Adware: Remembering the Late 20th Century’s Infamous Business Model

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It was the late 1990’s. The Internet was wrapped up in the throes of its first bubble. Investors were pouring money into dot-com businesses, running them into the red in order to outgrow their competitors before even thinking about turning a profit. The emerging online advertising industry had grown since its inception in 1994, and advertisers and networks were beginning to experiment with ad targeting technology, but the majority of online advertising still consisted of branding and un-targeted sponsorships.

Online businesses were full of money-guzzling black holes, and the clunky advertising systems of that era were simply not enough to patch those holes. As Plato wrote in the Republic, necessity is the mother of invention. For better or for worse, the stage was set for the emergence of some new “creative” advertising ideas.

Out of the bubble came several advertising business models that we are now familiar with. While most of them, like contextual and search engine advertising are widely accepted, and sometimes lauded for their effectiveness and publisher friendliness, some early advertising pioneers realized that if you could track how a person behaves when they surf the web, you could then serve them relevant ads based on their behavior. The easiest way to do that is to install a piece of software on a person’s computer. Enter Adware, a business model that has since drawn the wrath of computer security advocates, technophiles, and consumers alike.

The Wikipedia describes adware as “any software that automatically plays, displays, of downloads advertising material to a computer after the software is installed on it or while the application is being used.”

I received an email — or so I was led to believe — from one of adware’s early pioneers, Keith Smith, co-founder of the oft-maligned and much embattled adware company 180 Solutions, who said “…we quickly realized that brand-based advertising simply didn’t convert well compared to traditional advertising like billboards and direct marketing. We knew there was a better way to advertise online and that’s what ultimately led us to starting 180solutions… We knew that by developing a client —side application that would fully understand what the Consumer was searching for and, as a result, deliver the right advertising at the right time, we could provide Advertisers significantly increased ROI.”

In theory, it was a marvelous invention for advertisers. Consumers are much more likely to click on an ad that’s relevant to their web surfing habits than they are to click on a non-targeted ad, or even one that’s relative to a web page’s content. In fact, a TACODA eye tracking survey released earlier this year reported that ads targeted by user behavior can outperform ads targeted by content by up to 54%.

Theoretically, adware is opt-in. In other words, a user understands that the software they will be installing on their system will be tracking their activity and serving them ads, and approve that installation by clicking “I agree.” Unfortunately, adware has proven to be so profitable, that some 3rd party adware distributors have become unscrupulous in their efforts to get people to install their software. By hook or by crook, they have gone the extra mile to get customers to skip over the whole “I agree” thing.

The whole industry has spawned a tangled web of affiliate networks, advertisers, and web sites that few people can wrap their heads around. In March, the Center for Democracy and Technology released a study to untangle the adware affiliate web and revealed that even large companies with no-adware advertising policies sometimes end up sponsoring adware without even knowing it. Many adware companies, 180 Solutions included, have faced serious liability lawsuits in the past for not effectively preventing the misuse and mis-installation of their software.

Another adware company that has been in the industry since the beginning, Claria, formerly known as Gator, announced last month that they were officially getting out of the adware business. They’re switching their business to an opt-in model and plan to be rid of the whole mess by July 1 of 2006.

Adware companies usually bundle their ad serving programs with free pieces of software. However, in order to target advertising effectively, an ad tracking program must be running. This means that it takes up memory, CPU cycles, and bandwidth. If there are enough adware applications running at the same time, it can really slow a computer down. If a consumer regularly practices unsafe browsing habits (like running Internet Explorer with no security turned on), their computer will inevitably become so bogged down with adware that surfing the internet with any degree of enjoyment becomes impossible.

If adware had only been moderately successful at generating profits, we probably wouldn’t have seen the negative reactions from consumers and fair trade groups. But the effectiveness of behavioral targeting, combined with the sneaky methods used by many adware distributors has made the adware business model the whipping boy of the web.

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