July 29, 2004, 12:00 AM

The shoot-out over spyware

Two sides are facing off in the battle of ad-pop-up software—and it’s sometimes retailer against retailer.

Spyware, adware, parasiteware: depending on the circumstances under which it gets installed on the consumer’s computer and who’s doing the talking, pop-up ad-triggering software has been called all of the above, and more. Litigation pitting retailers against users of the software-including other retailers-and the first statewide law to target spyware are the latest battlegrounds in what’s becoming a war.

At the core of the issue is the question of who controls the consumer’s browser: the consumer, advertisers or even third parties who may profit from the controversial software? Riding on the answer are hundreds of millions of dollars of online marketing investment that opponents of adware are vigorously defending, against the money to be made by distribution channels that serve the ads and other marketers for whom the ads produce sales.

Detractors vs. defenders

As in any war, emotions run high. “It has potential to destroy the consumer’s online shopping experience,” says LinkShare Corp. CEO Stephen Messer. “If consumers figure out there are all these programs that watch what they do, they will stop buying online. It’s bringing back the fear of buying online that we spent eight years getting rid of.”

Carl Rosendorf, CEO of SmartBargains.com Inc., the target of a lawsuit challenging its use of such technology, counters that adware allows consumers to perform one of the basic functions of online shopping: “The Claria Advertising and Information Network that is utilized by SmartBargains is a program that consumers download in order to comparison shop on a real-time basis,” Rosendorf said in a statement at the time the company was sued. “Several federal court decisions, in fact, have strongly supported the consumer’s right to access this form of advertising.”

What has stirred the passions of the online retailing community is ad-triggering software that resides on a consumer’s browser and is set to serve ads from sponsors based on what the consumer views in that browser. It’s basically the same technology behind applications consumers can choose to download from rebate sites such as UPromise. UPromise uses the application to serve up a reminder to consumers browsing merchandise that they can qualify for program rebates by buying the item from a UPromise-participating retailer.

But the same technology supports something seen as far less benign when it serves a competing retailer’s ads to consumers as they are visiting a retail site. Critics say that by directing visitors elsewhere to buy, such ads unfairly hijack traffic which they’ve paid millions to attract to their own site. The pop-ups also create PR problems when pop-up-hating shoppers blame the retail site over which they ads are served, failing to understand that the ads are appearing without the retail site operator’s consent.

Boiling over

Simmering over the past few years, the issue has reached a boiling point with opponents of adware now very vocal. In May, Overstock.com Inc. sued competitor SmartBargains.com over the alleged use of adware to serve SmartBargains’ ads on Overstock’s site, calling the use of spyware “predatory advertising, unfair competition, and a nuisance for consumers.” Overstock also has taken aim against spyware by helping to draft the recently-enacted Utah Spyware Act, the first such state law in the country.

That’s one side of the issue. For while they don’t call the ad-triggering software “spyware,” some marketers support forms of adware. Though SmartBargains declined to be interviewed for this story citing its pending IPO, Rosendorf, in his written statement, defended adware’s use. “We believe Overstock.com’s intention is to avoid and restrict competition by impeding consumers from comparison shopping on the Internet,” Rosendorf said.

SmartBargains isn’t alone, though few online marketers identify themselves publicly with the use of adware. “Advertisers like it because it works,” says Jupiter Research analyst Gary Stein. “There are legions behind (Rosendorf) who are not making statements.” While citing problems with adware and practices that will have to be reined in, Stein says that in and of itself, it can provide smart, behaviorally-targeted marketing.

Nonetheless, shortly after the Overstock suit, L.L. Bean Inc. went on the offensive, suing four retailers-Atkins Nutritionals Inc., Gevalia Kaffe, Nordstrom Inc. and J.C. Penney Co. Inc.-whose pop-up ads L.L. Bean says appeared over LLBean.com. Atkins and Gevalia have since settled with Bean. In a statement after the settlement, Chris McCormick, L.L.Bean’s president and CEO, framed the issue for the rest of the industry. “L.L. Bean is not the only company with so much at stake here,” he said, “and this development demonstrates that other retailers are coming to the same conclusion.”

Though Nordstrom says it is litigating the case because it found the proposed settlement language unacceptable, a spokeswoman adds Nordstrom opposes the use of adware and already had pulled out of adware-supported programs by the time L.L. Bean initiated the suit.

The issue has also spread beyond retailers and providers of adware. It now affects affiliate services providers like LinkShare, which got involved because some users of adware rely on affiliate commissions to sustain their businesses. For almost two years, LinkShare has required partners who use any form of adware to meet certain conditions of use, including testing to prove those conditions are being met. Under those criteria, approximately a dozen affiliate programs have left or been dropped by LinkShare, Messer says, including two of the largest, Claria Corp., formerly Gator Corp., and WhenU.com. In January LinkShare took further steps to distance itself from adware by adopting an “online browsers’ bill of rights” to curtail what it calls BrowserSpam, defined as unsolicited pop-up ads that may be created by downloadable software which interfere with the user’s browser experience.

And others have taken on adware, as well. PriceGrabber.com, a comparison shopping site, and MLB Advance Media, the interactive media and Internet company of Major League Baseball, both issued statements recently saying they will not work with companies that use adware to serve online ads. MLB Advance Media announced it would add language to new agreements and partnership agreements currently being negotiated that bar partners from using spyware to distribute commercial messages in connection with MLB.com. It’s also sent cease-and-desist letters to spyware providers and advertisers who use it to target MLB.com. PriceGrabber.com has launched an anti-spyware initiative with an open letter to users that they will not find pop-up ads served by the company on PriceGrabber.com. The company has said it rejects any promotion of its brand on other sites by means of spyware.

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