Original URL: http://www.theregister.co.uk/2008/03/11/phorm_shares_plummet/

CPW builds wall between customers and Phorm

As US prepares 'welcome' party

By Christopher Williams

Posted in Broadband, 11th March 2008 13:13 GMT

Carphone Warehouse has become the first of the three UK ISPs who have agreed to pimp data to ad targeting outfit Phorm to announce a major rethink of how it will use the technology.

Company representatives have told users in forums that they are working on a way to ensure that traffic from people who opt out will never enter the Phorm system. "We had a meeting yesterday and based on customer opinion we decided to use a different method, yet to be decided, to split the traffic so it doesn't hit a Webwise server at all for those that opt out," one wrote.

In an email to a customer seen by The Register, Carphone Warehouse CEO Charles Dunstone confirmed that Webwise will be opt-in only on his firm's network. He wrote: "We have never stated what our policy was. This is the first clarification given. We are still many months before the system is meant to go live."

A post from TalkTalk admin "Matt" here adds more details. He writes: "There is no Phorm equipment in our network. We have never run any trials, nor implemented any aspect of this nor any of Phorm's previous systems in our network.

"By making the service opt-in, we feel the onus remains firmly with Phorm to make the service useful and compelling enough that subscribers will choose to join it. If it fails to do this, it will itself fail."

BT's pages on Webwise originally indicated it planned to opt customers in by default, and Phorm had planned that opted-out traffic would be mirrored to the profiler, but ignored.

A question in the BT FAQ asked: "I didn't switch on this service. Why do I have to switch it off?" The response was: "We believe BT Webwise is an important improvement to your online experience - giving you better protection against online fraud and giving you more relevant advertising. We realise that you may not want to use the free service, so we've made it quick and easy to switch on and off."

That question and response has now been deleted from the page here. A spokesman for the national telco said: "People were confusing the general operation of Webwise with the trial, which will be opt-in." BT is beginning a trial of Phorm's ad targeting technology with 10,000 consumers this month, under a changed privacy policy.

He added that the way the final deployment would deal with opted-out customers had not been decided. BT is still "looking into" what happened last summer when BT Business customers noticed suspicious redirects to a domain owned by Phorm.

Virgin Media has not given any details of how it plans to incorporate Phorm's system into its network, only saying that it is "some way off".

The row in the UK over the rise of Phorm has been noticed by US privacy advocates. Ari Schwartz, chief operating officer of the Centre for Democracy and Technology (CDT), got in touch with The Register to express concern over some of Phorm's recent public statements.

Back in 2005, when Phorm operated under the 121Media banner, CDT filed a complaint (pdf) with the Federal Trade Commisssion over distribution of what it considered spyware. 121Media later withdrew its rootkit software when it rebranded as Phorm, but in an interview last week, Phorm CEO Kent Ertegrul said: "We [121Media] got into the adware business - as opposed to the spyware business." Phorm now claims to be in advanced discussions with major US ISPs and is "very optimistic" about the outcome.

In a telephone interview on Monday, Schwartz said: "If they're still arguing the distinction that PeopleOnPage [the product distributed by 121Media] was not spyware, then there has been a major misunderstanding. If Phorm is again saying that it was simply adware then that raises serious concerns about them from our point of view."

Schwartz said: "When we first met with Phorm they actually told us they had all of the ISPs on board." He believes the reception ad targeting based on users' browsing habits will get Stateside is dependent on how it is rolled out. "Simply clicking 'OK' on the first sign up screen is not good enough because we know people don't read those things."

"There are precedents where the FTC has ruled that's an unfair practice."

New that Phorm could face a frosty welcome in the US could compound its woes in the stock market. Investors deserted the firm yesterday, as a massive PR offensive aimed at calming anger against Phorm failed. Its stock plummeted 35 per cent on the Alternative Investment Market (AIM).

Phorm closed the day down 31 per cent, which wiped more than £100m off the value of the company. At time of writing, in early trading today Phorm remained around its new £20.00 mark. See here for the latest.

The firm has been forced to issue a statement to the markets denying the plunge is the result of undisclosed commercial developments. In a story published late yesterday by the Financial Times, Phorm also sought to calm market fears that the storm of protest seen online against Phorm could jeopardise its financial potential. BT, Virgin Media and Carphone Warehouse are all standing by their deals to pump customer browsing data into Phorm's ad targeting system, albeit in a more restricted way by Carphone.

Phorm's statement to investors is here (pdf). It says the firm is looking to raise $65m in additional backing and that it "continues to be in advanced discussions with other ISPs both in the UK and other markets". ®