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. (YHOO ) 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...
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'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 (DIS ) 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.
You should read the whole article, really. It brings a lot to light and almost explains the whole state of the Internet.
From early on, a small group of programmers at Direct Revenue focused on how to protect their employer's programs once they were lodged in a computer, current and former employees say. The team called itself Dark Arts after the term for evil magic in the Harry Potter series. One of the biggest threats Dark Arts addressed came from competing software. The presence of multiple spyware programs can so cripple a computer that no ads manage to get seen.
Dark Arts crafted software "torpedoes" that blasted rival spyware off computers' hard drives. Competitors aimed similar weapons back at Direct Revenue's software, but few could match the wizardry of Dark Arts. One adversary, Avenue Media, filed suit in federal court in Seattle in 2004, alleging that in a matter of days, Direct Revenue torpedoes had cut in half the number of people using one of Avenue Media's programs. The suit settled without money changing hands, according to an attorney for Avenue Media, which is based in Curaçao. "This is ad warfare," explains former Direct Revenue product manager Reza Khan. "Only the toughest and stickiest codes survive.
How ridiculous, if it wasn't something affecting millions of unaware users around the globe trying to simply send and receive an e-mail.
In early 2005 the company was bundling its products with a file-sharing program called Morpheus, which users could download onto their computers. Morpheus required that Direct Revenue make its software easy to spot in a computer's "Add/Remove" panel, which is the registry where a user can find most legitimate software and delete it. Direct Revenue agreed at first but after a few months noticed that thousands of new users it gained via Morpheus were quickly deleting the ad software. Kaufman, a co-founder of Direct Revenue, sent an e-mail to colleagues in February, 2005, saying the company should drop the Mr. Nice Guy routine. "We need to experiment with less user-friendly uninstall methodologies," he wrote. The distribution agreement with Morpheus ended within three months.
There you have it...
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