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Adware Industry on the Defensive

  |  April 11, 2006   |  Comments

The adware industry is under attack. Will legit adware firms survive the battle?

Barely a day goes by lately without some adware company making the news, usually for deceptive practices. In late January, consumer advocacy group Center for Democracy and Technology (CDT) filed two complaints with the FTC against adware company 180solutions for "unfair and deceptive trade practices."

Then in early February, CDT held an Anti-Spyware Coalition conference at which FTC Commissioner Jonathan Leibowitz threatened to expose Fortune 500 companies using adware. Leibowitz described adware as a "nuisance problem." By outing its top advertisers, some of whom may not even be aware their ads are displayed on installed software, perhaps he could remedy the problem with "a little public shaming."

On the heels of Leibowitz's comments, CDT independently released a report naming 20 mostly non-Fortune 500 advertisers whose ads appeared on 180solutions adware. As a result of the CDT report, at least three advertisers severed or cut back their advertising through 180solutions.

180solutions, however, rigorously defends itself. Keith Smith, cofounder and CEO, said in a statement, "We wholeheartedly support industry efforts to better define our space and provide Consumers and Advertisers alike a reliable and independent way to distinguish between legitimate software and malware. Our model and our practices are fully compliant with all pending federal legislation pertaining to our industry."

This week, New York Attorney General Eliot Spitzer, having already sued and settled with adware company Intermix Media, announced a suit against Direct Revenue, accusing it of deceptive and unfair practices. In mid-March, Direct Revenue settled an Illinois class action suit by agreeing to change its practices. It rebuts the latest lawsuit on its site.

Then, of course, there's the ongoing debate of defining adware versus spyware. Depending on who you talk to, they're one and the same: "badware." And that's where the legitimate adware industry has a problem. If public perception is, "I don't know where this ad came from or why it's being displayed. All I want to know is how to get rid of it," few adware companies will survive.

Some companies already got out, rebranded, or refocused on new directions, seemingly wanting to disassociate themselves from their adware roots. eZula abandoned its adware model in 2005, relaunching as Kontera, a contextual advertising company. Cydoor, another adware company, now markets itself and a broader range of advertising services under the Oridian brand. And Claria, formerly known as Gator, after all the effort and dollars it spent rebranding and defending itself in lawsuits, announced last month it would exit the adware business altogether to focus on its contextual advertising solution, PersonalWeb.

That adware providers are migrating from strict reliance on adware to contextual and behavioral solutions shouldn't surprise us. Current analyses of the adware industry place revenues around $450 million compared to the $20 billion contextual advertising industry. Why hassle with negative PR when you can follow the money trail instead?

Only one adware company seems to remain on the offensive: WhenU. WhenU CEO Bill Day joined the company in 2004 amid a maelstrom of lawsuits and bad press after he helped found About.com. Since then, he's advocated best practices and changing perceptions through clearer, permission-based consumer communication. Day envisions advertising delivered via adware done properly "in a privacy-compliant manner... where users actually see value," as a "home-run opportunity." Day even predicts by 2007, the term "adware" will "die."

"Adware is a powerful marketing method but will continue to undergo a cleansing period of the bad players until the majority of companies stand up to high advertiser and consumer expectations," Robert Regular, president of Oridian, posits. "There will [then] be fewer but more legitimate and respectable adware companies that advertisers will likely do business with."

Media buyers seem split. Some see the value of adware buys in meeting client strategy objectives so long as they can be assured of the permission-only basis of the adware installation. Others steer clear of it altogether, fearful of adware's claims to legitimacy. Advertisers we talk to are equally divided, but not because they believe that adware doesn't work. WhenU's current high CTRs (define) of 15 percent bear that out. Adware's competitive targeting particularly appeals to aggressive advertisers.

Day's offensive moves are smart: educate the consumers, the media, the advertisers, and the government. When consumers clearly understand what they're getting when they download free software -- and that includes ads -- they can make an informed decision. Then, be sure you practice what you preach.

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Hollis Thomases

A ClickZ expert columnist since 2005, Hollis Thomases (@hollisthomases) is president and founder of Maryland-based WebAdvantage.net, an online marketing company that provides results-centric, strategic Internet marketing services, including online media planning, SEO, PPC campaign management, social media marketing, and Internet consulting. Author of Twitter Marketing: An Hour a Day and an award-winning entrepreneur, Hollis is the Maryland 2007 SBA Small Business Person of the Year. Hollis speaks extensively on online marketing, having presented for ClickZ, the American Marketing Association, SES, The Newsletter and Electronic Publishers Association, The Kelsey Group, and the Vocus Worldwide User Forum. WebAdvantage.net's client list has included Nokia USA, Nature Made Vitamins, Johns Hopkins University, ENDO Pharmaceuticals, K'NEX Construction Toys, and Visit Baltimore. The agency was recognized as a "Small Giant" by the Greater Baltimore Tech Council and was chosen as a "Best Place for Business Women to Work" by "Smart Woman Magazine."

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