Adware: defined generally as companies with a business model of spending money on direct response ads promoting
downloadable software where the business model was showing ads to those new users as the means for monetization; the software bundles almost always included a toolbar added to the browser and a separate application that delivered pop-up ads.
Adware companies have raised a lot of
money, made select people "FU" wealthy, and spent as much time in
legal battles as running their operations. One thing they haven't
managed to do is stay in business for the long-run, as evidenced by the
latest casualty, Zango.
For those who worked in the performance-marketing between 2000 and
2006, the names Gator, Hotbar, WhenU, 180 Solutions, and Direct
Revenue, or their rebranded versions, i.e. Gator ->
Claria -> Jelly Fish and 180 Solutions + Hotbar -> Zango, will
elicit strong memories of a time period not all that different from the
Wild West of today's flog/review sites.
In hindsight adware's challenges mirror every highly
profitable, easy to copy, and equally easy to abuse method of
advertising, and it's lessons from their rise and fall, especially in light of those marketing methods that followed which inspire this post.
On one level you could say that the adware space helped create the ad-supported software boom, operating on
the premise that the value of the bundled software makes up for any
perceived inconvenience from advertisements. It's a premise that works
for multi-billion dollar firms (Google for instance), but the early pioneers got too caught up in the money. That focus created an environment with the following issues:
A. The nature of their free software - Users love free things.
Reader's of Dan Ariely's Predictably Irrational will recall empirical
data showing not just the value of free but that some of the smartest,
most logical people still fall victim to the power of free. As the
saying goes, you can fool some of the people some of the time but not
all of the people all of time. So, while free, the software given away to
consumers didn't quite measure up to the non-monetary cost of using it
(see point B). The free screensavers, emoticons, wallpapers, etc.
weren't necessarily bad, but they weren't exactly ambitious
undertakings of value. In other words, after seeing them, few would
seek them out or recommend them to a friend.
B. The way they display their ads
- Adware companies started when access to users was cheap and monetization of those users limited. When the ad market
turned around and websites began offering great products for free with
non-intrusive advertising, antiquated software programs with intrusive
ads didn't stand a chance. For those that haven't installed adware, ads
weren't especially innocuous. They popped-up on your computer at
unexpected times and with a regularity sure to annoy. The best of the
bunch limited the frequency, but alas there is no way to make pop-up
ads tolerable. (If only IAC would learn that with their travel
properties. Do we really need an Away.com pop when performing a search on Orbitz?) The rarest of the bunch got rid of pops all together (ironically an IAC company), but only one had strong enough alternate monetization to survive the implosion.
C. The way they obtained their users - It's
one thing if the majority of users entered into the pop-up ad-supported
model understanding knowingly what they would get, but most didn't.
Those companies acting on better behavior had clear disclosures that users didn't
have to (and didn't) read. Presenting users disclosures they might not read doesn't
imply any wrongdoing; the issue at hand comes from the generally
aggressive manner in which the ads were displayed. If you thought the
exit pops that the majority of continuity companies use to try and keep
users were annoying, you haven't experienced an ActiveX ad. It's an ad
disguised in an operating system prompt. It is common to see them when
installing software, but it takes a trained eye to recognize a prompt
for download triggered from ad code and a prompt triggered by
deliberate action (clicking "Download" for instance). In the usual ad
paradox, savvy users don't make advertisers money, so whether they
didn't instinctively hit "OK" didn't matter to them. The money came
from the non-savvy user who did and would then keep it installed a
beyond average length of time for they didn't understand what they had
installed or how to remove it.
The players in revenue driven businesses aren't all bad, and they more than other types form two distcint groups. Here is how the adware players fit into those types:
1. Legitimate
- While some people would contend that a legitimate adware company is
an oxymoron at best, several of the better funded companies could sleep
well at night feeling that they did in fact offer a fair value to the
consumers. The difference between legitimate and infamous are the exact
things that meant the legitimate would struggle to survive -
infrastructure. The legitimate players invested heavily in compliance,
customer service, and didn't obfuscate their identity. Over time, they
even made it relatively easy for users to figure out whether they had
the software and how to uninstall it if they wished. Each step adds
costs and lowers their revenue per user. It also makes puts them on the
radar as a target for any small issues and allows any who want to
criticize them to follow their moves easily. It's unfortunate, as some
of them weren't that far off from success, and some of the products
people did like. They were simply a little too stuck in their ways from
a revenue perspective to make the switch to one that had longevity.
