Digital Thoughts – Plausible Deniability

Those looking for a stock tip probably should have wagered on Intermix recovering, which it did after announcing roughly two weeks ago that it had settled its spyware suit brought on by Elliot Spitzer. Besides paying $7.5 million, the company also announced that it would permanently discontinue its involvement in creating and distributing adware as well as hire a chief privacy officer in addition to joining the Internet advertising group Network Advertising Initiative. As part of a settlement, Intermix does not have to admit any wrongdoing. Prior to the settlement announcement, all was rather quiet on the spyware front, and despite this particular case being resolved; expect it only to increase Spitzer’s resolve in attacking other companies involved in adware and spyware. Part of the media attention and concern from those in the industry stemmed from the likely fact that Spitzer would almost certainly file suit against not just the makers of adware but those that directly and indirectly profited from it.

Adware and its associated revenues account for billions of dollars annually and involve high profile internet companies such as Yahoo and Google as well as Fortune 500 companies that advertise online. Adware remains popular with marketers because it works, but the rising tide of negative user sentiment, not to mention the increased likely hood of legal action, has many companies thinking twice. The issue does not appear so problematic in straightforward examples where users have explicitly agreed to the installation of adware, are fully informed of what the software does, and the ads that are displayed were booked directly with the software company by the advertiser. Imagine a scenario, though, where an advertiser works with one of many performance-based advertising agencies. The agency then solicits the help of an advertising network. One of the advertising networks’ affiliates then brokers the deal out to another company. That company then places the ad on a desktop application that does not have clear consent and shows more ads than the average person would deem acceptable. A far-fetched example? Unfortunately not.

In the case where an ad appears on a desktop product after having passed through multiple hands, the advertiser is often as shocked as the end user is enraged. The advertiser, though, can often only trace the campaign back to one leg in the process. Even the agency will have a hard time determining which of their vendors was responsible. Cases such as these suggest that advertisers have a legitimate claim when saying that they did not intend, and took reasonable precautions against, advertising on inventory that a lawmaker such as Elliot Spitzer would classify as illegal. Advertisers in such situations subsequently will then modify their relationships, be rightfully upset, but feel relatively comfortable that they remained outside the scope of legal rifle. That may soon change, and all types of companies in the chain are now treading extra carefully around the adware issue.

This past weekend, the Associated Press ran an article titled “Major advertisers caught in spyware net” and it was picked up by many of the largest newspapers. Like a Jerry Springer show, the article is interesting and has a great headline, but it is more opportunistic than helpful in the battle against bad advertising, adding fuel to the already skewed battle against desktop advertising. Articles such as this have a way of exemplifying the negative, which, while their job, forces those involved to be defensive and to take black or white actions. These often include advertisers either deciding to cease spending on even legitimate adware, or worse, on the Internet as a whole.

Software companies producing adware are no doubt also worried about the next legal action that will occur in the space. While not necessarily tied to the Intermix suit or the potential increased activity by Elliot Spitzer, well known desktop software manufacturer 180Solutions announced that it will begin a process to inform its user base that they have the companies ad-serving software on their machines. In what would have been considered a kiss of death this time last year, the company plans on including uninstall instructions in the user announcement. Chances are that the company has already calculated the potential losses due to this campaign, compared with a lawsuit, and determined notification the optimal route.

Plausible deniability has long acted as the rule of thumb for those with any exposure to the Internet advertising arena. The recent Grokster decision paves the way for the middlemen to be held legally responsible for the actions of its partners, and the logic behind the ruling will most likely be extended to the Internet advertising landscape. As a result, anyone in the chain could bare the burden for an offending ad’s placement. Like a flash banner where you can shoot a duck to win a prize, those in the chain are in the line of fire. In a different environment, plausible deniability could have worked, or at the very least given the industry enough time to self-correct before being acted upon by outside forces. Now, even if a legitimate claim, we can no longer assume that not knowing will provide enough of a defense. Making money online might be more acceptable now than five years ago, but no less risky.