unless you have a fair amount of
knowledge, time to fix the problems and paranoia," he said.
The parasitic files that have beset Mr. Self and other frustrated computer
users are known, in tech argot, as spyware and adware. The rapid
proliferation of such programs has brought Internet use to a stark
crossroads, as many consumers now see the Web as a battlefield strewn with
land mines.
At the same time, major advertisers and big Internet sites are increasingly
tempted by adware's singular ability to display pop-up ads exactly when a
user has shown interest in a particular service or product.
"Adware has its place, but to grab market share I think a lot of companies
are doing things that make consumers feel betrayed," said Wayne Porter,
co-founder of Spyware-Guide.com, a Web site that tracks adware and spyware
abuses. "I think we're at a very important inflection point that is going
to decide how the Internet operates."
The exact definitions of spyware and adware, like many things in the
ever-changing world of the Internet, remain open to debate. But spyware
generally refers to programs that reside in hidden corners of a computer's
hard drive and record confidential information like keystrokes, passwords
and the user's history of Web site visits. Some of the most insidious
versions have to be installed on a computer by someone other than the user
- maybe a jealous spouse or lover.
Adware, for its part, marries old-fashioned highway billboard pitches to
online distribution and the possibility of immediate response. Adware
vendors range from fly-by-night operators who hawk pornography and
gambling, wherever they can, to more legitimate companies like the Claria
Corporation, which tries to aim its ads at the consumers deemed most likely
to respond, based on their surfing habits. Claria alone has about 29
million users running its adware products on their computers, according to
comScore MediaMetrix, an Internet research firm. That compares with 1.5
million users in early 2000, according to the company.
Some spyware creeps onto a computer's hard drive unannounced, often by
piggybacking onto other software programs that people download or by
sneaking through backdoor security gaps in Web browsers when consumers
visit certain sites. In other cases, consumers technically agree to
download the software, but critics say that the disclosures are hard to
find.
FOR all the differences between spyware and adware, their impact on
computers is pretty much the same: screens transformed into digital
versions of Times Square, and overburdened PC's that operate much more
slowly as they struggle with random and uncontrollable processes prompted
by the hard drive. Small wonder that consumers are throwing up their hands
in despair.
"From what consumers are telling us, they feel like their computers are
being taken away from them," Mr. Porter said. "We have some consumers
saying it makes them hesitant to use the Internet at all because of what an
annoyance it has become."
Reliable data about the booming adware market is scant, but consumer
complaints have become frequent and vociferous. Privacy watchdogs like the
Center for Technology and Democracy in Washington have called for closer
regulatory scrutiny of the industry. Legislation seeking to protect
consumers from abusive adware and spyware has been introduced in Congress.
One state, Utah, has even outlawed the installation of any software without
users' consent.
Consumers can use some tools to fight adware and spyware themselves.
Software products like Spybot-Search & Destroy, Spy Sweeper and Adaware can
zap some intrusive programs on a hard drive and block attempts to trespass
onto a PC. And many analysts like Mr. Porter recommend that consumers
switch from Microsoft's Internet Explorer to Mozilla Firefox, a free
browser that they say has fewer security vulnerabilities. (Microsoft has
issued software patches for Explorer and released an update to Windows XP
that makes it harder for consumers to download software unknowingly.)
But critics of the adware industry say solutions to the problems ultimately
must come from vendors themselves. Against this landscape, companies that
still hope to mine the lucrative promises of adware have choices to make:
to abandon the pop-up promotions that consumers find so annoying or to
overhaul their practices so thoroughly that they are seen as responsible
online citizens.
Some companies seem unlikely to follow the second path. Perhaps the most
infamous adware purveyor is an elusive enterprise alternately known as
CoolWWWSearch or CoolWebSearch. The company operates from computer servers
in the United States as well as far-flung places like Russia, Britain, the
Virgin Islands and Spain. It has developed adware that can change its name
and its location on a hijacked computer several times a day - making it
virtually impossible to track. The company did not reply to an e-mail
message seeking comment.
Spyware Labs Inc., a Hawaiian company, promotes itself as a vendor of
anti-spyware tools but peddles a product called Virtual Bouncer that
experts like Mr. Porter say functions as spyware and adware once it is
installed on a computer. Spyware Labs also did not answer an e-mail message
seeking comment.
Spyware companies are considered some of the most disreputable players in
the industry, because their products can be used for illicit purposes.
While many adware companies engage in some of the same practices as spyware
companies - both track users' browsing habits, for example - adware tends
to occupy a less nefarious position.
In the realm of more mainstream adware vendors stands Claria, based in
Redwood City, Calif. The company, founded as Gator in 1998, is trying to
recast adware as a more consumer-friendly addition to computers.
Smart minds and smart money surrounded Claria from the beginning. It was
founded by Denis Coleman, a Silicon Valley entrepreneur who was a
co-founder of the company that became Symantec. Among Claria's earliest
investors were Scott D. Cook, founder of Intuit Inc.; Andy Bechtolsheim, a
co-founder of Sun Microsystems; and Philip M. Young, an investor with U.S.
Venture Partners, a venture capital firm in Menlo Park, Calif.
Claria piggybacks its adware on popular programs like Kazaa, the music
file-sharing service, and has a lucrative partnership with Yahoo, one of
the Internet's busiest sites.
Claria's investors and executives say the company has been unfairly
grouped with shadier operators and that its goal was never to spy on
computer users or to gather personal information surreptitiously. Instead,
they say, the aim is to offer useful ads tailored to consumers' real
interests and needs, derived from careful monitoring of their Web use.
