The Dirty Little Secret About Spam

What J.P. Morgan Chase and Kraft want is exactly what the guys peddling porn and gambling want: free access to your inbox. That's why there's no easy solution to a problem that could soon make the world's email system crash and burn.

Andy Sernovitz has the bluster of a guy who knows he is right -- and the slightly desperate air that comes when not everyone agrees. He is a New Yorker, a smart and funny and profane guy who absolutely cannot resist a spotlight. He is not afraid to share his opinions, or to act on them. He is bursting with anger -- and with hope.

He is, in short, a professional crusader. At this moment, it just so happens that he has chosen a particularly gripping crusade. It is a cause that resonates in hundreds of millions of homes and office cubicles around the world -- and one whose resolution could be worth billions of dollars. That cause is unsolicited commercial bulk email. Andy Sernovitz wants to rid the Internet of spam.

This morning, Sernovitz has arrived for breakfast in an especially dark mood. The world, it seems, is moving slower than he would like. "The Internet industry doesn't get it," he complains. "Arguably, spam is the single biggest threat to this industry. It's the defining issue. Advertisers are losing their shirts, and people are getting photos of twisted sex acts. The fact that the industry can't get its testicles out of its pocket to do something about it is an embarrassment. It's a tragedy that I have to do this myself."

Here is what is eating at Sernovitz. He has cofounded the Inbox Defense Task Force, which will, he fully expects, throttle spam at the source. He believes that Internet marketers will pony up for an organization that, through investigative digging, harassment, and public education, helps force fraudulent bulk emailers out of business. Rather than trying to block spam after it has been sent, Sernovitz would make it unattractive to send spam in the first place.

It is a simple idea, a powerful idea, and -- as of this April morning -- an unpopular idea that has gone mostly nowhere. The Inbox Defense Task Force consists of Sernovitz, former William Morris talent agent Jonathan Trumper, and a newly hired executive director, Joan Campbell, a veteran trade-association manager. The task force operates out of space lent by the company that bought Sernovitz's consulting firm. All told, the task force has collected just two checks from corporate members.

Granted, Andy Sernovitz is not a household name. He founded the Association for Interactive Media, a successful trade association for Internet companies that was absorbed in 1998 by the Direct Marketing Association. He also started a dotcom incubator at precisely the wrong time, and that venture quickly foundered. Since then, he has made a living as an email marketing consultant. Although he is well connected in media circles, Sernovitz is basically a small fish swimming in deep, swirling waters.

Number of spams sent to an address created by Stanford Law School professor Lawrence Lessig, who promised to read any email -- for $500: 1

Sernovitz's problem, however, is more complex than that. It speaks to the peculiar economics and politics that have allowed spam to flourish and to a debate that is as fractured and unruly as the Internet itself. When it comes to email marketing, this is the reality: What the good guys want and what the bad guys want are more or less the same thing. J.P. Morgan Chase and Kraft U.S.A. promote credit cards and coffee in ways that aren't so different from the tactics employed by anonymous peddlers of porn and gambling. "Legitimate" marketers would rather the spammers disappear -- but not if that means quashing the opportunity that both groups enjoy.

And so the good guys let the bad guys go. It is an unspoken collusion, a sort of state-sponsored terrorism directed at our inboxes. Sernovitz makes big-name marketers and ad agencies nervous, because they're not sure if his nascent effort would ultimately target them. Likewise, the marketing industry has fought federal and state antispam legislation that would compromise its own ability to blanket us with email pitches.

The economics of email are just too seductive: It's relatively easy and incredibly cheap for anyone to send out millions of messages to anyone with an email account. Unlike any other form of marketing in history, most of the delivery costs are borne by the recipients: by the Internet-service providers (ISPs) and corporations that maintain our mail servers and by us. Anyone who has had to delete dozens of spams on a dial-up connection understands this. It's as if companies were sending us reams of postal junk mail, COD.

Amount of spam received by employees of Hormel Foods, maker of Spam luncheon meats: "A lot," a spokesperson says.

That's why the flood of offers for low mortgage rates, printer toner cartridges, penile implants, money-laundering deals with wives of deposed African dictators, and much, much more is swelling by 20% each month, according to some ISPs. In the United States and Europe, spam accounts for between 40% and 70% of all email traffic, depending on whom you ask. In January, America Online said it was blocking 1 billion emails a day from members' accounts; by May, that number had doubled.

