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180solutions: Working on a 180 Degree Public Relations Turn

I was eager to hear what the founders of 180solutions had to say at this morning's Northwest Entrepreneur Network Venture Breakfast.  I haven't closely followed the controversy surrounding the company, with respect to their software being associated with botnets, worms and other elements of the "dark side" of the net.  Some have raised issues about the integrity of the company, while others have given them high ratings as a business and a great place to work.

Keith Smith, one of the co-founders of 180solutions, presented a picture that differed significantly from some of the negative press accounts, focusing on five aspects of the company.  He started off with the history of the company, a real rollercoaster of highs and lows (including two complete layoffs and one nearly complete layoff), noting that they succeeded in raising $40M soon after achieving profitability ... when they least needed the money (which he said, in hindsight, was exactly the right time to seek funding).

Keith said the goal of 180solutions was to create a new content economy, becoming the "NBC of the Internet", by offering free content in return for users agreeing to view occasional advertisements served up by a client-side application, Zango, that must be downloaded and installed on the user's computer.  He contrasted this with Google AdSense, which serves up advertisements in a browser, but claimed that this only supports commercially-relevant content.  180solutions wanted to create a new model for sponsoring non-commercially relevant content (e.g., interactive games) ... without interrupting the consumption of that content.  So they came up with what he described as a time-shifting model, wherein content creators (e.g., game developers) make their content available through a publisher who contracts with advertisers to show their promotional content to consumers while they are engaged in commercially relevant activities, e.g., using Internet search sites to find travel information. 

Interestingly, Keith said that their average consumer is served up at most one advertisement per day, and even heavy users typically see no more than two or three advertisements per day.  Furthermore, in the Q&A session, Dan Todd, 180solutions' other co-founder, claimed that their software does not maintain profiles of their consumers (email addresses, IP addresses or URLs visited), but simply looks for individual URLs containing search queries, and serves up an advertisement based solely on that individual query (advertisers buy keywords, just as in AdSense).

Problems arose (or worsened -- contextual advertising has always had its opponents) when botnets and worms started installing Zango on computers without proper (or any) notice and consent.  Unsuspecting users would be searching on the web and be unpleasantly surprised when Zango would pop-up an advertisement, or their spyware removal tools would discover the 180solutions application and delete it ... only to have it mysteriously re-installed again.  One aspect of the controversy surrounding 180solutions is whether it was complicit in this use of its software.  Some have claimed they turned a blind eye to this type of activity. 

Keith made some compelling arguments for how and why this abuse was harmful to 180solutions. Given that their software is now labeled spyware by many spyware removal tools, they estimate that approximately 65M of their legitimate users have unintentionally uninstalled their software (the irony of which was not lost on me), resulting in a loss of $7.5M in customer [re]acquisition costs, and an additional $40M in estimated lost revenue so far this year.  Keith also said that the company was slow to recognize and react to these problems ... and it's not clear whether their perspective changed.

He outlined a 5-prong approach they have taken to address the problems created by what he referred to as "inappropriate installs" of their software, focusing on technology, enforcement, education, standards and public relations.  One of the most ambitious undertakings was to completely dismantle their distribution network, cutting out the aggregator intermediaries, and rebuilding an entirely new network in which they created direct relationships with the content publishers ... enabling them to impose sanctions for any future abuses.

Toward the end, Keith shared some key factors in the success of 180solutions: their corporate "culture of metrics on a foundation of ethics", emphasizing innovation, a focus on the consumer and empowering employees, reflecting some of the wisdom that others (such as Scott Svenson, Glenn Kelman and Sunny Kobe Cook) shared at NWEN's Entrepreneur University last week.

During the Q&A period, it was clear that some members of the audience were still suspicious of 180solutions actions (and motives).  I admit that I found Keith's arguments compelling: it's hard to imagine that many victims of "inappropriate installs" would respond to unwanted advertisements by actually clicking through and making purchases -- especially in sufficient numbers to compensate for the costs Keith enumerated.  However, there are other controversies swirling around 180solutions (e.g., stealware), that were not addressed at today's meeting, and so I, too, have lingering doubts about some of their reported practices (I wish I'd done more research ahead of time).  I welcome further enlightenment from anyone willing to share their insights and understanding about the controversies.

[Aside: I want to thank Gayle' Morrison for the rather clever phrasing she offered about 180solutions navigating a 180 degree turn.  Also, the 5-Minute Forum presentation by CineVend was so fabulous -- and this post has gotten so long -- that I'm going to post a separate entry on that.]

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