Online Extra: A Software Hall of Mirrors

Dubious practices inflate the number of customers that spyware companies are generating for advertisers

By Ben Elgin

Computer users aren't the only victims of Direct Revenue's alleged spyware. The company has tried to inflate the price of advertising it sells to corporate customers, according to interviews with current and former Direct Revenue employees and an internal company e-mail disclosed by New York Attorney General Eliot Spitzer in his suit against Direct Revenue.

The method, known within Direct Revenue as supertargeting, zeroes in on advertisers that pay the firm for each new customer delivered. Direct Revenue sometimes raises the customer count by having its software, which lurks in consumers' hard drives, watch for when users venture onto an advertiser's Web site. Once users are on the site, Direct Revenue feeds them pop-up ads for the advertiser. If that consumer eventually becomes a customer of the advertiser, Direct Revenue claims credit for referring the business, even though it didn't really send the customer to the site in question.

One former Direct Revenue salesperson recalls internal debate over the practice. "It was cheating," this person says. "Everyone knew that the supertargeting was wrong and risky, but the revenue came so easy, they ran with it. They kept saying it was just a Band-Aid to fix a drop in revenue."


  To keep advertisers from becoming suspicious, Direct Revenue would distract advertisers with another technique: "counterintuitive marketing," or "crap" for short. This entailed flooding the Internet with pop-ups for the advertiser, so it would have the impression that Direct Revenue was working hard for its referral fees. Direct Revenue salesman Tim Ebers summed up the practice in a March, 2005, e-mail detailing ways to increase revenues: "[Use] supertargeting to help max out current clients by adding in crap and then giving them love at the same time to minimize performance drop."

Direct Revenue says that it has changed some of its methods but declines to comment on supertargeting. Spitzer doesn't address the topic in his suit.

Whatever its propriety, supertargeting continues, according to Internet consultant and anti-spyware watchdog Benjamin Edelman. He has documented examples as recently as June 10. On that day, Edelman visited Dell's (DELL ) Web site on a test computer running Direct Revenue's software. After he arrived at the site, Direct Revenue fired a pop-up ad to the test computer promoting a gift card for Dell. An outfit called BlueDiamondDeals, which partners with a Dell advertising affiliate, had placed the ad with Direct Revenue.

The ad puts a "cookie," or digital stamp, on the computer that tells Dell to credit the affiliate with a commission if the visitor becomes a customer. Typically, an affiliate and Direct Revenue will divide the commission, says Edelman. "Rather than giving advertisers a fair value on mutually agreeable terms, Direct Revenue instead cheats merchants and seeks payments without adding any bona fide value," he says.

Dell says that it does not work with BlueDiamondDeals and that it prohibits its ads from appearing in spyware programs. BlueDiamond couldn't be located.

Elgin is a correspondent with BusinessWeek in San Mateo, Calif.

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