The most fervent antispam activists now predict that the world's email system will seize up within six months. Some organizations just won't have the server capacity to handle the onslaught, and our inboxes will be so packed as to be useless. Even more circumspect forecasters agree that small ISPs and businesses may soon be overwhelmed.

All of this offends Sernovitz in a number of ways. He hates that 10-year-olds get messages that advertise porn sites, and he hates that his own inbox is clogged with crap that he never asked for. Mostly, though, spam offends his passion for direct marketing. "Spam ruins the game," he says. "Great direct marketing is all about talent. Two guys can send out a message, and if it's any good, people will buy from them. It's pure sport -- and now, the cheaters have taken over the competition."

Unlike you or me or almost anyone with a telephone and a mailbox, Sernovitz loves direct marketing. Really. When he was 14, he started supplying lists of classmates in Milwaukee to a direct-mail broker. Throughout high school, he worked for a company called A.B. Data, marketing political campaigns. The consulting firm that he has just sold, GasPedal, advises clients on effective email strategies.

That odd passion is why Sernovitz will persevere, why he's willing to take on the economics and politics of spam. No, not much money has rolled in since he unveiled the task force in April; Sernovitz says that for now he has stopped asking for checks. But he talks of plans to staff up and roll out in September.

That's when the Inbox Defense Task Force will start digging. There are ways to sniff out an email's trail. Sernovitz expects to use that information to expose the bad guys. He hopes to gather evidence of fraud -- misleading sender or subject lines, or unsubscribe links that purposely don't work -- that state attorneys general can use to prosecute spammers. He'll confront the ISPs that host spammers' traffic -- and if they don't desist, he'll humiliate them publicly. He'll report criminal activity to credit-card companies and press them to cut off spammers' merchant accounts.

"We'll teach law-enforcement agencies how to go after these guys," Sernovitz says. "We'll teach consumers how to find out who's harassing them and how to tell the difference between the bad guys and the good." And when the dust clears, spammers will go to jail. The ones who don't will give up the business, because it won't be worth the hassle. We'll all get less spam. Sernovitz is convinced of this.

In the Inbox of the Beholder

"Why do they call me a spammer?" asks Steve Hardigree, who is tanned and fit, affable and decorous. He is married, with two young children. With close-cropped blond hair and a soft Georgia twang, he comes across as a college-football coach.

Hardigree is the founder and president of Opt In Inc., a company of 30 employees in Boca Raton, Florida. Hardigree says that he sends an average of 20 million emails a day, all of them to people who have, in some fashion, asked to receive them. His 45 data partners -- some of which he also controls -- collectively maintain lists of 60 million email addresses. He says that Opt In, with revenue of $6.5 million last year, is profitable.

Sernovitz dearly wants to nail Hardigree. "Everyone knows him. He's the biggest spammer in the business," Sernowitz says. "I want to expose what he is and what he does."

For Sernovitz, Hardigree embodies the worst of email marketing: a spammer cloaked in false respectability. Opt In, says Sernovitz, lies about how it gets email addresses. It mass-mails without regard to recipients' actual interests. He claims it sends messages that aren't wanted. It doesn't respond when people ask to be removed from its databases.

Hardigree disputes the charges of Sernovitz and other antispammers. For one thing, Hardigree says, he doesn't hide behind fake addresses: The emails that he sends can be easily identified as those of Opt In. He also claims that he has never surreptitiously "harvested" addresses en masse from Web sites or hijacked accounts through which to relay messages. He emails only people who have given Opt In permission to do so -- and when people ask to be removed from his lists, he complies.

Hardigree's is a relatively loose version of opt-in email marketing: At Opt In's partner sites, an individual volunteers his email address and, often, other information about his demographics and interests. At many partner sites, the visitor is promised something in return: a shot at a big cash prize or vacation, or free software. At some sites, the connection between registration and future email pitches is explicit; at others, it is less so.

