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InformationWeek: Tell me about what's been going on with the FTC.
Smith: It's a great thing for us. It's a great thing for the industry. For the first time, we have the federal government coming out and saying specifically yes, we do think that in order to install software on a user's computer you should use plain language, notice, and consent, and there are the rules around that. So this is something that we've been doing since the beginning of the year, and it's been a long process to get to the point where we could do that consistently in every single case. So we think it's a good thing.
InformationWeek: How is the company doing overall?
Smith: The business itself is just great. I think that's the big story. Since January of this year, when we got rid of all our third-party distribution and we released our technology that enables us to ensure that we have control over user notice and consent—what we call our Closed Loop System and our S3 technology—our business has more than doubled. While there continues to be some perception that consumers don't like this software installed on their computers, we call it the perception of a public perception problem, because the actual public likes the quid pro quo. They go through our plain language notice and consent. They understand that they're going to get all kinds of good content in exchange for viewing some targeted ads and personally relevant ads, and they like that. And for those users who decide not to keep the software on their computers, it's very easy to uninstall. But consumers are keeping it on their computers longer, and they're installing it more often.
InformationWeek: What percentage of consumers ends up keeping your software?
Smith: We track all of that. While we don't disclose those numbers because we're a privately held company, let's say that the trend is getting significantly better in terms of consumers keeping the software longer and longer. There are 20 million consumers that have our software actively installed.
InformationWeek: What forms of advertising are you working with now? The pop-up ad has been much reviled. Is that something you or your advertisers still believe in?
Smith: The traditional pop-up is typically a terrible experience for consumers. If I go to a site and I get my insurance ad for the hundredth time and I'm not interested in insurance, I'd argue that's probably less annoying and less intrusive than network television, where I'd have to stop what I'm doing for four or five minutes, but it's still intrusive and annoying. What we deliver are very relevant ads at times when consumers are actually looking for something that's commercially relevant. And we have multiple ad formats that we use. This goes to the grand thesis of our company, which is that consumers want to get access to content on the Internet, just like they do with radio or television. And they typically don't want to have to pay for that content. Typically, this content is non-commercially relevant in that it's games, videos, or downloadable software applications. And when a user is interacting with that software, they're not in a buying mode. What we do is we say you can get access to the game and play the game without any commercial interruptions, you just have to install our toolbar before playing that game. But then when you are doing something that's commercially relevant, when you're doing a search, when you're actually shopping, that's when we're going to show you ads.
InformationWeek: How does the conversion rate compare to search engine advertising?
Smith: What we find first is that when we compete with the other big players in the space, we're not competing typically for a discrete amount of dollars. If it works on Google, spend as a much as you can until it doesn't work anymore. If it works on Zango, continue to spend money until it doesn't work anymore. Typically, what we find is that our advertisers have the same ROI metric that they do when they're buying media elsewhere. They say, I want to get a lead, or I want this much brand lift, or I want to be able to get a purchase. They have very specific metrics in mind. It's really not about a conversion metric or a click-through metric. It's really about a return on my investment, whether I'm a brand advertiser or a direct response advertiser.
InformationWeek: Is there something more the industry needs to do to delineate the good actors from the bad ones?
Smith: There are two things, and we've been saying this for a while now. One is some clarity around legislation and what the official rules are. Obviously, with any Internet business, if you have 50 different states that pass 50 different laws, it's very difficult. So we have supported for a long time federal legislation and some sort of clarity from a federal perspective. And we think we've got the start of that with the FTC. We think that's a very, very good thing. At the same time, the industry needs to do more. And we think that that's actually happening. We really support the TRUSTe standards. TRUSTe came out about a year ago now with its trusted download program, and they just announced it in beta about two weeks ago. We think that will add clarity to what is spyware and what is not spyware.
InformationWeek: Is that likely to be effective given that so many consumers understand the subject so poorly?
Smith: The TRUSTe certification process isn't a consumer certification process. It's a business certification process. It's a way for a company to be able to be certified by TRUSTe and then advertisers, publishers, content providers—all the businesses that we interact with—can say, I either know that this guy is spyware or not spyware and I can decide to do business with him or not. And that's really the key because if there's an inappropriate actor who isn't playing by the rules, who's still doing things that are inappropriate, if they can't get access to any advertising dollars, then it's pointless to try to install their software. We think that's a very good thing for this industry because it will help choke off the bad actors at the money source.
InformationWeek: Have you resolved Ben Edelman's recent complaint that Zango isn't complying with the terms of its FTC settlement?
Smith: What I'll say is we have a line-by-line response I'll be happy to share with you. I'd prefer not to get into the details myself. I will say this: There are people, and I won't identify anyone specifically, but if you look at the loud detractors of us in particular—not of the space, because spyware is a problem—but the loud detractors of Zango, most of them, if not all of them, have a direct financial benefit to continue to churn out fear about us and about this space. Whether they're selling software or consulting services, they have a direct financial incentive to make us look bad. Second, what I'd say is we've hired Richard Purcell, the former chief privacy officer at Microsoft. He's the chairman of TRUSTe, he knows the security space very well, and he's doing an exhaustive audit of us to make sure we're in full compliance with the FTC settlement we signed.
InformationWeek: Is click fraud an issue for you?
Smith: It's not. It's non-existent in our network, not because we're super-smart guys or anything. It's just the way our system works. What's interesting about that is that the problems the big search players are having right now are the direct result of the same things that affected us in terms of bad distribution and the problems we had previously, which is to say third-party distribution of their search listings. So when a big search player works with a direct publisher who's publishing their search listings, those guys don't commit click fraud. That's not where click fraud happens. It happens when they syndicate their search listings to folks who can then syndicate it to whomever they want, third-party distribution of search listings. That's where click fraud comes from. And until the search industry gets serious about eliminating third-party distribution of their search listings, click fraud will continue to happen. It's a painful choice but it's the right choice.