Spyware developers net huge profits, outrage

Consumer outrage
Complaints were certainly not in short supply. "You have 24 hours to provide me with a removal tool for your piece of crap spyware program," Joe LoMoglio e-mailed the company in September, 2004. "Your pop-up ads popped up a few porn sites while my 6- and 9-year-old children were using the computer." Reached by e-mail, LoMoglio says the company "refused to respond."

As Direct Revenue surged in late 2004, its hyperactive sales force profited as well. Several top performers took home more than $300,000 apiece that year, current and former employees say, and a celebratory mood enveloped the fourth-floor ad-sales department. On Friday afternoons, employees opened bottles of beer, and Paul Nute, a top sales executive, occasionally blasted the pop song "Everybody's Working for the Weekend."

Nute had a trademark line for corporate sales pitches, according to current and former sales employees. "It's like crack," he would say. "Once you try it, you'll keep coming back for more." Nute declined to comment.

By early 2005, Direct Revenue had notched deals with JPMorgan Chase, Delta, and the Internet phone company Vonage, according to former sales staffers and Direct Revenue documents. Cingular Wireless spent more than $100,000 a month at the peak of its relationship with Direct Revenue, current and former employees say. Direct Revenue put Cingular pop-ups in front of other phone companies' Web sites and news sites such as the one affiliated with tech magazine Wired. Vonage, meanwhile, was billed $110 for each customer that Direct Revenue delivered, according to a sales report from July, 2005. For that month, Direct Revenue billed Vonage for 287 new customers, or $31,570.

JPMorgan Chase confirms that it advertised with a Direct Revenue unit through the middle of last year, but says it was unaware of any spyware activity. Delta and Cingular declined to comment. Vonage didn't respond to inquiries.

No more Mr. Nice Guy
By mid-2005, Direct Revenue had grown to more than 100 employees, and its practices were drawing public notice. Bloggers, invoking the right to be free of uninvited ads, singled out Direct Revenue. Benjamin Edelman, a prominent Internet consultant and spyware foe in Cambridge, Mass., tried to shame advertisers away from Direct Revenue by displaying on his site the names of companies that appeared in Direct Revenue pop-ups. Jules Neuringer, owner of Portronix, a Brooklyn (N.Y.) computer-service firm, says that during this period about a dozen of his small-business clients complained about Direct Revenue spyware. Of these, he says he "was never able to bring an infected computer back to pristine operating condition."

Direct Revenue insiders knew they were alienating consumers and even made tentative moves to clean up their act, court filings show. But when the result was fewer people getting stuck with its software, Direct Revenue pulled back from reforms.

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.

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