Hotmail
Spyware developers net huge profits, outrage
 | Video |
 |
Auto Tech |
A better economy may lure buyers, but these trends could seal the deal. |
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. 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.
By early 2004, Direct Revenue, with Abram as CEO, had settled into its SoHo loft, employing two dozen programmers and salespeople. Current and former staff members say the place had an informal, often cynical atmosphere. The unsophisticated computer users subjected to Direct Revenue's ads had a nickname among some staffers: "trailer cash."
Knowledgeable consumers can reduce the risk of spyware infection by using widely available security software and steering clear of free online goodies. Direct Revenue and its rivals -- companies with such names as eXact Advertising and Zango -- say they employ "user agreements" that notify individuals when they are about to download their software. But the agreements typically can be found only by clicking on links deep within separate legal agreements related to the online freebies. The documents tend to be lengthy and opaque. Large numbers of Internet users who lack adequate security software and fail to read the legalese make themselves vulnerable.
- Discuss Story On Newsvine
-
Rate Story:
View popularLowHigh - Instant Message
MORE FROM TECH AND GADGETS |
 Tech and gadgets Section Front |
| Add Tech and gadgets headlines to your news reader: |
Resource guide