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May 5th, 2005, 04:16 AM #1
Intermix - Commentary on Ramifications of Adware Suit
- Join Date
- January 18th, 2005
- Nunya, Business
Worth signing up free to read it, takes a minute.
Last edited by Trust; May 5th, 2005 at 04:29 AM.
May 5th, 2005, 04:28 AM #2
Last edited by Dasha; May 5th, 2005 at 04:44 AM.
May 5th, 2005, 05:33 AM #3
- Join Date
- January 18th, 2005
- Nunya, Business
From the link above, so you don't have to sign up.
"By Bambi Francisco, MarketWatch
SAN FRANCISCO (MarketWatch) -- As I stepped ashore on the island of Cozumel last year after a pleasant few days aboard a cruise ship, I was accosted by solicitors offering scuba-diving tours before I could get 50 feet away from the ship.
One after the other, they invaded my space.
I thought: "Ugh! Live pop-ups!"
That happened once. But on a computer, the digital equivalents of pesky sporting tours or timeshare touts haunt us every minute of each day.
The way they get on our computer is through adware, which is on an estimated nine out of 10 computers. The definition is fluid, but, broadly speaking, adware is software that's mysteriously installed on computers without user consent. It can track user activity and serve up advertisements related to that activity. It's typically bundled with applications, like screensavers, or music file-sharing applications or when people mistype URLs.
New York Attorney General Eliot Spitzer has sued Intermix Media Inc. (MIX: news, chart, profile) , accusing the Internet marketing company of secretly installing spyware on millions of home computers. Spitzer's civil suit accuses Intermix of violating New York General Business Law provisions against false advertising and deceptive business practices. He also accuses them of trespass under New York common law. See related story
If history is any guide, the attorney general -- who's taken on Wall Street, brokerages, insurers and others -- won't be satisfied with one tiny company. There are a whole slew of companies that distribute malicious adware applications as well as advertisers or ad networks that know such practices occur but turn a blind eye to them.
There are file-sharing companies, like Grokster, Morpheus and Kazaa that bundle their software with 20 to 30 adware applications, according to Webroot CEO David Moll.
Then there are companies, backed by major venture capitalists, like 180Solutions, funded by Spectrum Equity Investors, as well as Claria/Gator, Direct Revenue and eXact Advertising, that many observers consider adware/spyware companies.
There's also FindWhat.com (FWHT: news, chart, profile) , Yahoo (YHOO: news, chart, profile) and ValueClick (VCLK: news, chart, profile) , to name a few ad networks that may or may not know the extent to which adware is used to deliver their ads.
And then there's Ask Jeeves (ASKJ: news, chart, profile) , which just on Monday terminated an agreement with a marketing/distribution partner that uses drive-by downloads (a form of adware). The termination was prompted after I questioned Ask Jeeves about this partnership, which was uncovered by spyware sleuth Ben Edelman. Edelman was an expert witness who testified on behalf of media publications in a case against Gator, now known as Claria, back in 2002.
Adware is big business. It's estimated that ads worth $2 billion are served up via adware, according to a report being released Tuesday by Webroot. That's more than 20% of the estimated $9.6 billion in advertisements placed online last year. Watch my interview with Webroot's Moll.
Webroot measured ads delivered via pop-ups, pop-unders, as well as those seen when applications redirect searches or hijack home pages. As a maker of anti-spyware software Webroot is clearly motivated to heighten the risks. But there's no question that adware is a real menace to Internet surfers and to investors.
Intermix shares dove 23% when Spitzer announced the lawsuit against the Los Angeles-based company last Thursday. See full story.
But Intermix won't be the only stock to see its share price slashed as Spitzer's investigation widens. Based on my conversation with Spitzer's office, the Intermix case may pry open a Pandora's Box for the industry.
"A lot of advertisers are using spyware companies," said Assistant Attorney General Justin Brookman, who's handling the case for Spitzer's Internet Bureau. "Intermix is the only company sued at this point," said Brookman. Translation: Spitzer's team isn't stopping with Intermix.
In fact, Brookman told me that there are as many as 30 other Web sites or companies acting as agents helping to distribute applications without consumers' consent. One tiny company highlighted in the report, Acez Software, already settled with Spitzer's office, according to Brookman. See full story.
Spitzer's team wouldn't elaborate on specific companies being investigated. But it's fair to say it's a comprehensive list.
So what happens when Spitzer cracks down? What's the risk and who's at risk? Do the ads go away? If not, where do they go, and which online company will they benefit?
