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Firm formerly known as Gator looks for credibility

Adware maker that online publishers once called a "parasite" now seeks their favor to build massive Web ad network.

Claria, aka Gator, an adware maker that online publishers once called a "parasite," is now seeking their favor to build a massive Web advertising network to display ads based on Web surfers' behaviors.

The privately held company, which postponed its public offering last year, is launching a new marketing division and advertising service to migrate from hawking its signature pop-up advertisements to selling behaviorally targeted display ads. If it has its way, the ads will appear on publisher pages across the Web, reaching as many as 200 million people.

To address the privacy implications of such an ambitious service, Claria has also hired a team of experts to ensure it meets industry and consumer clearances. Claria plans to announce partners and introduce the service, called Behaviorlink, in April.

"Behavioral advertising is the next big thing after search," company CEO Jeff McFadden said in a recent interview, referring to the booming, multibillion-dollar ad business connected to Web search properties like Google.

The desired shift would fulfill a vision McFadden has had for Web advertising since he started Claria six years ago, but which was derailed in the dot-com bust. He foresaw an ad network that could monitor Web surfing behavior and then deliver ads based on people's interests--much the way early DoubleClick and Engage ad networks proposed to but failed to deliver on because of privacy concerns and technology limitations. Claria, which turned itself into a pop-up adware purveyor, was similarly foiled, but with a host of lawsuits.

More than three years ago, Claria (then known as Gator) sparked a furor among online publishers with its practice of covering up their ad banners with its own. The Washington Post, The New York Times and Dow Jones, among others, sued Gator for covering their Web pages with its own ads, claiming the company violated copyrights and stole revenue in doing so. The suit settled out of court, but Claria has fought to clean up its image since, even by changing its name.

Claria now essentially wants to do the same ad swapping, but with publishers' permission. The selling point: Behaviorlink would allow Web site owners to share in the profits of Claria's targeted ads.

Claria develops advertising software that's bundled with and supports free software such as peer-to-peer application Kazaa. (Roughly 40 million people have installed the software.) Because Claria tracks people from an omniscient point on the desktop without recording personally identifiable data, it can make note of Web preferences and shopping habits, and send timely pop-ups ads. For example, it will send a pop-up coupon from 1-800-Flowers.com while a consumer is preparing to buy a bouquet from FTD.com.

The company wants to expand on this model by first growing its audience. Its new division, Vista Marketing Services, will be charged with forming relationships with application makers (i.e., toolbars, media players) so that it can more widely distribute new Behaviorlink advertising software, which will monitor people anonymously as they surf the Web in order to deliver personalized ads. The partnerships will help grow its audience from 40 million to 200 million, its stated goal.

That way, it can track a wider swath of the Web population and use the insight to sell more targeted and expensive display ads.

Initially, Claria plans to buy $100 million worth of inexpensive run-of-site ad inventory on publisher pages in the next year, and then resell it as behaviorally targeted promotions. For example, it might buy untargeted ad inventory for $1 per thousand impressions at Yahoo, and then resell it for $8 CPM to advertisers as behaviorally targeted.

This is possible because it can make note of consumers visiting car sites like Ford.com or Autobytel.com, and then deliver a car-related ad to them while they're surfing Yahoo. Consumers who've just been at Nordstrom.com might see a retail-clothing ad while visiting the horoscopes at Yahoo.

Claria said that as much as 85 percent of commerce interests are invisible to Web publishers. And its unique visibility into consumers' interests from the vantage point of the desktop will help many Web sites target ads better, according to Claria.

"Publishers have a lot of untargeted inventory that gets sold at unbelievably low rates if it gets sold at all," said Tom Hespos, president of media buying agency Underscore Marketing. "The way to enhance the value of that inventory is to add a layer of targetability to it. Publishers who let run of site inventory go for a dollar per thousand will be able to plug into BehaviorLink and get more money for the same inventory."

Key to Claria's plan will be to eventually partner with online publishers such as Yahoo or MSN to monitor the overlap of their audiences with its own and share in the revenue lift. Eventually, Claria also plans to improve Web search with the same formula.

Overture Services, a unit of Yahoo, has had a relationship with Claria for more than a year, distributing paid search ads to Claria's adware service. Overture is not ruling out an expansion of their partnership.

"If the Behaviorlink service could improve the Web experience for consumers, we'll consider it carefully," an Overture representative said.

Representatives from the online arms of The New York Times and The Washington Post did not immediately respond to requests for comment.

Last February, 6-year-old Claria moved into the original headquarters of Excite, a Web portal that petered out in the dot-com bust. McFadden, who as one of Excite's first employees picked the space originally, said he was worried about potential bad karma so he had all remnants of Excite colors--red, black and white--stripped from the office. Now it's a roomy, pastel colored work space with exposed ceilings, ping-pong table and "town hall" lunch area. The old company icon--a gator in the form of a stuffed animal--decorates some employee cubicles. The headquarters houses about 150 people, and another 100 people work in satellite offices.

Claria claims more than 1,400 advertisers, with more than 85 that are in the Fortune 1000. Toyota, American Express, Circuit City, Avon and Sony are among the major brands that have used Claria's software to distribute pop-up ads to people as they're visiting rival Web sites.

The company said it made more than $100 million in revenue last year, up 25 percent from 2003. Claria postponed its IPO last summer because the market started to lag and questions over the legality of adware and spyware were still being answered. Congress is attempting to pass legislation regulating the industry this year.

"We want to eventually take Claria the Behaviorlink company public, not Claria the pop-up company," McFadden said.

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