March 22nd, 2006
US adware business is doomed
The one thing that can be said for Claria’s announcement yesterday is that it displaces the work of 180Solutions as the most imaginative use of the Press Release to mislead. As Suzi Turner pointed out , Claria, the ones who brought us sappy screen savors bundled with hidden malevolent software (adware) and fueled the spread of Kazaa with its Gator product, has retained an investment bank to sell its adware assets.
Here is what is really going on. Claria saw initial financial success by bundling its adware software with a bunch of products. Soaring on the marketer’s wings of hubris they filed an S1 to go public. As soon as there was public scrutiny of their operations and loud lash back they withdrew their IPO and immediately started to struggle as several states started to pass anti spyware laws. With the prospect of having to defend themselves in many states they hired lots of attorneys and PR people to defend their past while they quickly attempted to become compliant with the new laws.
Anti-spyware legislation usually has three components: consent, inform, and remove. Consent means that the End User License Agreement (EULA) has to be honest and concise. Inform means the delivered ads have to be attributed to the adware vendor. Removal usually means that the program has an un-install capability. You can imagine the result of these changes. End users are less likely to accept the install of software and more likely to remove it. Thus their market penetration started to shrink. Their revenue started to shrink as well.
At the now historic public workshop on spyware convened by Esther Dyson and Cnet last May the new CEO of WhenU defended his company with arguments that they were improving their practices. He said the steps he had taken had already reduced their market penetration by 30%. And the investors are happy with that?
With informed consent and the ability to remove it, adware is not a viable business. Claria and its stake holders realize this and are struggling to come up with a new business model. They may even find an organization so myopic that it could pay real money for their “assets” (anyone want a screen saver?). If I were doing the due diligence on the transaction I would want to check in with various States Attorney Generals, the House and Senate Commerce Committees, and the FTC before proceeding.
Does this mean no more adware? Of course not. Just no more US based adware companies. There will always be plenty of adware and spyware to make using an unprotected PC a miserable experience.
Richard Stiennon is an industry consultant. See his full profile and disclosure of his industry affiliations.