Guilty by association
"We're not ruling out in the future going after advertisers, or Overture," said Brookman. Yahoo's Overture accounted for some 10% of Intermix's revenue, said Brookman.
Yahoo would not comment.
Claria, formerly Gator, is another company that's been accused of distributing spyware. It has said in its pre-IPO S-1 filing with the Securities and Exchange Commission that Yahoo's Overture accounted for 31% of its sales in 2003.
To be sure, two high profile lawsuits against the company have been settled without any admission of wrongdoing. Claria, describes itself as a "behavioral marketing" company. It's sensitive enough to criticism to carry disclaimers on its website insisting that "We have strictly abided to our commitment to privacy and are dedicated to providing valuable permission-based software applications in exchange for delivering targeted messages to our users based on their anonymous online behavior."
Netflix (NFLX: news, chart, profile) was another Intermix advertiser. Its ads were seen on the FloGo toolbar that is one of Intermix's applications that is downloaded alongside an Intermix screen saver program. Netflix said that it's unaware of any promotions on adware and prohibits its affiliates or distributors to place ads on such applications.
While Brookman believes there may be culpability on the part of advertisers, Spitzer's office hasn't drawn any conclusions.
After all, Netflix said it's not aware of its ads being delivered in such a nefarious way. There's also a question of whether advertisers should be responsible for how or where their distributors place their ads.
Suffice it to say that if advertisers did know that ads were being placed by misleading installations of toolbars or redirects of Web pages, then Spitzer's office will likely have a word or two with them.
Ask Jeeves is particularly worth noting since there have been a number of independent sources alleging that Ask Jeeves uses distributors of spyware.
Heather Staples, a spokeswoman for Ask Jeeves, said the company does not use distributors that inadvertently install applications on computers of unsuspecting or nonconsenting consumers.
So I alerted her to a video clip captured by Edelman, who documented an instance in which he received the Ask Jeeves' MySearch toolbar without his request. See Edelman's video and reports.
Staples came back and said that Ask Jeeves did in fact find fault with this particular distribution partner. "We just turned off that partner," she said, adding, "I don't think this is a widespread issue because of the preventive steps we've taken." That said, "this is an imperfect industry... We need to rely on consumer feedback to identify these outlying issues."
But outlying issues seem to plague Ask Jeeves.
Ask Jeeves worked with distributors of spyware in the past, such as Mindset's FavoriteMan, a spyware program that installs other spyware programs, installs new icons on computer desktops and adds links to a users' favorites list in Microsoft's (MSFT: news, chart, profile) Internet Explorer. FavoriteMan was also used by Intermix, according to Spitzer's suit.
The agreement between MySearch and Mindset was that MySearch would be bundled with downloadable games, said Staples.
The agreement ended in the fall of 2003 when Ask Jeeves realized that the distribution of MySearch via Mindset fell outside the scope of the Ask Jeeves' policies, namely that distributors had to give consumers proper notification. Additionally, the company advocates that its distributors comply with proper disclosure and notification and removal requirements for any of its applications.
But Ask Jeeves still partners with Kazaa, a peer-to-peer file-sharing company as well as Grokster. Peer-to-peer companies bundle a number of adware programs with their own software. Ask Jeeves won't be able to rely on that type of distribution if the P2P companies are found to be liable for distributing spyware.
Even if Ask Jeeves isn't doing anything wrong, it's still not off the hook with investors if a significant amount of advertising is placed on its properties that acquire traffic via devious channels. Two-thirds of Ask Jeeves' search traffic in March came from its MySearch, MyWebSearch and MyWay properties, according to comScore Networks. These are the properties that have in the past, and may still be relying on distributors that use adware to get onto computers.
Not only does this have implications for Ask Jeeves, but InterActiveCorp (IACI: news, chart, profile) , which has agreed to spend $1.8 billion to buy the property.
As for FindWhat.com, Tom Wilde, senior vice president of primary traffic acquisition said that the company currently has a distribution agreement with Direct Revenue, but the revenue is "well under half a percent of total revenue." Direct Revenue's software monitors a users' activity and serves up ads related to that activity, according to Edelman. I asked Wilde why FindWhat.com even uses Direct Revenue if the company allegedly uses spyware, and Wilde said that Direct Revenue also uses legitimate channels to distribute advertisements. Wilde also said that FindWhat is not distributing through Intermix, Gator or 180Solutions.
ValueClick did not return calls seeking comment.
Final thoughts ...
