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eFront Fiasco Was an Affront to Advertisers' Trust
Part 3 of 'Dot Com Sector Faces Long Day's Journey Into Night'
By Andrew Goodman, July 10, 2001

Capsule summaries don't always do justice to the textures and flavors of ethical and financial fiascoes. Case in point: the eFront debacle.

eFront was basically a network of techie and hacker-oriented sites, with a number of other topical sites added to the mix as the network grew to a whopping 170 sites. The company began as a site called NetWhirl, which became eFront Media after a merger. Soon after, eFront began acquiring site after site, promising their often youthful proprietors equity, higher advertising rates, and more. Many of the sites were run by teen webmasters who typically focused on "warez," MP3s, and other topics popular with teenaged techies. By putting together this motley crew, eFront as a whole was able to briefly crack the top fifty in the overall Media Metrix rankings of web properties. This latter achievement just about summed up eFront's whole business model - an effort to paint a respectable veneer over, and present an image of cohesiveness to, some rather dubious and uncoordinated business activity.

When those of us who make our living in Internet-related companies twigged to the unfolding eFront collapse, we plunged into the "full transcript," as it were. Extensive discussions on F***ed Company led us to the web sites which were generously hosting the "evidence" against eFront; in particular, a long series of pilfered private ICQ chats that detailed what the company brass were thinking as things came unglued. We, the reading public, were also made privy to records showing sizeable but dwindling payouts to eFront from advertising middlemen (such as Doubleclick and About.com's Luna Network) in connection with advertising shown on their various web sites.

The ICQ chat transcripts were not enormously damning in a legal sense. They merely felt uncomfortable and slimy. The low point is Sam Jain's infamous comment with regard to breaking an agreement with one Jennifer Moss, proprietor of BabyNames.com: "Rape her and spit on her."

With Jain exercising his firm hold on proceedings and keeping an iron grip on his estimated 85% stake in the company, you could almost feel eFront execs' sweaty brows in these transcripts as they grappled with the increasingly difficult process of keeping all the balls in the air. An overriding theme was a need to dictate terms to their webmaster partners which were far removed from the original agreements, while continuing to take in as much of advertisers' money as possible; money which these partners would see less and less of as time wore on.

Observers with strong stomachs also took the time to listen in on an audio file of an hour-long conference call between eFront management and their member webmasters. At this point, many of the webmasters weren't being paid, and things were getting ugly. The walls were closing in on eFront as they did for so many failing Internet business models. The conference call had the eerie feeling of a summer camp gone wrong. The parental or at least "big brother" figures in eFront management joked around at the outset about one of their 15-year-old members having just managed to get permission to get out of school for an "important business meeting." The brass then went on to explain that it was a "very tough time" for the company, and that it was much better for webmasters to stay loyal and receive "some" of the monies owed as opposed to letting the whole ship sink and getting nothing. Having fun yet, campers?

eFront CEO Sam Jain played the maligned victim as the walls started caving in and as public scrutiny of his operations grew to uncomfortable levels. Lest one be too concerned for Mr. Jain's mental health, it would appear that his modus operandi in the eFront scheme was well rehearsed. It was soon revealed that he had a previous conviction for, you guessed it, fraud.

But don't go crying for all of these webmasters, either. Many of their web sites offered little or nothing of redeeming social or market value. Many were devoid of a business model other than, well, getting acquired by the likes of eFront. The owners of these sites seem to have been adept in their tactics for pumping up traffic -- often based on getting the word out that "illicit" activities could be performed on their sites. Many who remember the days of proprietary BBS's in the 1980s whose purpose was to trade pirated software will remember this old game. The difference was, the purveyors of warez in days gone by kept things quiet, and didn't expect a pat on the back, much less a fat check from a sugar daddy investor or advertisers, for their troubles.

While the interactions between the adult eFront management and its oft-youthful webmasters were sleazy and sometimes fraudulent, not a few of the youngsters were agile con artists in their own right. What's so wrong, one might ask, about driving a lot of traffic to a site of questionable merit? It doesn't seem particularly wrong until one recognizes that for a brief time, large numbers of "page views" could be turned into cold, hard cash, especially in the context of a reputable "front organization" like eFront whose job was to legitimize their member web sites in the eyes of the advertising middlemen and in turn, in the eyes of paying advertisers. In other words, the promise of higher ad rates proferred by eFront management to these oft-shifty teen webmasters was something along the lines of "you'll get higher advertising rates per page view if you let us, the adult supervision, tell the advertisers that you're legit." This nasty little incentive system gave the script kiddies all the motivation they needed to manufacture as many page views as they thought they could get away with.

Eventually, the game ended as the advertising middlemen and their customers got wind of the shockingly low response rates they got for their ad dollars. In the end, the kiddies didn't get paid for the majority of their deceptive practices. They discovered that contrary to mythology, there isn't always honor amongst thieves.

Someone might counter that some of the eFront-associated web sites and their owners were high quality and reputable; some even had cool business prospects before being gobbled up by these bumbling acquirers. True. Even in a bunch of rotten apples, there's bound to be a good one or two. And eFront suckered in quite a few good people.

We have heard much about the ineffectiveness of banner advertising; the 0.1% clickthrough rates, the abysmal response rates to online advertising in general. It's often stated in dry terms, like a law of nature that derives from the fact that surfers have become impervious to advertising. But there is plenty of evidence to the contrary -- quality industry-specific sites that do offer good response rates for advertisers; the high CTRs and healthy response rates associated with search engine keyword advertising and search engine placement (where consumers are actually looking for something specific).

The usual explanations for what happened to advertising go-betweens like Doubleclick and 24/7 Media seem to gloss over a key reason for the death of CPM-based banner advertising: a certain percentage of webmasters figured out how they could abuse a system in which page views were being treated like hard currency. The presence of naive advertising dollars and legitimacy-conferring middlemen sent a clear signal to the most unscrupulous operators: figure out ways of creating phony traffic in order to generate as much of this new currency as possible while it lasts.

For a time, for some, it was like printing money. Well, that was advertisers' money. And those advertisers are still holding a grudge about it. That's part of the reality underlying the so-called "declining effectiveness" of banner advertising.

The actions of some unscrupulous eFront webmasters, and many like them, contributed to the heightened suspicion and exaggerated focus on results tracking that potential online advertisers are bringing to the table today. Online publishers must regain their trust.

Unfortunately, this won't happen overnight. Fortunately, this is a matter of market dynamics as well as ethics or image. Now that advertising costs less, some online advertisers are finding bargains. In fact, some companies that are emerging now, out of the ashes of the carnage that hit so many of their predecessors, are making a bundle because of the low cost of introducing their service to new prospects, and yes, even of blizzarding the Net with ads in an attempt at "branding." One such company is Classmates.com. They're getting the returns they're looking for by advertising heavily online. That sounds like a solid foundation to build on.

READ OTHER ARTICLES IN THIS SERIES

Part 2 - Name Your Own Reality
By Andrew Goodman, June 12, 2001
The stock markets have become eerily tolerant of former dot com goats like Priceline.com. It's the continuation of an old Wall Street tradition: name your own reality.

Part 1 - Take Us to Your Leader
By Andrew Goodman, June 5, 2001
Many of the biggest stars of the dot com boom are still painfully addicted to what made them rich in the first place: a habit of warping reality for personal gain. The road to recovery may be ethical and psychological as much as it is economic. First in a series.

-----------------------

Andrew Goodman is Editor-in-Chief of Traffick.com and principal of Page Zero Media, a Toronto-based consulting firm which focuses on search engine optimization and related marketing services.

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