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Claria at the center of adware controversy

Claria is a company some just love to hate.

The Redwood City, Calif., softwaremaker is the king of "adware," the leader in an industry increasingly seen as a public nuisance on the Internet.

Claria has a simple goal: to get you to download its software that serves up pop-ups and other Internet ads. Its software ends up on people's computers when they download free programs. Claria's adware tracks the computer user's Web surfing and then serves up targeted ads.

Critics call Claria's methods confusing and invasive.

"Claria presents its notice and consent . . . in such a manner that most users mindlessly press "accept' without understanding that what they're accepting is extra pop-ups," said Ben Edelman, a Harvard graduate student who is a noted adware and Claria critic.

But the company says it is legitimately offering targeted advertising to Internet users who have granted permission. "These consumers are interacting with our ads. They're voting with with their mouses, their clicks and their wallets," said Scott Eagle, Claria's chief marketing officer.

No matter what, Claria finds itself at the center of a debate over the evolving rules and ethics of Internet advertising.

Its tactics have been pushed into the limelight with the emergence of spyware, a loose term for unsolicited, malicious software that can change computer settings or steal personal information. Claria says its adware is different from spyware because the company gets users' consent and its technology is used strictly for advertising and marketing.

Claria, which in 2003 changed its name from Gator, faces challenges from many sides, including legislative efforts to curb unwanted software programs, new technology that wipes out adware and spyware, pressure from Internet rights advocates and lawsuits from businesses that claim Claria's practices are unfair.

In one recent example, America Online began rolling out a "Spyzapper" feature that will allow most of its 23-million customers to remove common spyware and adware programs, including Claria's. AOL said Claria's programs were causing "connectivity problems" for users.

The company also has faced lawsuits from retailers, banks and media companies that objected to its advertisements being displayed while surfers were viewing their Web sites. In August, Claria settled with Wells Fargo and Quicken Loans. The terms were not disclosed.

Internet users end up with Claria's adware on their computers by agreeing to download free software that's supported by advertising. The most common way is when people sign up for free access to Kazaa, the popular file-sharing network, which has a partnership agreement with Claria.

The company also offers its own freebie programs _ including screen savers and software that sets a computer's clock _ in exchange for its adware. "They are cheap digital trinkets," said Wayne Porter, co-founder of consumer information site

Claria's ads can appear at any time. For example, a Web surfer might get a pop-up ad for a DVD player while browsing the site of a rival electronics company.

Claria says it explicitly tells consumers they will be served ads in exchange for free software. Jeff McFadden, Claria's president and chief executive, said the company has gone "way overboard" to label its ads as coming from Claria's GAIN-advertising network and to provide instructions on how consumers can remove its adware.

But critics say more disclosure is needed. They say Claria's ads can show up any time users are online, not just when they are on the free programs they received in exchange for agreeing to take Claria's ads.

"It seems that Claria over time has not done a good job of explaining what software is running and why," said Ari Schwartz, associate director of the Center for Democracy and Technology, an Internet rights group.

Despite working to improve its disclosures and distance itself from less savory players in the adware industry, Claria is being tainted by the growing overall consumer disdain for unsolicited software downloads.

"It almost doesn't matter how they operate," said Jim Nail, marketing analyst with Forrester Research. "That idea that there is some piece of foreign software someone puts on your computer, all that gets lumped into this one category of adware if you're polite and spyware if you're not."

Nonetheless, Claria seems to be sitting on a gold mine. The company, which has about 225 employees, has shown impressive growth since its founding in 1998. It earned $34.8-million on $90.5-million in sales in 2003 _ a hefty 39 percent profit margin. The results were up from a $91,000 profit on sales of $40.1-million in 2002, according to regulatory filings.

The company filed to go public this year but withdrew those plans in August, citing market conditions.

It has an impressive roster of backers. Investors include Silicon Valley heavyweights U.S. Venture Partners of Menlo Park, Calif., and Sun Microsystems co-founder Andy Bechtolsheim.

In 2003, Claria boasted 425 advertising customers, up from about 350 in 2002, including Orbitz,, Motorola and Sprint. The company says its advertising software runs on about 40-million computers.

Claria said its software tracks users anonymously, and the company does not collect personal information such as last names, e-mail addresses or computer passwords.

Claria said it sometimes shares "aggregated" Web-surfing information about its users with advertisers, such as telling a retailer it has 50,000 subscribers who buy books.

Claria started out by offering its "Gator eWallet," software that stores and fills in passwords and other information in Web forms.

The company traces its roots to a 1995 visit to the supermarket by McFadden, a company founder who began his career as a software developer for General Motors. He observed a clerk scan in bar codes on groceries, which triggered a printer to spit out coupons based on products purchased, issuing a coupon for Pampers to someone who had just bought Huggies diapers, for instance.

Why not bring that custom marketing to the Internet, he thought.

He envisioned watching Web page surfing patterns instead of bar codes to "notice that someone's in the market for a mortgage, or a DVD player or a new car," he said.