The problems are getting some companies to act. Last week, CNet (CNET: news, chart, profile) said that any application downloaded from its Download.com site will be tested for adware and will be adware-free.
Many of these ad networks, like Ask Jeeves, say they that this type of behavior is new and tough to track. Indeed, it is.
But perhaps companies should take better care in conducting their due diligence in choosing distribution partners. Goodness, it was once the case that we couldn't trust Internet revenue figures. Now, is it the case that we can't trust audience figures and traffic? Are companies so driven to drive up traffic to attract advertisers that they're lowering the standards their partners must meet?
If that's the case, I'm glad Spitzer is on this. If companies aren't going to comply or make their distributors or marketing partners comply, then Spitzer will have to make them."
May 5th, 2005, 03:19 PM #4
NY AG Spitzer Sues Spyware Operator
- Join Date
- January 18th, 2005
- Texas, USA
Here is some more info (simplified for us non-legal types) from the online edition of BusinessWeek:
"On Apr. 28, the New York State Attorney General, sued spyware operator Intermix Media, alleging that its programs violate New York laws against false advertising and deceptive business practices and trespassing. Now, BusinessWeek has learned, Spitzer is looking at other spyware providers and is likely to broaden his investigation to go after the advertisers and ad networks that work with them, as well."
". . . spyware experts say the top offenders could include Claria, 180solutions, Direct Revenue, and CoolWebSearch. "Intermix is not unusual," says Ben Edelman, a spyware watchdog who has testified in court as an expert."
For further information, see the Technology Section of BusinessWeek at:
Looks like Ben Edelman has made BusinessWeek with his anti-spyware work!!
Good news, indeed, Folks!!
May 5th, 2005, 03:39 PM #5
- Join Date
- January 18th, 2005
- St Clair Shores MI.
These also add to the FTC's expanding their Adware/spyware case against the Spam King Sanford Wallace and his merry confluted group jumping into the blind drive-by and bundled "infestation game" worth millions.
Seismic Entertainment Productions Inc.... et All.
The proposed First Amended
Complaint names five additional parties as defendants: Jared Lansky, John Robert Martinson,
OptinTrade, Inc. (“OptinTrade”), Mailwiper, Inc. (“Mailwiper”), and Spy Deleter, Inc. (“Spy
Deleter”).1 Mr. Lansky controls OptinTrade; Mr. Martinson controls both Mailwiper and Spy Deleter. The proposed First Amended Complaint also makes conforming and correcting changes, and adds an allegation of common business enterprise with regard to Mailwiper, Spywiper and other bogus applications......
The Commission’s initial Complaint alleged that Seismic Entertainment Productions, Inc.
(“Seismic”), SmartBot.net, Inc. (“SmartBot”), and Sanford Wallace (collectively, the “Wallace Defendants”) engaged in unfair acts and practices in connection with distributing software, including spyware, and in marketing the “anti-spyware” products Spy Wiper and Spy Deleter. The Complaint alleges that the Wallace Defendants disseminated Internet pop-up advertisements on third-party web sites that automatically sent consumers’ Internet browsers to defendants’ web sites. At these web sites, consumers had software loaded onto their computers without their knowledge or consent because the Wallace Defendants exploited a security
vulnerability in the Microsoft Internet Explorer (“IE”) web browser...."
Nice to see spammers mate with BHO and bogus Anti-Adware/Spyware creeps and add in some trojan horse backdoor viruses to make the pile of crap sticky. This is getting real close to true confessions time as the legal bulldogs move to the discovery phase. I sure hope some large 3rd party AM firms recruiting willing merchants into these theftware and consumer system hijacking traps get their day in court. The networks sure will!Webmaster's... Mike and Charlie
"What have you done today to put real value into a referral click...from a shoppers viewpoint!"
May 5th, 2005, 06:27 PM #6
Originally Posted by ecomcity
- Join Date
- January 18th, 2005
- Texas, USA
This is getting very interesting!! I wonder which networks will go down?!
May 5th, 2005, 11:39 PM #7
I'm betting both CJ and LS are going to have their little hinneys wiped and that they will have to come up with a new (cough cough) business model.
The clear winner two years from now will be SAS because scared and under pressure to distance themselves merchants will flock to SAS to benifit from their long standing clean reputation as a shield against being linked to the whole scummy adwhore crowd.
This time doing right for the right reasons is going to have some mega well deserved financial rewards.
Darned about time, too.Comments are opinion unless otherwise noted. Remember, pillage first. Then burn. Half of all people in the world have IQs under 100. You best learn to trust ol' SSanf!
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