June 3, 2004 12:28 PM PDT

Adware maker WhenU 'exploring' options

Adware developer WhenU has hired an investment bank to explore strategic partnerships and investment options, CNET News.com has learned.

WhenU CEO Avi Naider confirmed on Wednesday that the privately held company has hired Perseus Group, a San Francisco-based investment bank recently formed by former Robertson Stephenson executives. He declined to discuss WhenU's specific plans, saying the move aims to take advantage of rising interest in the desktop advertising software business.

"There's a lot of strategic alternatives we're exploring in the interest of taking the company to the next level," he said.

According to one venture capitalist familiar with WhenU's plans, Perseus is seeking $50 million from investors to buy out the company's founders and put in fresh capital. About $30 million would go toward the buyout, and $20 million would be infused into operations, according to the source, who asked to remain anonymous.

WhenU develops controversial advertising software that is bundled with popular free downloads such as BearShare, a file-swapping client. In exchange for using the free software, Web surfers must agree to install software that monitors their Web surfing activity and delivers targeted ads.

WhenU's advertising practices have landed it in legal hot water, however. Several Internet operators are suing the company for selling and distributing pop-up ads that appear over their Web sites and promote products of their rivals. Companies such as 1-800-Contacts claim that WhenU's ad practices violate their copyrights and trademarks.

While the legal uncertainties have yet to be fully worked out in court, advertisers are increasingly cottoning to the opportunities afforded by adware.

Claria, a close rival of WhenU, filed for an initial public offering earlier this year. Formerly known as Gator, the adware company reported a net income of about $35 million on revenue of $90 million in 2003, according to its filing.

Industry analysts say WhenU and Claria are in the best position to capitalize on the burgeoning online ad market that specializes in targeting people based on their behavior. Naider estimated that between 30 percent and 40 percent of the $8 billion-plus Web advertising market will be made from the desktop software market in the coming years.

"This is a good time to sell--sell high," said Gary Stein, senior analyst at Jupiter Research.

A slew of companies, including Yahoo, Google and Microsoft, are similarly jockeying for relationships with consumers beyond the browser, offering free downloadable software that can act as a utility for the desktop. There, these companies can potentially deliver relevant advertisements to consumers in a more personal setting.

Google, for example, has started testing a desktop search application and is reportedly gearing up to offer ad-supported software that can help people navigate files on their PC. Microsoft also plans to offer similar technology for users. Yahoo, Lycos and many others have introduced downloadable software for Web search and blocking pop-up ads.

Despite the success with online advertisers, Claria and WhenU face consumer dissent along with legal challenges. Last month, WhenU was delisted by search engines Google and Yahoo after the company was accused of engaging in unauthorized practices aimed at boosting its search rankings.

New York-based WhenU was founded in 2000 with private funds and capital from Access Technology Capital, a high-tech investment fund.

4 comments

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The Founders know when it is time to Bail
In the last two months, I have cleaned many computers, who's owners would be very happy if someone threw these WhenU folks into jail.
Posted by tbeckner (56 comments )
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borderline virus?
I also do tech support for a living and at least 3 or 4 times a week I'm uninstalling whenusave, savenow and the rest of their garbage. I think they ought to be treated like any other virus/worm writer these days. Just because their damage is ongoing and seemingly more subtle I bet they cause as much downtime for unsuspecting users as any virus or worm!
Posted by Zuny (2 comments )
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Don't Move up, Move out
I for one would appreciate it if companies like WhenU took their software and stopped producing it. To the user of pc's their software has no benefit to the user except to ruin their ability to surf the web and be productive. However, I would like to thank you for your software, since it does keep me employeed fixing and removing your software.
Posted by mm12sutton (5 comments )
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