2. Infamous
- The infamous adware companies are the same group of people (sometimes
literally) insuring that flogs will live a short lifespan. They have no
staff, no infrastructure, no customer service, and no real concern. The
infamous ones ruined it for the rest by taking the shortest route to
profit. Why offer free software and attempt to add value when you can
simply get a user to install the adware. They realized early on that an
ActiveX ad didn't have to say much to get a user to install a program
which simply showed ads. These are the ones that stopped installing a
toolbar as well once they realized that a) the major ppc engines didn't
want the traffic and b) it made it that much easier for users to figure
out they had installed something. This group perfected the "drive-by"
install where in the early days the software could install without a
prompt depending on the user's computer permission settings. And,
unlike the legitimate group, they didn't have investors, weren't
looking for an exit. They had a skeleton crew enjoying the six figure
revenue days of high profit, and when it was a little too costly to
stay around, they just took the millions and left.
This is usually where I try to end the post, already a meaty 1000+ words. But, adware provides such an amazing lesson for those running, considering investing, joining, etc. a revenue driven business with some questionable tactics. The second part of the article focuses on extrapolating more broadly conditions to evaluate other businesses. Chances are that all
of the following are not necessary for failure, but having all is
sufficient.
- Advertiser Hesitancy - The advertiser's pay the bills.
Mentioning the importance of advertisers liking the vehicle by which
their ads get shown is like saying wash your hands before eating or
touching you face to minimize the risk of getting sick. Advertiser
hesitancy is a challenge for any new platform, even something as
popular as Facebook applications. But, there is a difference between
the hesitancy that comes from novelty and hesitancy that comes from bad
press. Amazingly, the top-tier firms, e.g. Claria, did a stellar job of
convincing media buyers for top agencies that they should spend their
dollars with them. Like any ad business, the top-tier advertisers made
up only a small percentage, but it was a bigger percentage than the
casual observer would expect. What the adware companies had going for
them though was being able to a) focus on targeting and b) play into competitive nature of certain
advertisers all in an environment where high scale options that met both of those didn't exist. Because the ads were pop-up, they covered the real-estate
of the site, not an ideal format unless you wanted your company's ad to
show on top of your competitor's page. In this scenario, you the
advertiser would overlook the user experience just for the satisfaction
of potentially one-upping your rival. Such behavior is ultimately
short-lived, especially when enough users complain about the
experience. While it might not seem that much different than bidding on
a rival company's keywords in paid search, the experience was just
off-putting enough that it didn't have the same level of plausible
deniability and value that Google enjoys. (Even with paid search
though, we see that avenue being slowly choked.)
- Publisher Hesitation and Frustration
- Since adware consumers didn't download the software after seeking it
out, they had to come across it somewhere. As it wasn't a visit to
download.com that did it, most users installed the programs after
visiting some other website. For that website, displaying adware
promotions was a Catch-22. They ads provided solid monetization, but it
also had the likelihood of cannibalizing future revenue. The long tail
of sites, those that simply wanted to make as much possible from their
ad inventory, didn't have a problem running campaigns for adware. But,
those who took a longer-term view of their users and especially those
that felt a responsibility to show only socially acceptable ads became
heavily against running anything adware related. Much like many of the
mobile subscription marketing campaigns of today (and now flogs),
adware started to face an uphill battle for distribution. Their source
of either unsuspecting publishers or lenient (like the Facebook app
guys of today) ultimately dried up. And, with both the browser's and
publishers' battle against the once dominant ActiveX, they had to work
that much harder to get installs.