Hardigree insists that his opt-in feature separates his bulk email from spam. He can use the data he collects to aim offers at people who are more likely to be interested. And since people provide their addresses voluntarily, his pitches aren't unsolicited. Granted, opting in may be less a conscious decision than a mistake. But "it's up to the consumer to read the privacy policy," Hardigree argues. "It's buyer beware. Our privacy policy lets me do anything I want with the names. I don't."

Why it's called "spam": In a 1970 skit from the BBC's Monty Python's Flying Circus, a waitress recites a nearly all-Spam menu. Geeks love Monty Python.

This is what Hardigree does with the names: He rents them. For as little as $2 per 1,000 names -- or more if you want them sorted by gender, geography, or interests -- anyone can send email to any of the 60 million names on Opt In's master list. Opt In splits rental revenues with its data partners, the companies that generate the lists. Last year, Hardigree says, this arrangement brought in $2.2 million.

You'd be surprised who does business with Hardigree. J.P. Morgan Chase, he says, rents the names to pitch credit cards. BMG Music Service (which, like Fast Company's publisher, is part of the Bertelsmann media group) hawks club memberships. Kraft and WeightWatchers.com, Hardigree says, have also sent emails to the folks on Opt In's lists.

Of the companies that Hardigree cites, J.P. Morgan Chase declines to comment, as does Kraft. WeightWatchers.com says it ran a test in 2002 with an Opt In affiliate site, but "it was not successful." BMG Music Service says it has "no current relationship" with Opt In, but that it does send emails to "consumers who say they want to receive third-party emails."

In any case, none of the individuals on those lists have asked specifically for mail. No relationship exists between the marketer and the recipient -- only the possibility that one may materialize. No one would think twice about this if the medium were postal mail. J.P. Morgan Chase would buy a list of prospects and then pay for the paper and postage to deliver its pitch. But given email's reverse economics, J.P. Morgan Chase obliges potential customers to pay for its ads. Is everyone okay with that?

Sernovitz isn't -- but he's inclined to fault Hardigree. "We need to make sure legitimate marketers know who he is and what he does. Chase needs to know it's funding a spamming operation."

Sernovitz may be giving big marketers more credit than they deserve. If Hardigree is a bad guy -- and it's not clear whether or not he is -- what makes his clients any better? Are they simply naive? Or are they getting in on a good thing?

Lost in the Swamp

The Direct Marketing Association is the most powerful and most visible business presence in the debate over spam. The DMA sees email as the greatest boon to its trade since the telephone -- even greater, since it's free. Created to represent merchants who sold by way of the post office and battle-tested in the age of telemarketing, the DMA didn't quickly grasp the wildly different dynamics of the Internet. Sernovitz and others say it tried to impose the ethos of traditional direct marketing in a world where the absence of costs changed everything. "The DMA misunderstood the impact of email from the start," Sernovitz says.

That's why many antispammers squarely blame the trade group for protracting the junk-email war. Historically opposed to government regulation of any sort, the DMA fought even relatively modest federal and state laws that would have placed restrictions on email communications. But the group now recognizes that the rising flood of unsolicited email is making it increasingly tough for companies to deliver the few messages that consumers may actually want, such as airline-flight confirmations and brokerage notices. Most spam experts agree that in their attempt to keep spam out of their systems, ISPs and big corporations are also blocking about 15% of all legitimate marketing messages. So the DMA has come to support a bill that would require unsolicited email to have a valid return address so recipients could opt out. Marketers that fail to honor such requests would face a fine of $10 per email. "We're always in favor of self-regulation," says Jerry Cerasale, the DMA's senior vice president for government affairs. "But as the spam phenomenon has grown, we've realized that self-regulation isn't enough. Our members' mail is being lost in the swamp."

Spam Versus Smart Marketing

But the real battle is around opting in. Many people in the spam debate favor a law that would require marketers to receive individuals' explicit permission before sending them email. Unsolicited commercial messages would be illegal. Hardigree supports this: He wants a level playing field, he says, where everyone sends only mail that's wanted. The DMA adamantly opposes such an approach. Unsolicited messages, it argues, allow new companies to be born, and existing companies to find new customers. Or, as DMA president Robert Wientzen decreed at a Federal Trade Commission forum on spam, "there wouldn't be any solicited email if we didn't start with unsolicited email." His remark was roundly booed.

