June 30, 2004 8:10 AM PDT
Adware's going mainstream, report says
Adware is software, often available as a free Internet download, that requires consumers to agree to accept advertising messages in order to use them. Some of these programs have been criticized for failing to adequately disclose their terms, which may include allowing companies to monitor consumer Web surfing activities, among other things.
A report scheduled to be released Wednesday provides a rare glimpse into the inner workings of WhenU, the second-largest adware network. Prepared by Ben Edelman, a Harvard University graduate student who has testified in spyware cases as an expert witness, the independently prepared report reveals that Fortune 500 companies have turned to the often-controversial networks as a way to stand out in an increasingly ad-saturated online environment.
In the last few months, WhenU and rival Claria (formerly Gator) have faced mounting criticism from privacy advocates and politicians who liken the controversial software to "spyware," saying Net surfers may not be aware that they're getting it when installing applications like Kazaa or Morpheus.
The line between adware and spyware is fuzzy. But even critics of WhenU and Claria concede that those companies' practices are nowhere near as objectionable as malevolent ware that surreptitiously infects a PC and uses it to send out spam or divulges a user's credit card numbers.
Major League Baseball has taken a stand against advertising networks such as WhenU and Claria and will no longer sign deals with companies that advertise with them, The Wall Street Journal reported Tuesday. In addition, recognizing that Web surfers are increasingly frustrated with pop-ups, the Interactive Advertising Bureau has published guidelines designed to limit their use and ensure correct labeling.
The forthcoming report shows how WhenU advertisers target competitors' Web sites. According to the report, Best Western appears to throw up ads on 208 domains, including those of Comfort Inns and Days Inn; Thrifty aims ads at the sites of rivals Dollar Rent A Car and Enterprise Rent-A-Car; and Verizon DSL ads are triggered by visits to the sites of broadband providers Covad Communications Group, Direcway and 71 other domains.
"They like to cover other people's Web sites with their ads," Edelman said. "When you go to The New York Times, the ad you see isn't helping to pay for the expenses of The New York Times. It's money that's going into (WhenU's) pocket."
While Edelman said he performed this research on his own without being paid, he was hired as a consultant last year by financial companies that sued WhenU. Edelman has prepared a similar report for a court case that was filed under seal.
WhenU said it would need more time to review the report, but it did not immediately contest the methodology. In the past, "he made a lot of mistakes in his assessment" of WhenU's inner workings, Avi Naider, WhenU's chief executive, said Tuesday. "It hasn't been my habit and policy in the past to respond specifically to what Ben Edelman says."
While prominent companies advertise with WhenU, many of the advertisers hail from seamier sections of society. The report says 49 companies run gambling or betting ads on PCs with WhenU installed, and nine firms have purchased a total of 99 ads related to sexual enhancement. The largest advertisers are Priceline.com, J.P. Morgan Chase, Casino On Net, Verizon and Orexis (which sells sexual-enhancement pills for men).
WhenU's practice of placing ads over competitors' Web sites has landed it in legal trouble. The company has been sued by 1-800-Contacts, Overstock.com, Quicken Loans, U-Haul, Weight Watchers and Wells Fargo. 1-800-Contacts, which claims that WhenU's ad practices violate copyright and trademark law, has won a preliminary injunction blocking further ads targeted at its Web site.
Claria, a WhenU rival, has filed for an initial public offering. Documents it disclosed list 20 of its top advertisers, including Orbitz, Buy.com, Lycos, Amerix, Motorola and Sprint.
WhenU is also exploring how to raise additional money, CNET News.com reported earlier this month.
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