New Software Quietly Diverts Sales Commissions

September 27, 2002
By JOHN SCHWARTZ and BOB TEDESCHI 

Some popular online services are using a new kind of
software to divert sales commissions that would otherwise
be paid to small online merchants by big sites like Amazon
and eToys. 

Critics call the software parasite-ware and stealware. But
the sites that use the software, which is made by nearly 20
companies and used by dozens, say that it is perfectly
legal, because their users agree to the diversion. 

The amounts involved are estimated by those in the industry
to have mounted into the hundreds of thousands of dollars
and are likely to continue to grow - in part because most
users are unaware that the software is operating on their
computers. 

There is no cost to the customer, but those who run small
Web sites that funnel sales to the big merchants say that
they are being hurt. "It's painful when someone walks in
and takes sales right from under me," said Shawn Collins,
who runs a number of sites that feed customers to Amazon
and other merchants. "I probably saw a drop-off of 30
percent in income for the past six months." 

The diversion begins when consumers get software from the
Internet that helps them swap music or other files, or find
bargains online. As they install the software, they are
asked whether they would also like to show support for the
software maker by shopping through an online affiliate
program. These programs typically give a percentage of each
purchase back to the affiliate - in this case, the software
maker - as a commission. 

What the consumers are not told clearly is that if they
agree to participate, their computers may be electronically
marked: all future purchases will look as if they were made
through the software maker's site, even if they were not. 

In many versions of the software, a purchase will look as
if it was made through the software maker's site even if
the shopper came in through another site that has its own
affiliate agreement with the online store in question.
Those affiliate sites include small businesses and even
charities that use affiliate links as fund-raisers. 

Some version of the diversion software is used by some of
the most popular music trading sites that have tried to
fill the void left by the collapse of Napster, including
Morpheus, Kazaa and LimeWire. The companies say their
software has been downloaded by tens of millions of Web
surfers. 

Although estimates are hard to come by, those in the
business say that the amount of money involved could be
large. The affiliate market, in which smaller sites funnel
sales to larger ones in return for commissions, accounts
for roughly 15 to 20 percent of the estimated $72 billion
online market, said Carrie Johnson, an analyst with
Forrester Research. A successful affiliate Web site can
make $60,000 a month from referrals alone, said Haiko De
Poel Jr., chief executive of Abestweb, an online forum
devoted to affiliate marketing. He has organized owners of
sites to fight Morpheus and others. 

A spokeswoman for Amazon, which has 800,000 affiliate sites
feeding it customers, said the company worked to protect
those sites from hijacking. "We don't allow sites that use
a download or a tool to redirect a shopping session to
their account if they do not initiate the shopping
session," said the spokeswoman, Patty Smith. "We've kicked
out a number of sites for doing that." 

Last week, Amazon cut off affiliate payments to Morpheus,
one site that employs the shopping software, said an online
executive. Coldwater Creek, an online clothing store, has
also blocked Morpheus. 

Some companies that make and use the diversion software
said they were rewriting the programs so that they would no
longer take money intended for others. But these changes
may not affect copies of the software already installed on
millions of computers. "We're not interested in stealing
any Web site's revenue," said Greg Bildson, chief operating
officer for LimeWire. "We know that this is sort of a new
and sort of strange area, but we're interested in doing the
right thing." He referred calls to TopMoxie, the maker of
the software that LimeWire uses to get affiliate money. 

Patrick Toland, a vice president for sales and marketing at
TopMoxie, said that the company did not intend for its
software to displace other affiliates' rights and that his
company had altered the software in the last two weeks to
stop substituting its affiliate identification code for
those of other sites. "The second we realized this is a
problem, we turned that boat around and said, `Let's get
this out,' " he said. He added that the amount of money
involved was minuscule. 

Mr. Toland attributed the losses that the Web sites claimed
to a tougher marketplace for small players. 

Morpheus referred inquiries to Wurld Media, which operates
its shopping rebates program. Kirk H. Feathers, the chief
technical officer of Wurld Media, said that it had been
wrongly accused of stealing and that the company would
readily go to court to defend itself. 

He acknowledged that an earlier version of the company's
software did divert commissions away from other affiliate
sites but said that new versions dealt with that situation.
Now, the company said, the softwareoffers a choice to the
consumer before each purchase: whether to give the
commission to the affiliate or to himself in the form of a
rebate, with a portion of the rebate going to Morpheus. The
software does not misrepresent the user's computer to
sellers' sites, Mr. Feathers said. 