"A technique that provided much more relevant information and advertising
to a computer user seemed like a powerful concept," Mr. Young said. "Claria
has demonstrated how much more powerful a message is when it's delivered to
the right user, and Claria's only scratched the surface of what they're
capable of doing when they deploy their software."
CLARIA recently canceled plans to take itself public, citing changing
business circumstances; it declined to offer a more detailed explanation.
But the company's public filings offer evidence of its financial potential.
After a few years of losses, the company earned $91,000 in 2002 on $40.5
million in revenue. Last year, it earned about $35 million on $90.5 million
in revenue - an enviable profit margin.
"At the end of the day it's real simple," said Jeffrey McFadden, a former
executive at the Internet portal Excite who is now Claria's chief
executive. "Consumers find value in relevant advertising."
Advertisers find value in the model, too. Mainstream companies like
Verizon, Panasonic and Priceline rely on adware programs because of their
power to address people's individual interests. Claria said 425 advertisers
- including Cendant, FTD, Netflix and Orbitz - use its adware.
Nonetheless, Claria has drawn its share of barbs. Several companies,
including The New York Times, have sued Claria, arguing that its pop-up
ads violate trademark protections when they appear on the companies' Web
sites. Claria has settled most of those suits, including with The Times,
but declined to discuss the terms.
Claria has also drawn the ire of advocacy groups, partly because of its
ubiquity and its role as an industry pioneer. Critics also denounce some of
its business practices, particularly the way it bundles its software with
other programs and the stealth it has used to land on users' hard drives.
"They were very aggressive for a long time, and they turned off a lot of
people," said Ari Schwartz, associate director of the Center for Democracy
and Technology. "That said, they seem now to be moving in the direction of
trying to take steps to make their business more legitimate."
It won't be easy, he added: "They still have a long way to go to make their
product something people want to have rather than something they're stuck
with." Mr. Schwartz said that he believed that Claria's products were not
easy to remove from a computer.
Claria executives dispute that computer users are "stuck with" their
products. They say they have worked closely with Mr. Schwartz and other
critics to make their ad programs more visible and palatable to computer
users. Scott Eagle, Claria's chief marketing officer, said the company
downloads its adware to a user's hard drive only with permission, makes the
adware easy to remove and clearly identifies its products. He also says
Claria does not collect personal information like last names, phone numbers
or e-mail, Internet and home addresses.
"We would rather not show you an ad that's not going to be relevant to
you, because that doesn't add any value to you or the advertiser," Mr.
Eagle said. "The big question is, 'Where does this all go?' Pop-ups and
pop-unders are not wildly accepted by consumers."
As a result, Mr. Eagle said, Claria will move away from providing pop-ups
and will offer more static banner ads on some Web sites. Others in the
Internet advertising industry also say that negative reaction has persuaded
them to forgo the pop-up route. "Everyone is searching for the magic bullet
where the consumer will say yes to pop-ups," said David J. Moore, the chief
executive of 24/7 Real Media, a large Internet advertising company. "The
average consumer will end up with a few of these adware programs, and it
sours them on the entire experience."
Mr. Moore said 24/7 had considered buying an adware company but had
passed. "We were nervous about the long-term business prospects," he said.
"There seems to be a fairly strong groundswell to limit how they do
business."
WhenU.com, another prominent adware company, began as a
comparison-shopping service founded by consultants at the Boston Consulting
Group. But the company, based in New York, discovered that
comparison-shopping was an unprofitable service, and it, like Claria, began
bundling adware with a number of file-sharing companies including, briefly,
Kazaa.
WhenU, like Claria, uses display ads called sliders - because they slide up
from the bottom of the screen. The ads are generated by WhenU's software
and can be launched even when a browser is not open - meaning they cannot
be stopped by software that blocks pop-up ads.
Other WhenU ads appear in front of an open application, interrupting the
user, while others hide behind the application until the user closes it.
Avi Naider, WhenU's chief executive, says he believes that pop-ups and
related intrusive advertising will continue to be viable even if some
consumers try to avoid them.
"The business spent four years educating advertisers about the performance
you can get from these type of ads, and we didn't spend much time educating
consumers," Mr. Naider said. "We never talked to consumers about the
benefits of software-based advertising."
Mr. Naider says WhenU does not keep user information. Instead, he says, the
software his company installs on users' machines tracks the Web sites that
users have visited and displays relevant advertising.
"This is a healthy direction for advertising to go, with a strong set of
standards," he said. But he conceded it would be "a battle to transcend the
simplistic perception that most consumers have about adware."
THE question remains whether a legitimate business can be built on the back
of an industry that has annoyed consumers so deeply and has been linked to
truly illegitimate practices.
"The adware industry has grown so quickly because it works," said Gary A.
Kibel, a lawyer in New York who specializes in new media and advertising
law. "I'm sure 80 percent of consumers don't want advertising on
television, but if you get rid of advertising on television there'd be no
more free TV."
Mr. Kibel said federal legislation could help formalize and sanitize the
business.
But some computer users remain unswayed. "Adware and spyware and all the
other malwares that are out there just waste a lot of time and make the
whole Internet experience a lot less enjoyable," said Orion E. Hill,
president of the Napa Valley Personal Computer Users Group, a nonprofit
group that educates consumers about PC's. "It's intrusive into your life,
and I don't think that's going to change.
"The current Internet model is just too wide open, and I don't have any
confidence that any of the new models are going to be any better," Mr. Hill
added. "The Internet is just too accessible, and it's too easy for people
to make anything they want out of it."
Copyrigh
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R. A. Hettinga