Trends – Spitzer In The Face Of AdWare
More than annoyance, most users find adware and spyware insidious, and now these users can count Elliot Spitzer, the famed New York State Attorney General, on their side. Late last week, Mr. Spitzer filed suit against Los Angeles based Intermix Media, operators of multiple content websites and creators of the wildly popular MySpace.com.
The suit accuses Intermix of secretly installing spyware that delivered unwanted advertisements to the infected without proper consent. This weeks’ Trends Report revisits the hot topic of spyware and legislation, focusing particularly on the Intermix situation.
Among the known desktop application providers, Claria, Hotbar, 180 Solutions, and Direct Revenue are the first that come to mind. Intermix, known more for their fun pages does not. Of those companies that could draw the ire of a states attorney general, one would expect one of the more known offenders to lead the list – then again, perhaps not. Of the known desktop application creators, some of whom operate sound businesses with rather transparent disclosure, very few of them are publicly traded. This is not the case with Intermix. Publicly traded on AMEX, they saw their share price sink more than 20% upon the announcement of the suit. Judging from past actions though, Spitzer’s office won’t stop there. As Assistant Attorney General Justin Brookman, who’s handling the case for Spitzer’s Internet Bureau, states that they are investigating upwards of 30 companies and are “not ruling out in the future going after advertiser.”
The danger of the Intermix suit is several-fold. The suit accuses Intermix of trespassing, that it parallels a person illegally entering one’s home. Another analogy would be comparing their actions to a hidden camera in one’s office that watched and reported on one’s activity. A majority of people would most likely dislike and not approve of such activity. When it comes to trespassing, no sign needs to exist to say that it is illegal to do so. It just is. This is certainly good for many aspects of life but will no doubt present challenges for those accused of illegal association with adware and spyware. That this suit was filed on the state level also presents a challenge. Rather than dealing with one federal law, those accused must deal with the different laws of every state. On top of that, that Elliot Spitzer leads the way adds validation and provides ammunition for other states to follow.
While pending legislation for an anti-spyware law exists, Spitzer’s filing will most likely only hasten its passing, whether best for the industry or not, and could easily open up what one analyst deemed a Pandora’s Box for the industry. As Net Sense columnist Bambi Francisco and CNet author Matt Hines understand, adware and spending on adware is big business, accounting for at least 20% of online advertising dollars in some estimates. The blurry lines in consumers’ and law makers heads between legitimate adware and illegal spyware make the implications of Sptizer’s suit even broader and potentially further reaching than might be expected. Ask Jeeves, for instance, arguably the cleanest maker and distributor of adware, felt pressure to issue a statement regarding its FunWebProducts business.
The desktop space is not new and has existed longer than some might be aware. With the suit, this industry has officially reached the point where they can no longer operate below the radar. When that luxury exists, companies can often take the easier road in terms of monetization, erring on the side of what makes them the most money compared with erring on the side of user value. Creating user value takes work, and with any business it does not guarantee revenue. At the same time, if done well, it increases product longevity. Such is the case with Ask Jeeves. Their adware products cost considerably more money to develop but they make up for that cost with a user base that has considerably less turnover than many other adware creators. Rather than losing up to 50% of their user base monthly, Ask Jeeves can keep its users longer, ultimately earning more from them, and dedicate resources otherwise focused on user base replenishment towards product development. Others will follow suit. Only now, they have less time and a greater need to do so.
With increased media attention on internet advertising and one of the biggest trade shows in industry history just wrapped, the timing of the Spitzer suit appears more strategic than tactical – devised to give it the greatest exposure and impact. Some of the actions of desktop providers to date have run counter to users best interests. Global best practices are starting to cement, and those in the industry realize that they cannot build anything other than a house of cards if it does not rely on value-adding activities. Industries as public as ours tend to do a fairly good job of self-regulation as the money backing it will exert quick pressure if they sense their brand in jeopardy. The Intermix suit seems somewhat pre-mature and aggressive, the latter certainly being a trademark of Mr. Spitzer. It remains to be seen whether it will help speed up the process or hurt the process already under way.
