Adware’s Fight for the Future

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Contextually oriented adware companies like Claria, WhenU and Hotbar have successfully exploded on the online advertising marketplace over the last five years. The explosion has come with extraordinary ad conversion performance that has earned them hundreds of advertisers big and small—but not without controversy. These companies are in a fight for their lives, but it’s not for obvious reasons.

Adware companies are now notorious for being plagued with accusations related to spyware. Advertisers and publishers alike have taken legal action over trespassing and trademark infringements, and consumers have been at near riot level with their frustration over unexpected ad intrusions. The noise has gotten so loud that the Congress has now jumped into the ring in the form of an upcoming Spyware Bill.

While all this drama sounds like impending doom to some, I believe that this kind of legal wrangling will bring much needed rules and regulations to the adware industry. Unfortunately, it will also present a whole new set of challenges to the industry, ones that are likely to truly test the real business acumen of the adware community as a whole.

One of the most evil words that can be spoken in the halls of adware companies is ATTRITION. This is the rate at which users, or spyware removal programs, uninstall a particular adware program from their computers. Most adware companies experience a high double-digit level of user attrition each month due to the aggressive work of spyware removal programs, Microsoft alerts, and consumer backlash. As a result, there is an insatiable hunger for new users to fill in the lost user gap.

If passed, the new Spyware Bill before Congress will put serious restrictions on adware companies regarding how a user can be created–and will affect, too, the ease with which they can be uninstalled. Today, the boundaries are only limited by the imagination, but if these new rules are put in place it will become extremely challenging for companies to create users and satisfy that insatiable appetite for them, at a satisfactory cost.

Obviously, consumers are willing to accept adware if there is a real value provided in return. Many companies are attempting to provide this user value by offering free software and other incentives—in fact, a select few have really focused on the consumer and worked hard to be the good guys (Hotbar stands out in my mind as one of these). And yet these companies have had to suffer an unfair blackeye as a result of this whole drama. Meanwhile, other companies have made nearly no effort to improve their client relations; to date, their efforts have been limited by lack of necessity (that is, no one’s been standing over their shoulder, forcing them to do it). But as the rules evolve so will their level of urgency to change.

The adware companies are about to engage in the fight for their lives as they are forced search for inventive ways to benefit consumers in return for the installation of adware. This could be a great thing for consumers, even reminiscent of the 1999 “Everything FREE” period. (Though, based on Claria’s defined lifetime user value, there’s not a whole lot of value to offer each consumer for the effort.)

Still, it will be interesting to watch who will bring the most interesting products and services to the table, and how they will convince consumers to install, retain and enjoy their product long enough to allow their company to grow. The fight is on, and if the adware industry can’t crack the consumer value code sooner rather than later, you can bet that all these companies will attrition themselves into irrelevance in the blink of an eye.

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