Adware Pioneer To Exit Market, Sale Could Lead To Consolidation - InformationWeek

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Adware Pioneer To Exit Market, Sale Could Lead To Consolidation

Claria's announcement that it will sell its adware business raises the possibility of rivals 180solutions and WhenU making a bid.

Adware pioneer Claria's decision to leave the adware market by June comes at a time when it and its competitors have come under sharp attack from public interest groups that contend the vendors haven't gone far enough to reform their business practices.

Claria, founded in the late 1990s as Gator, announced late Tuesday that it has retained Deutsche Bank Securities to sell its adware assets and is in active discussions with a number of interested buyers. Claria, in a statement, said any buyer of the adware business must adhere to emerging industry standards to properly notify consumers the ramifications of the adware being placed on their computers. Claria officials declined to be interviewed.

''If they really wanted to demonstrate a commitment to being anti-adware then the right thing to do is shut down the operation, not sell it to somebody else so they can continue what Claria started,'' Dave Kramer, an attorney at Wilson Sonsini Goodrich & Rosati, who has represented clients in adware lawsuits, told the Associated Press.

Adware is a program downloaded on PCs that tracks users' Internet behavior, serving up pop-up ads when the software detects online activity that corresponds with advertisers' products and services. At times, adware is installed without the user's knowledge.

One industry observer suggests Claria's competitors would be possible acquirers of its adware business. Despite the negative publicity, adware is a profitable business. Claria reportedly generated more than $149 million from 1999 to 2003. Alex Eckelberry, CEO of anit-spyware software maker Sunbelt Software, says he wouldn't be surprised if two other major adware companies—180solutions or WhenU—bid on Claria's adware business. "They're the logical buyers and they can afford it," Eckelberry says, noting that adware has generated millions of dollars in revenue for the top companies.

York Baur, executive VP for business development at 180solutions, wouldn't comment on whether his company is interested in buying Claria's adware business. But he says the sale could strengthen the adware sector. "Whenever you have a reduction of people in a space, that presents more opportunity for those who remain," Baur says. "Fewer, stronger players adhering to [disclosure] standards is better for the industry; I think it's a positive." WhenU wasn't available for immediate comment.

Eckelberry suggests that venture capital firms that funded Claria see the adverse publicity surrounding adware as diminishing the company's value, which would hamper their efforts to profit from their investments either through sale to another firm or by selling shares to the public through an initial public offering. Claria has raised more than $58 million from top VCs U.S. Venture Partners and Greylock Partners. Last June, the Wall Street Journal and the New York Times quoted unnamed sources who said that Microsoft was in talks with Claria to buy Internet marketing company. At that time, Microsoft and Claria executives declined to comment on the rumors.

But Claria may not be getting out of the business of placing software on users' PCs. It's focusing on a new service it will introduce next month called PersonalWeb, which automatically generates personalized Web pages that provides users with information they want, such as sports scores from ESPN or community news from their local newspapers' Web sites.

Claria last summer said it would exit the adware business but didn't announce a timetable until Tuesday, the same week that the Center for Democracy and Technology, a public policy group, identified 11 companies that pay to place adware: Altrec, Club Med Americas, GreetingCards.com, LetsTalk.com, NetZero, PeoplePC, PerfectMatch, ProFlowers, True.com, uBid, and Waterfront Media. The 11 advertised through Claria competitor 180solutions.

Outdoor E-retailer Altrec says the Center for Democracy and Technology never contacted it and is wrong to list the outdoor gear firm as a large adware supporter. The company says it participate in a consumer opt-in experiement with 180solutions earlier this year, spending a mere $440, but has dropped out of the ad program.

Also this week, StopBadware.org, a consumer protection initiative, released a list of "badware" that includes file-sharing program Kazaa, spyware removal software SpyAxe, download manager MediaPipe, and screensaver Waterfalls 3. Some adware purveyors offer these programs to users.

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