- Consumer Backlash
- It is difficult enough when advertisers and publishers start to have
reservations about the product and process. It's another thing when the
consumers do as well. Not surprisingly, the consumer leg only adds to
the advertiser and publisher ones. When they complain, it makes the
others even more weary. Adware had a special property in that it often
angered the end user enough to take action. People might not mean to
sign up for a quiz/crush service, but when they do, the transaction
(including ongoing delivery of content) takes place on the phone, not
the web. Not so with adware. When users received a pop and didn't
understand why they did, they took their complaints to the nearest
person - either the advertiser being promoted or the site that
triggered it. The latter only fueled the fire against adware from a
publisher's point of view. It's one thing to play a part in promoting
the downloading of adware for profit, quite another to feel taken
advantage of, i.e., have an ad shown on your site that you didn't
approve yet one your user blames you for seeing. And, similar to
advertisers backing out and publishers no longer wanting to show the
ads, the consumer sentiment only added to the negative feedback loop of
lower lifetime value and increased costs to service the business.
Ultimately, it's this one that will undermine any attempt to truly
succeed. If you run a product or service that user's don't really want
when they fully grasp what they get, you will fail. You might be able
to run a highly profitable business, but you will run one that will
forever face headwinds. The length of your survival becomes a formula
based on the strength of those headwinds.
- Competition a.k.a. Perceived Returns for Little Effort
- Speaking of headwinds, nothing will cripple a business trying to
survive in an already problematic area like competition from and an
invasion by the infamous group. It's the same thing that happened with
mobile subscription services to some degree and especially with the
flogs. While there are legitimate players, ones who have listed phone
numbers, addresses, customer service and so on, they must compete (in business and industry reputation) with
companies who carry none of that cost structure and have none of the
same concerns about how to treat the consumers. The challenge wasn't
making adware as a whole legitimate, it was differentiation between the
legitimate and non-legitimate players. In the end, it wasn't the model
so much as the ease of entry by those without the vested interest. And,
this is something we see time and again especially in the performance
marketing space. Flogs can very easily be legitimate, but the
legitimate ones will not be allowed the chance to thrive so long as the
perception among the non-compliant is that there is easy money to be
made without having to do much to earn it. If you are trying to build a
legitimate company in a space with that perception, think twice.
Is adware dead?
The
short answer is no, and just like email marketing, it will prove hard
to eradicate completely even if almost every card in the deck is
stacked against it. As mentioned above, the adware tale is not just one
of profit and potential but ultimately trying to turn a service into
something it wasn't. That profit and potential, though, mean others
will continue, some following the lower-hanging fruit routes of copying
an idea that made it in the past with others attempting to innovate and
improve upon the weaknesses in the original purveyors of adware. In
thinking about the survivors and innovators, two companies come to mind
- MindSpark (formerly FunWebProducts) and GameVance. The former is the
clear winner in what was once called "cute"ware. Unlike the more
nefarious adware, the installation of a MindSpark product doesn't come
with the pop-ups. They install a toolbar and have various hooks into
the user so that they won't be tempted to uninstall, but early on, they
rid themselves of the behavior that led to the majority of complaints.
Thanks to their strength in monetization, savvy in marketing, and
persistence, they outlasted their competitors who could not afford to
continue buying user and monetizing them. MindSpark continues to thrive
even in an environment that doesn't fully understand their product. The
same can be said for relative upstart GameVance, whose casual gaming
services seem like an improved version of one of Zango's endeavors.
Users can play GameVance's offerings for free, including the chance to
win prize money, but it comes with the classic adware monetization
tool, pop-ups. With fewer bad players still around and better global help removing them (thus no triple
serving of ads because people have more than one installed) along with
much clearer disclosures to the users, they have continued to grow and
minimize the advertiser / publisher / consumer challenge. Theirs is a
lesson in not just doing things transparently but what users will do
for the continued chance to win money. For the time being, neither
company looks in danger, but neither have the luxury of the buzz like Twitter.
Instead, I am writing it because I enjoy the process, it helps me structure my thoughts, and I often meet interesting people through my blog." 