Spyware appears to be following the same pattern of consumer backlash and litigation as spam, its equally unsolicited and unwanted cousin. Spyware is software installed on a computer that can alter browser settings and track everything consumers do online with the express purpose of targeting them with pop-up ads. Consumer frustrations are mounting against the nearly impossible-to-uninstall software. Just as the California anti-spam bill demonstrated a remarkably limited understanding of the fundamentals of email marketing, so too does the recently passed Utah anti-spyware bill demonstrate an inadequate understanding of contextual marketing and behavioral targeting. Marketers that collect personal data and monitor user behavior are hoping that federal legislation trumps the Utah anti-spyware act in the same way that the federal Can-Spam law superseded California's anti-spam bill. Some analysts and industry pundits contend that spyware is a much more serious problem than spam because it affects more than the email inbox, impacting the way a user's Web browser functions. Legal spyware, dubbed adware, informs users--often buried somewhere in the licensing agreement--about the ads that will be served in exchange for the free software. File sharing software programs, media players, and greeting card programs often come packaged with adware. The term "spyware" denotes non-disclosure of the embedded software's ad-serving function. Federal legislation on spyware is in the works. Spyblock, which originates from the same people responsible for the Can-Spam legislation, would require notification and consent for the installation of any software on a user's computer, as well as detailed information about how the programs function and what information they collect. The bill would make sharing collected information with third parties illegal, and would require uninstall procedures for all software--something few software-based marketing companies currently offer. The bill would be enforced by the Federal Trade Commission, which would impose penalties. Individual consumers would not be allowed to bring cases to court under Spyblock. The bill, which is currently being reviewed by a Senate subcommittee, came under fire last week when software vendors told senators that the bill should focus on the illegal actions of individuals instead of attempting to specifically define spyware. Contextual advertising and behavioral targeting are techniques used by legitimate marketers to serve consumers relevant ads and promotions. The Utah bill already outlaws contextual and behavioral targeting. It's likely that Web publishers and advertisers will lobby against proposed federal legislation. Gary Stein, senior analyst, Jupiter Research, calls the Utah legislation "totally reactive," adding that it is the product of federal legislators feeling the pressure from a frustrated consumer public and acting without a thorough understanding of the ramifications of their decision. However, Stein says that the collection of behavioral information should be separate from personal data. Joseph D. Smith, writing on the CSO Online weblog, says "the new law by itself will not reduce spyware, but it will give a basis for retort action that in itself will limit the quasi-benign spyware used by some larger software manufacturers and some publications." He says that criminal and malicious spyware will not be limited by a new law. "You have to set a software trap to catch a software rat." Jupiter's Stein agrees. He says that it will be incumbent upon marketers, publishers, and software and technology firms to develop software-based marketing standards and practices to clearly delineate who provides legitimate versus illegal adware. "I prefer to see the industry lead with a code of ethics rather than a template of villains," he says. Stein notes that technology will not be enough by itself to solve the spyware problem. He says it would be "an arms race" between technology firms and spyware companies, which often bury themselves behind layers of affiliates, making them difficult to pinpoint. Federal legislation, he says, will also be as important as a centralized, consolidated industry effort. "Even if the law is difficult to enforce, that doesn't mean that they shouldn't pass it," says Stein. "It's too difficult to answer any of these questions right now, because it's too much of a gray area," he adds, but notes that federal legislation will be welcome, if only to displace Utah's clumsy resolution.