The trade group argues that, if legislation and enforcement can rid inboxes of fraudulent email, market forces will impose discipline on legitimate marketers. "If I don't want email, I'm not going to buy from any company that keeps sending me email," Cerasale says. "And that's going to drive the business. Because in the end, companies don't want to piss me off."

It's an appealing argument. Smart marketers have always understood that, over the long term, successful selling depends on nurturing relationships with consumers. A mass mailing that wins a dozen new orders isn't worth alienating 100 existing customers. "It leaves a very nasty feeling in people's mouths," says Mark Cready of WeightWatchers.com. "The nuisance factor is very high, and we don't want our brand to be associated with nuisance." But if that's really so, why is J.P. Morgan Chase offering credit cards to people it has never heard of? Why is Kraft blindly pitching its coffee to any demographically appropriate addresses it can get its hands on? The implication is, they do so because they have no relationships with these customers to put at risk -- because, in fact, they don't care.

Critics contend that the DMA wants to rid the world of spammers, thus freeing its members to do pretty much the same thing. "The DMA is making it easier for its members to send spam," says Julian Haight, president of SpamCop, a vendor of antispam technology. "It should be making it harder."

Percentage of spam that is in some way illegal, given existing state and federal laws, according to the Federal Trade Commission: 70

Filters, Loopholes, and Laws

When the FTC convened its first annual forum on spam in Washington, DC on April 30, several hundred people packed the room, and more were patched in via teleconference. Attendees included three senators; one representative; three FTC commissioners; senior executives from AOL, Microsoft, and Yahoo; dozens of activists and researchers; and even several spammers.

With so many people in the room, with so much attention and money devoted to the problem, why is spam getting worse? It's getting worse precisely because there are so many people in the room. All of those people -- representing countless diverse interests and motives -- have put a host of proposals on the table. None are perfect. "It's clear," says Sernovitz, "that no one is close to getting something done."

Most of the current solutions rely primarily on technology designed to stop spam after it has been sent -- that is, software that filters out messages whose content raises red flags. But spammers can fool the filters. They get around some traps, for example, by embedding white type against white backgrounds. Recipients can read the words, but the filters can't.

Many experts believe that any antispam legislation is likewise doomed to failure. If email fraud is banned in the United States, they argue, the spam industry will simply move to countries such as Brazil and China, where American laws can't reach. Already, some U.S.-based spammers, disconnected by their American ISPs, simply reroute their mail through ISPs overseas.

All of this is why there is increasing consensus that spam can be slowed only by addressing its perverted economics: Make senders pay for their messages, and market discipline will rationalize the industry. Today, a marketer can send 10 million messages for free. If the cost per address were even just one penny, "my guess is that most spam would go away," says Mark Wegman, a researcher at IBM, who with a colleague has come up with theoretical proposals for a cost-based system.

But in the foreseeable future, any mechanism capable of authenticating and processing per-message payments would cost more than any fee that even above-board marketers would be willing to pay, observes Steve Atkins, a longtime Internet technologist and activist. That simple truth is the reason that any economic solution would likely require a total overhaul of email as we know it. "The system we have now is doomed," says Haight of SpamCop.

If no one can stop spam anytime soon, there are at least two things that marketers can do to ease our misery. First, they can get our permission. Spam isn't defined by porn or Viagra or time-shares in Orlando. It's not a function of whether the sender is a two-bit operation in Florida or a New York - based multinational. Put simply, spam is any email we don't want and didn't ask for. Are J.P. Morgan Chase and BMG both spammers? Yes. Yes, they are.

So commercial bulk emailers should support legislation that mandates opt-in lists. Then they should write checks to Andy Sernovitz or to someone who does similar work, so that technologically adept investigators can deliver evidence of fraud to entities that have the power to shut spammers down. As FTC commissioner Orson Swindle recently said, "What we need are a couple of good hangings."

Sernovitz knows what's at stake here. He understands that the odds are against him. But he also sees it another way. He hates spam. It's ruining direct marketing for everyone.

"And here's the selfish part," he says. "If I pull this off, I'll be an f-ing hero. I'll be the guy who solves the spam problem -- the biggest scourge of the industry."

Keith H. Hammonds is a Fast Company senior editor in New York who would prefer that his email address (khammonds@fastcompany.com) remain private.

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