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Split Forms in Microsoft on Buying Adware Firm

Posted on: Friday, 1 July 2005, 12:00 CDT

For the past two weeks, Microsoft has been in talks to buy a controversial Silicon Valley company best known for its pop-up ads and software that tracks people visiting Web sites. The talks underscore just how eager Microsoft is to catch up with Google, the search and advertising giant. One person briefed on the talks said Steve Ballmer, Microsoft's chief executive, and Bill Gates, the chairman, became involved in a debate inside Microsoft over the wisdom of such an acquisition. The company in question, Claria, is an adware maker formerly called Gator. Its software has frequently been denounced by privacy advocates as intrusive and deceptive. Ballmer, according to the person briefed on the talks, has been pushing Yusuf Mehdi, the senior vice president in charge of MSN and Microsoft's search business, to be more aggressive to try to catch up with Google, with acquisitions as one possibility. Ballmer, this person said, gave approval to begin talks with Claria two weeks ago.

This person said the group within Microsoft against the deal feared that it could bring an outcry from critics portraying Microsoft as a corporate Big Brother that tries to track every mouse click on the Web and profit from it.

Those in favor of the deal, this person said, believe Microsoft could help clean up the adware field, establish rules to protect privacy and benefit from the expected rise in personalized advertising.

The offer price on the table as recently as Wednesday was $500 million, according to people who have been briefed on the talks. But a person close to Microsoft said the negotiations were on the verge of breaking off.

Neither Microsoft nor Claria would comment on the negotiations.

Privacy advocates note that many people have installed Claria software without being fully aware of it. For instance, Kazaa installs it automatically under the brand name GAIN Network. Publishers, including The New York Times Co., which owns the International Herald Tribune, have sued pop-up vendors like Claria for trademark infringement for setting adware programs to activate ads inside publications' Web sites. Claria, based in Redwood City, California, is moving beyond pop-ups to personalized services, like delivering local weather information and distributing software that lets Web publishers offer personalized pages.

Software tailored to individual preferences and browsing habits opens the door to personalized advertising. That emerging ad market is of great interest to Microsoft for its MSN Web sites, as it is for Google, which recently began testing services like custom Google home pages and software that stores visited Web pages for faster display. Google, however, has proposed a set of guidelines to combat deceptive behavior in software installation. In the past few years, Claria has settled nearly all its litigation, and it has recently reached out to privacy groups for advice and made it easier for Web surfers to reject ads.

Analysts said Microsoft would probably be most interested in the long-term potential of Claria's personalization software rather than its pop-up ads.

Source: International Herald Tribune

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