Arguments that the diversions are somehow the fault of an
unintentional flaw do not persuade Erik Petersen, the chief
technical officer at an Internet security company, Polar
Cove, in Providence, R.I. Mr. Petersen said that he had
received complaints about TopMoxie and LimeWire from
friends and took a closer look. After conducting a detailed
analysis of the software, he concluded that the TopMoxie
program was intricately designed to substitute its
affiliate identification code for that of other sites as
transactions were made. He said that the program remained
on the computer even if the user removed the original
LimeWire music sharing software. "I don't buy their
explanation," he said. "What kind of accident is that?" 

Mr. Petersen also pointed to a statement made in an online
forum where the technology was discussed, in which a
LimeWire developer characterized accusations that the
software diverts money as "pretty accurate," but said,
"While I agree that this is really a bit of a scam, it is a
way for us to pay salaries while not adversely affecting
our users." 

A chief executive of one software company was similarly
unapologetic about the diversion of commissions. "We look
at affiliates as competitors," said Avi Naider, the chief
executive of WhenU.com, which makes the diversion software
used by the music swapping services Kazaa and BearShare.
The software, he said, provides services to users and money
to each company "so it doesn't have to charge" for the
currently free software and services. 

The companies also argue that consumers give consent to the
terms of the contract when they download the software,
whether they read the agreement carefully or not. An expert
in online consumer protection said the companies had a
point. In the case of the LimeWire agreement, for example,
"there does seem to be some indication to the user of
what's going on," said David Medine, a Washington lawyer
and former Federal Trade Commission official. 

Mr. Medine said that he was, however, uncomfortable with
the degree of disclosure. "The question is whether the
quality of the notice is as good as it could be," he said.
"They don't tell you that it's interfering with other
business relationships." 

Jeff Pullen, the president of Commission Junction, a
company that helps link affiliates with Web sites, said
that he was not inclined to cut off companies that divert
commissions if the customer has agreed to the diversion.
"The tactics that they use, maybe they're on the edge," he
said. "Maybe, personally, I don't find them particularly
attractive. But if they aren't illegal, it's hard for me to
point to my public service agreement and say, `I have a
reason to kick you off my network.' " 

Still, other online merchants are taking action after being
confronted by angry affiliates - and they find that they
are dealing with a moving target. TigerDirect, an online
computer and electronics store, blocked Morpheus from its
program earlier this year after discovering that the
company was diverting online commissions. "I obviously
thought it wasn't honorable," said Andy Rodriguez, the
company's manager of affiliate marketing. "They said, `It's
our right.' I said, `It's our right to remove you.' " 

Morpheus changed its software, Mr. Rodriguez said, but a
few weeks ago TigerDirect noticed that sales through
Morpheus were "going through the roof" at the same time
that many affiliates were complaining of a drop in
commissions. So he blocked them again. "Guys at Morphus
wanted a piece of the pie for each of our sales," he said.
"I'm sorry. Absolutely not. 

The diversion programs have made life difficult for
affiliate marketers in the last year, said Steve Messer,
chief executive of LinkShare, a company that runs a major
affiliate network. But he sees a silver lining. "It's
showed affiliate marketing has come of age," Mr. Messer
said. "If you look at it, the volume of transactions
passing through LinkShare's affiliate marketing got so big
that when affiliates get upset, the largest merchants in
the world react. If it's just a few dollars, nobody
would've noticed." 

LinkShare is working with other companies in their market
to come up with industry standards to govern ethical
practices in online advertising, Mr. Messer said. "For some
people, WWW stands for the Wild, Wild West," he said.
"Hopefully, that's coming to an end." 

(taken without permission from NY Times Sept. 27 2002)

Computer users who want to remove shopping software from their machines can do so in a few steps. Instructions for removing three of the most common programs:

BUYERSPORT - The shopping software with Morpheus:
Click the Start button.
Click on Find.
Click on Find Files or Folders.
Type in mbho.dll. Click on find now. When the file appears in the directory window, drag mbho.dll into the trash.

LIMESHOP - The software with LimeWire:
Click the Start button.
Click on Settings.
Click Control Panel.
Double-click Add/Remove Programs.
Click LimeShop.
Click Add/Remove.

SAVENOW - The software used by Kazaa:
Click on Start.
Click Settings.
Click on Control Panel.
Double-click on Add/Remove Programs.
Click SaveNow.
Click on Add/Remove.