They watch you surf the Web. They plague you with pop-up ads. Then they cripple your hard drive
By Ben Elgin, with Brian Grow | Jul 17, 2006 | 3753 words, 0 images
Consumers have strong opinions about Direct Revenue’s software. “If I ever meet anyone from your company, I will kill you,†a person who identified himself as James Chang said in an e-mail to Direct Revenue last summer. “I will f—— kill you and your families.†Such sentiments aren’t unusual. “You people are EVIL personified,†Kevin Horton wrote around the same time. “I would like the four hours of my life back I have wasted trying to get your stupid uninvited software off my now crippled system.â€
Sifting through a stack of customer complaints in June, 2005, a Direct Revenue employee decided to tally the most frequently used words of aggression: “die†(103 times), “f——†(44), and “kill†(15). Douglas Kee, then Direct Revenue’s chief of quality assurance (QA), ribbed colleagues in an e-mail that with all the death threats, it was a “good thing QA sits farthest away from the entrance.â€
According to angry consumers and the New York State Attorney General, Direct Revenue makes “spyware.†These programs track where you go on the Internet and clutter your screen with annoying pop-up advertisements for everything from pornography to wireless phone plans. Spyware can get stuck in your computer’s hard drive as you shop, chat, or download a song. It might arrive attached to that clever video you just nabbed at no charge. Web security company McAfee Inc. estimates that nearly three-quarters of all sites listed in response to Internet searches for popular phrases like “free screen savers†or “digital music†attempt to install some form of advertising software in visitors’ computers. Once lodged there, spyware can sap a PC’s processing power, slow its functioning, and even cause it to crash.
This explains the vitriol aimed at Direct Revenue. The company, located in a loft above a clothing boutique in New York’s hip SoHo district, has been a pioneer in a seamy corner of the booming Net advertising industry. Although it is small by some corporate standards, having generated sales of about $100 million since its start in 2002, its programs have burrowed into nearly 100 million computers and produced billions of pop-up ads.
Direct Revenue’s swift rise illustrates the intertwining of spyware and mainstream online marketing. The Web is the hottest game in advertising, but what’s rarely acknowledged is the extent to which unsavory pop-ups boost the returns. Here’s how it often works: Sellers of advertising, ranging from giant Yahoo! Inc. to much smaller networks, recruit clients, tally the clicks their ads generate, and charge accordingly. But then Yahoo and the other advertising companies sign up partners that distribute the ads beyond their own sites in return for a fee, and those partners sign up other partners. Down the line, a big piece of the business winds up in the hands of outfits like Direct Revenue, which disseminate the ads as pop-ups and share revenue with their more mainstream partners. Some advertisers say their messages have appeared in pop-ups without their permission. Others seek out pop-ups, and Direct Revenue frequently sells ads directly to such advertisers.
Spyware rakes in an estimated $2 billion a year in revenue, or about 11% of all Internet ad business, says the research firm IT-Harvest. Direct Revenue’s direct customers have included such giants as Delta Air Lines and Cingular Wireless. It has sold millions of dollars of advertising passed along by Yahoo. And Direct Revenue has received venture capital from the likes of Insight Venture Partners, a respected New York investment firm.
SPREADING STRATEGY
Many of those impressive ties have frayed or ripped apart recently as Direct Revenue has struggled to fend off a lawsuit filed in April by New York Attorney General Eliot Spitzer. The state court action alleges that Direct Revenue crossed a legal line by installing advertising programs in millions of computers without users’ consent. Shining a light on the shadowy spyware trade, the suit asserts that the company violated New York civil laws against false advertising, computer tampering, and trespassing.
This article is based in part on more than 1,000 pages of Direct Revenue’s internal e-mail and other documents included in court filings. BusinessWeek has reviewed additional documents and interviewed dozens of industry insiders, including 12 current and former Direct Revenue employees and executives.
The company denies any wrongdoing. In a filing in June, it calls the Spitzer suit “much ado about nothing†and defends its past practices as “commonplace†in the industry. It calls its programs “adware†and says it has notified consumers when putting the programs on their computers. It insists that some of the methods Spitzer assails “were long ago changed.†And it argues that by accepting its ads, consumers get popular software applications free of charge that otherwise can cost up to $30 apiece.
In the wake of the litigation, Direct Revenue has shrunk in size, but it remains an important player on the spyware scene. Thousands of people still complain each month to Web security firms about new computer infections caused by Direct Revenue programs (although many users are baffled about what’s causing the maladies). And a new generation of spyware purveyors of equal or greater potency is imitating Direct Revenue’s strategies, infuriating customers, and threatening to taint the larger business of online advertising (page 47). Chances are you have some of their handiwork hidden within your hard drive right now.
SPAM KING
Direct Revenue’s origins trace the rise of what might politely be called one of the more freewheeling sectors of Internet commerce. The company’s sales philosophy, according to current and former employees, was heavily shaped by Jesse Stein, a Wharton School-educated marketer whose successes before joining the company included selling VigRX, an herbal penile-enlargement supplement. VigRX may sound familiar because, to win customers, Stein inundated e-mail in-boxes with spam promoting the product. In 2003, when the ABC News 20/20 program identified what it said were the biggest online spammers, it featured VigRX and showed one of Stein’s e-mails. He reveled in the notoriety. On his desk at Direct Revenue, Stein, now 36, kept a framed 20/20 screen shot of his VigRX spam, former colleagues say.
His eventual boss, Joshua Abram, came to online hawking from a different angle. His family has a rich history of public service. Abram’s late father, Morris, was a civil rights activist in the 1960s who later served as president of Brandeis University and U.S. ambassador to the U.N. under President George H.W. Bush. Joshua’s sister, Ruth, heads the Lower East Side Tenement Museum in New York.
In 1999 Joshua Abram helped start Dash.com, a benign precursor to later spyware operations. Dash attached an unobtrusive horizontal bar to the bottom of a computer user’s Web browser. As the user moved around the Internet, Dash would note the sites being visited and offer relevant text ads inside the narrow bar. Dash went out of its way to ask users’ permission to install the ad bar, and the company even shared its fees with consumers who made purchases. But Dash’s tactful text ads drew relatively few clicks, and its fee-sharing became an administrative nightmare. As the Internet market imploded in 2001, Dash folded.
Abram, known for wearing stylish suits amid a sea of techie grunge, kept developing ad software with several colleagues. They joined a broad post-bust move toward treating customers with less respect. One of the new spyware variants he helped create was called VX2, which a former colleague and computer security professionals believe was named after the deadly, undetectable VX nerve agent. In 2002, Abram, a father of two and husband of a fashion-industry executive, started Direct Revenue. His co-founders were fellow Dash alumnus Daniel Kaufman and a pair of data-mining entrepreneurs from a company called Pipe9, Alan Murray and Rodney Hook. The next year, Direct Revenue did business with and then acquired Stein’s online ad agency, forming a spyware powerhouse. Stein declined to comment. The four founders didn’t respond to numerous inquiries.
Source: www.keepmedia.com 17-07-2006
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Tags: pop-up ads, Direct Revenue’s software, McAfee Inc., free screen savers, digital music, advertising software, IT-Harvest, Delta Air Lines, Cingular Wireless, New York Attorney General, Eliot Spitzer, adware, Jesse Stein, VigRX, Joshua Abram, Dash.com, spyware, VX2, , Daniel Kaufman, Pipe9, Alan Murray, Rodney Hook
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