Key brand metrics for three advertisers' online campaigns rose significantly with the use of a real-time media optimization tool, according to a study conducted by Advertising.com using audience segmentation research from Dynamic Logic. The study used Advertising.com's proprietary AdLearn technology, and recruited survey respondents from within each advertiser's target audience. Brand impact and audience profile surveys were conducted by Dynamic Logic; Advertising.com applied Dynamic Logic surveys to optimize the campaigns in real-time. The study, completed in February, maintains that a "golden audience" can be located for advertisers, identified by brand impact and audience segmentation surveys. The golden audience measure is based on demographic and behavioral segmentation. Advertising.com declined to identify the three advertisers that participated in the study, offering only generic labels and general industry categories. The study employed the metrics of brand favorability (Advertiser A/Web media); purchase intent (Advertiser B/consumer electronics); and unaided brand awareness (Advertiser C/packaged goods). All three campaigns ran exclusively online. Advertiser A's campaign ran from Sept. 17-Oct. 30 and had 2,800 respondents; Advertiser B's campaign ran from Dec. 19-Feb. 4 with 2,900 respondents; and Advertiser C's program ran from Nov. 10-Dec. 23 with more than 3,500 respondents. "For Advertiser C, the goal was to increase unaided awareness for an existing product that hasn't had a lot of marketing support in the past," said Kate Sawicki, media supervisor, Interpublic Group of Cos.' Zentropy Partners, Minneapolis, Minn. While a coupon was offered during the campaign, the priority was to optimize toward branding. Advertiser C had never run an online campaign. "At the very beginning of the campaign, our advertising was increasing unaided awareness, but after 25 days in the market, Advertising.com's optimization had been so effective that the lifts were 358 percent greater than the lifts when we started," Sawicki said. The campaign ran on five properties, and was live from Mon. to Fri. 10 a.m.-2 p.m., a relatively tight media window. "Advertising.com's optimization product is something that no one else is offering. I really look forward to the day that something like this can be executed across all sites," Sawicki said. What's unique, she says, is that the metrics are optimized in real- time. "Traditionally, in the middle of a campaign, the only results we have access to are direct response metrics, and they're not indicative of our ability to move consumers along the purchase cycle," Sawicki said, adding: "They don't tell me about purchase intent or awareness." Ultimately, Advertising.com's optimization delivered a 150 percent improvement in marketing costs for Advertiser A; a 650 percent lift for Advertiser B; and a 47 percent improvement for Advertiser C. The reduction in marketing costs was also impressive. In the case of Advertiser A, it cost $5 to reach 1,000 people prior to optimization; post- optimization, that figure was $2 per 1,000. The cost to reach Advertiser B's ideal audience was reduced from $100 per 1,000 to $13 per 1,000: "By being able to target the right people, it achieved a 40 percent lift in purchase intent," said Lauren Weinberg, manager of marketing research, Advertising.com. For Advertiser C, the cost per point lift per 1,000 consumers was reduced from $4.87 to $3.31 per 1,000. "The main finding of this study is that we can efficiently optimize campaigns to achieve branding objectives," Weinberg said. "Now we can work on brand-building goals at the same time as reducing marketing cost."
Guess who tops the search referral charts? It's Google, of course. The search engine king carries on its reign over Yahoo! and Microsoft Corp.'s MSN, according to a report released Tuesday by Web analytics firm WebSideStory. Continuing its rise since 2001 when it accounted for just under 12 percent of the search referral market, Google.com hit an all-time high of almost 41 percent as of March 23, 2004. Yahoo.com, on the other hand, prolonged its ongoing descent from a 2001 high of nearly 37 percent to 27.4 percent this year. That's down from last year's 30.95 percent measurement. MSN.com logged mediocre growth, inching from 14.69 percent in 2001 to 19.57 percent in 2004. MSN is developing its own search product which executives say will be on the market within the next 12 months; the service current outsources paid listings to Yahoo!'s Overture. "The trends are worse than what this report shows," says WebSideStory analyst Geoff Johnston, adding: "The U.S. is really Yahoo!'s strongest country." Although not included in this report, WebSideStory also measures search referrals from domains based in other countries. For example, in Germany, Google had a search referral percentage of more than 80 percent compared with Yahoo!'s 5.57 percent and MSN's 3.47 percent. "This reinforces what everyone already knows," suggests Jupiter Research analyst Nate Elliott, with regard to the U.S. numbers. According to Elliott, although Google is just behind Yahoo! in its ability to attract users, it drives far more click-throughs because people use Google to perform more searches. To Johnston, Google's ability to attract users for Web search purposes confirms its most favored technology status. "The superior technology is always going to win," he says. Alluding to Yahoo!'s previous usage of Google's search technology, he continues: "People liked the Google technology so much, they didn't have to go to Yahoo! to use it ... they decided to cut through the middle man." WebSideStory's StatMarket search referral report measures the proportion of visitor traffic that search sites deliver to other Web sites. The company relies on data gathered on over 25 million unique browsers through its HBX site reporting and analysis tool. "The sample is gigantic and random," stresses Johnston. "The sample is not the sites, it's the people who happen to trip across the sites." Referrals resulting from unpaid and paid search results listings and banner ads running on search engine sites are all tracked for the report. Although Yahoo! has acquired Overture, referrals from the Overture network are not included in Yahoo.com's referral percentages. "Four years ago I would have said Yahoo! had it all wrapped up," admits Johnston. Now, he believes its search engine won't stage a comeback in terms of search referral market share, "if trends don't change dramatically." Yahoo! has placed significant emphasis on its search business lately by acquiring Overture, dumping Google's technology in favor of its own, and introducing local search features. MSN is also planning big changes to its search engine. "MSN is always the dark horse," Johnston maintains. The WebSideStory report tells only part of the story, as far as Jupiter's Elliott is concerned. While it reveals that almost 88 percent of search referrals are driven through these top three sites, "marketers have to look at which search engines perform for them," Elliott contends. Elliott admits that advertisers need to be on Google and Overture. However, since the majority of search marketers are looking to drive direct sales, they shouldn't disregard smaller search engines. "There are also shopping search engines that are much smaller but much more efficient at driving traffic back out to shopping sites," Elliott explains. "Advertisers should look at the number of users who also visit a particular commerce category. That story is the important story."
