How Will Advertisers Fare In Fight Against Spyware?

The spread of spyware presents Web advertisers with a unique set of challenges, threatening everything from legal action to less reliable Internet tracking to a loss of consumer trust.

Often flying below the radar, spyware and adware, which is software that produces pop-up ads based on users’ Internet behavior, are big advertising businesses, generating as much as $2 billion per year, according to an estimate by anti-spyware vendor Webroot. Large Internet advertisers such as Vonage, Shopping.com and LowerMyBills.com show pop-up ads through such software. The most popular adware programs, such as WhenU.com and Claria, come bundled with free file-sharing programs Kazaa and BearShare; and Claria is estimated to have its ad software installed on 40 million computers, WhenU’s on 12 million, and 180solutions on 20 million.

With increased scrutiny of spyware practices by Congress and New York Attorney General Eliot Spitzer, some ad networks and advertisers are reviewing their spyware policies. Yahoo!, which provides text-advertising listings to Claria, said it is reviewing its distribution policies. AOL’s Advertising.com last year stopped showing ads on adware. Verizon and MLB Advanced Media have forbidden their partners from using any ad-supported software. CNET’s Download.com this month stopped carrying any ad-supported software.

Part of the spyware/adware problem is its slippery definition and various intentions. Some spyware programs record keystrokes and steal identities, while others just track which sites users frequent to serve them pop-up ads. “Often people use ‘spyware’ to cover everything from cookies to Trojans. There’s a huge difference,” said Esther Dyson, editor of the Release 1.0 newsletter and author of a recent report on spyware.

According to a study conducted last October by AOL and the industry-government group National Cyber Security Alliance, 80 percent of users have spyware or adware on their computers. The same study found 95 percent of users with spyware or adware programs said they did not give permission for the software to be installed.

“It’s a very real problem,” said Jeff Lanctot, vp of media and client services at aQuantive’s Avenue A/Razorfish. “We’ve got consumers running scared.”

Dyson said all adware companies have engaged in sloppy or deceptive installation practices to build their reach. She wants them to go ask again for permission from those with their ad software.

“They need to get courage to explain what they’re doing and ask their consumers to opt in,” she said, acknowledging that adware makers, in particular Claria and WhenU, have improved their practices.

Yet adware makers’ past sins could come back to haunt them. Congress is expected to pass legislation this year that will tighten disclosure requirements for ad-supported software and stiffen penalties for violators. In a more immediate threat, Spitzer filed a lawsuit against Intermix this month, accusing the Los Angeles Internet media company of tricking users into downloading pop-up ad-spawning software.

Advertisers are also under pressure for fueling spyware, either wittingly or unwittingly. Brad Maione, a Spitzer rep, said the Intermix suit is part of a larger investigation that could ensnare those who support spyware through advertising. “We are continuing to review practices throughout the industry,” he said.

Lanctot said many Avenue A/Razorfish clients have avoided adware and insisted on no-adware clauses in contracts with ad networks. Susan Schiekofer, a senior partner at WPP Group’s mOne, similarly said many clients shy away from adware, yet ads run on programs like Claria and WhenU yield good response rates.

For advertisers like Vonage, which is focused on gaining customers for its Internet phone service, adware is an attractive customer-acquisition channel. Dean Harris, the chief marketing officer at Vonage, said the company stringently tests all adware programs to make sure they offer reasonable consumer notification that they will receive advertising with the software. Vonage ads still wound up on Intermix programs, which Spitzer asserts never asked for users’ permission. “We do our best to monitor it,” Harris said. “When you’re serving lots of impressions every month, it’s tough.”

Still, Ben Edelman, a Harvard University researcher and spyware and adware critic, believes too many advertisers adopt a head-in-the-sand approach. “There’s something about how this business has become structured that facilitates the passing of the buck,” he said.

That attitude could hurt the Web advertising industry, as consumers use anti-spyware programs to protect their computers, often erasing Internet tracking cookies along with spyware. More worrying for advertisers, according to new research from analytics firm WebTrends, 12.4 percent of users prevent third-party cookies from being set at all, a four-fold increase compared to 16 months ago.

Many marketers end up advertising on adware through ad networks and affiliate programs, according to Edelman. Executives from Fastclick, a network that runs ads across over 9,000 sites, said it vets each adware maker, but it does not give advertisers lists of which will be used. Likewise, many marketers run extensive affiliate programs, paying partners when they acquire a customer.

“It really feels like people who don’t devote the resources to policing their affiliate programs hide behind their affiliate programs,” said Peter Figueredo, CEO of netExponent, a New York firm that handles affiliate programs for clients like The New York Times and The Financial Times.

Ari Schwartz, associate director of the Center for Democracy and Technology, said more advertisers must take a stand. The CDT is urging advertisers to insist adware makers change their practices and make sure their installation base actually wants the software. “We’re asking them to stop advertising with companies until they get the clear consent and to co-brand their ads.”

Until advertisers take more responsibility, warned Edelman, spyware will continue to besiege consumers. “You’ve got to stop the demand to stop the supply,” he said.