Most in the online world have probably heard by now that Elliot Spitzer’s office is suing spyware company Intermix. But, nobody has explained very clearly how spyware vendors make their money, so I will. Spyware companies generally collaborate with their customer to deliver targeted advertising of their customers’ products. That is where the whole spying thing comes in. If you know the online user very well, even if the user doesn’t know you know them very well, then you can provide some assurance to the customer that their ad will be seen by someone that fits their target audience, and therefore their product demographics. In summary, spyware companies get paid to deliver ads, but it doesn’t end there.
Spyware and adware companies also leverage off of affiliates. These affiliates place code on their websites, usually in the form of cookies, applets and downloadable software. Affiliates get paid a cut of the spyware company’s revenue for each “client” they deliver that winds up seeing tons of popups.
There are a few folks out there that are betting that Spitzer understands all this, and that the Intermix suit is just the beginning of what could be a nasty battle reminiscent of the securities litigation of the last few years. Everyone ended up paying massive fines, and then Spitzer went on to slam the mutual fund players and the insurance industry.
There could be some sizable players in all this mess as well. Beyond the Kazaas and Groksters, and even the Gators (Claria), there are some major names that might wind up in Spitzer’s crosshairs. Assistant District Attorney Justin Brookman pointed out that a lot of big advertisers use spyware companies – folks like Ask Jeeves and Yahoo! Search Marketing (Overture). While some do not seem particularly worried about Yahoo! exposure, I would not rule out anything with Elliot at the wheel.
But then again, I wouldn’t start dancing on any graves just yet either (due to this funny legal term called “settlement”).