Utah's passage of spyware legislation brings to mind three important political rules of thumb: (1) Just as anything that resembles a turkey better worry in November, the same is true for businesses near the epicenter of an issue generating consumer outrage in an election year; (2) Legislative efforts to regulate the Internet are not that different from the Parable of the Blind Men and the Elephant; and (3) There is no downside to passing a popular law even if it is unconstitutional. The Utah bill was sent to the governor's desk less than forty days after being introduced and with little industry involvement. While the Utah legislature certainly deserves high praise for recognizing and responding to a serious consumer privacy issue, unfortunately their rush to adopt the nation's first spyware law resulted in definitions so broad that it prohibits legitimate as well as pernicious Internet activities. A coalition of companies from AOL to Yahoo! quickly recognized the detrimental ramifications and have mobilized against the law; pointing out that the law's broad definitions would ensnare legitimate practices such as upgrade or reminder notices, impede Internet security efforts and clog the Internet with a wave of consumer notices. In addition, by providing statutory damages of $10,000 per incident, the legislature has guaranteed a litigation frenzy that will dwarf the deluge caused by the state's spam law (which was also passed during an election year). This brings us to the blind men and the elephant who concluded the elephant was a wall, a spear, a snake, a tree or a fan, depending on what part it touched. Last year, I spoke with a number of Congressmen, state legislators and their staffs on the many spam bills under consideration and discovered that many actually knew very little about the email marketing industry they were attempting to regulate (although one legislator was all too willing to discuss some of the racier emails he received) - including some of those leading the charge for spam legislation. This was all too evident in California's spam law - which even its author conceded was flawed - that would have effectively shut down email marketing in California. History may repeat itself since the spyware crusade is being led by some of the same state legislators who missed the mark on spam legislation. Fortunately, the FTC is hosting a forum on spyware and Congress is likely to follow up with further hearings on spyware and pending federal legislation. Hopefully, this will increase understanding of the issues involved in regulating spyware and elevate the debate beyond "spyware is bad." Perhaps most importantly, given the absence of definitive and foolproof geographic segmentation on the Internet, any solution must by necessity be at the federal, or even international, level. Of course, another reason for resolving this issue at the federal level is because the Constitution gives the authority to regulate Internet commerce to Congress. Utah's attempt to regulate the entire World Wide Web far exceeds its authority under the Constitution. Similar state attempts to regulate the entire Internet have been found unconstitutional. For example, in American Library Association v. Pataki, the court struck down a New York law finding that the state had "deliberately imposed its legislation on the Internet and, by doing so, projected its law into other states whose citizens use the Net. This encroachment upon the authority which the Constitution specifically confers upon the federal government and upon the sovereignty of New York's sister states is per se violative of the Commerce Clause." This brings us to the final axiom. There is no political downside to passing a popular law that may be found unconstitutional. Passing the law generates immediate positive publicity, (in an election year no less) while any legal challenge could take a year or more to reach a final resolution. Should the court invalidate the law, consumers will not fault the legislature for trying and will most likely focus their frustration on the courts. The Utah legislature should be commended for making spyware the hot technology issue for 2004 and forcing our industry and Congress to address a serious issue. With Congressional hearings having just begun, and the FTC forum just around the corner, a meaningful solution to this problem may be within reach-but this should only be after due deliberation and input from all those with an interest in the legislation. Bennet Kelley is Vice President of Legal & Strategic Affairs for Hi-Speed Media, Inc., a ValueClick company.