WEEKEND READ: The economics of spam

In the second and final extract from his new book about what internet use can tell us about the world we live in, Bill Tancer examines the world of unsolicited email and how Amazon.com paved the way for Viagra spam.

Some industry figures place the proliferation of spam email at more than 80 percent of messages in our in-boxes.

It seems as though those generating spam are outsmarting ISPs and the spam-filtering software that tries to distinguish relevant messages that are important to our lives from unsolicited advertisements for everything from get-rich-quick schemes, Nigerian bank scams, and weight-loss remedies, to various devices that promise to enlarge our private appendages and above all provide low-cost solutions for erectile dysfunction.

More than 20 percent of all in-box spam is in some way related to Viagra. But why? Are these promulgators of endless email messages actually hoping that we will click through and purchase an offshore pharmaceutical?

For Viagra spammers it’s a numbers game, sometimes with click-through rates as low as in the hundredths of a percent. Spammers quickly learned that if you send out enough emails, there is profit to be made.

One Australian spammer was accused of sending out more than two billion Viagra spam emails in the course of a year. Spammers have become increasingly resourceful in finding ways to send millions of emails per day and avoid detection. While the early internet spammer might have used a single server to send out spam, that method was too easily traceable.

Instead, sophisticated spammers use parasitic software programs known as Trojan horses to hijack individual computers and use them as remote servers for sending spam. The method is virtually impossible to prosecute because spammers can take over an unsuspecting user’s computer, send millions of emails in a few hours, and leave without a trace.

So what are the economics behind all of these emails? Take a US prescription for Viagra. It’s likely to cost around $10 to $15 per tablet. However, in countries where the patent on sildenafil citrate has expired, or where there is little or no regulation on the production of pharmaceuticals, the same drug can be produced for less than $2 a pill.

The internet has solved a problem faced by the producers of low cost knock-off drugs: how to sell and distribute these pharmaceuticals. Direct-to-consumer advertising is heavily regulated in the States, often making marketing a costly proposition. But overseas producers use affiliate relationships to lessen their costs.

In a model pioneered in the mid-nineties with Amazon.com, affiliate partners provide the perfect sales channel for this business. Amazon, in an effort to expand its sales power, offered any person with a website the ability to add links for books available on the Amazon site. Any books sold from traffic sent by an affiliate would result in an affiliate fee paid back to the owner of that website. The affiliate earned anywhere from 4 to 10 percent of the resulting sale.

Producers of overseas sildenafil citrate, interested in selling as many pills as possible without being responsible for violating local laws, leveraged this model to recruit affiliates, which could be anyone with the ability to generate orders for a fee as much as 40 per cent per transaction.

The overwhelming volume of Viagra spam and other unsolicited emails is sent at an estimated rate of 12.4 billion messages per day. Some estimate that 8 per cent of US Internet users who have received this spam have purchased products from those emails.

The deluge of Viagra messages in our in-boxes may partly explain the popularity of the drug online. Over the course of the last two years, spikes in searches on "Viagra” have been concurrent with massive Viagra spam blasts. As of fall 2007, Viagra was the third most searched for drug, behind weight loss drug alli and depression-anxiety drug Lexapro.

Searches for erectile dysfunction drugs served as one of the first examples we found of seasonal trends in the way we search for things on the Internet.

In the case of drugs such as Viagra, Levitra, and Cialis, things come to a head in late January and early February, right around the Super Bowl. Over the last four years, since starting at Hitwise, I have had a Super Bowl tradition that includes a high-def television, a barbecue, a few beers, and a spreadsheet. Each year I study the effects of Super Bowl commercials on Web traffic and, more recently, on search patterns. As with the spike on erectile dysfunction searches, each year the data shows that repeated spots can drive us to find out more information online.

Not all seasonal Internet behavioural patterns are driven by television commercials; some are just ingrained in our society. Internet behaviour can reveal a great deal about society. Some of the most interesting patterns are those that surround our visits and searches in the realm of politics.

From a market research perspective, estimating our political convictions has proven to be a very difficult and often elusive challenge. Online behaviour provides a fresh perspective.

From CLICK by Bill Tancer. Copyright 2008 Bill Tancer. Published by Hyperion. All Rights Reserved.

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