• by April 12, 2004

Claria, the company formerly known as Gator, has filed for an initial public offering.

Ordinarily, such a move might not be newsworthy because unless you're Google--well, no one actually cares, though the fact that there are any IPOs in the pipeline is proof that market conditions are improving.

But Claria's move does raise some eyebrows. The adware provider and its primary rival WhenU have come under the scrutiny of state and federal lawmakers who want to limit adware applications. Those who favor such limits have dubbed the software "spyware." They say the applications are difficult to remove and encroach upon consumer privacy since they essentially track online behavior and serve ads based on that behavior.

The Claria and WhenU applications must be downloaded by consumers. Problems have arisen in the past, with respect to Claria's distribution of its adware; its application is distributed with third-party software such as Kazaa, the peer-to-peer music site.

In February, legislation was introduced in the U.S. Senate that if passed, would require providers such as Claria and WhenU to give consumers the option to remove the applications each time an ad appears. And last month, U.S. Sens. Conrad Burns and Barbara Boxer introduced Spyblock. The proposed legislation would prohibit spyware, adware, and other intrusive software, making it illegal to install software on a consumer's PC without their consent.

Claria has plenty of legal headaches. There are pending civil suits involving Hertz Corp., L.L. Bean, Six Continent Hotels Inc., Inter-Continental Hotels Corp., TigerDirect, True Communication, Wells Fargo & Co., WFC Holdings Corp., and Quicken Loans. Most of the pending cases allege that Claria violates trademarks and copyrights and engages in unfair competition and trade practices. How these cases will be resolved remains to be seen.

But here's a kicker: How is behavioral targeting any different? Online publishers use the technology to target consumers with appropriate ads based on their surfing behavior. Apart from the fact that Claria's application must be downloaded by consumers, who presumably know that they are doing so, what is different about the two practices? Respected online publishers including Dow Jones & Co.'s Wall Street Journal Online employ behavioral targeting via in-house methods and via outside providers like Revenue Science and Tacoda Systems.

One method is proactive, initiated by the consumer (unless the software is bundled with another application and unbeknownst to the consumer, he or she gets Claria's application along with the one requested), the other is completely passive. That means that consumers, readers--yes, that's all of us folks--don't realize that we are being served ads based on our reading and cruising habits on the Wall Street Journal Online. Where is the disclosure in that case?