The Asymmetrical Economy of Spam

Written by Chris Ivey on May 23rd, 2011. Posted in Unmasking Spam

In an earlier post, I wrote about the curious economics of the spam industry.  Considered as an industry, the numbers initially make spam seem like an attractive proposition, with estimates, (and no figure relating to spam is better than an estimate), of global revenues from spam running as high as $3.2 billion in US dollars in the porn business alone. However, because of the quasi-legal nature of the industry, and the fluidity of the borders between nuisance selling and outright fraud, it’s difficult to really put a number on the value of the industry as a whole.

Put simply, it’s hard to determine how much of spam is selling, and how much is stealing.  The membrane that divides the merely sharp operator selling an iffy MLM scheme from the illegal operators selling unlicensed drugs and software, or from the outright frauds who are trying to find “marks” is continually breaking down as operators exchange personnel, data, and technology.

It also becomes apparent that the actual revenues generated by individual operators aren’t really all that attractive. All too often, spam operators use the methods they do because they’re trying to sell a product that doesn’t really present an attractive value proposition, and wouldn’t perform well enough to be a viable selling proposition if they were obliged to pay to use more orthodox marketing channels.

It’s very difficult to pin down any real numbers in this game.  Legitimate and quasi-legitimate email marketers tend to defend the efficacy of their business with figures that beggar belief, claiming ROI ratios of anywhere between 15:1 and 45:1.  But it’s obvious that these numbers are only possible when spammers are not paying anything like the true value of what it costs to run their campaign.

But just how effective is spam at generating revenue, and how does that compare to the cost to legitimate business operators whose channels are co-opted by spammer? For the vast majority of individual operators, there is an enormous disparity between the amount of money they generate for themselves, and the amount of money that must be consumed by legitimate business in order to protect the market channels that these spammers hijack.

The simple fact is that the size of the spam economy is insignificant compared to its negative impact on virtually every industry in the online marketplace.

For example, a spam marketer who uses software tools to hijack and post spam on a few hundred thousand pages on a popular social media website like Facebook may generate a few thousand dollars in revenue over the course of a single “campaign”, but the cost to company whose media channel the spammer has just appropriated is much greater.  Not only will they have to spend resources on additional security to try to police their channels to prevent further hijacking, but they will also have to spend resources on repairing their relationship with their own user community who have been directly impacted; and then even more resources on communications and PR to repair their reputation in the market at large.

Online business operators tend to keep their cards pretty close to their chest, because it tends to be bad business to let you competition know just how badly you’ve been hurt if a spammer co-opts one or more of your online channels.

That being said, the scope of the disparity between the dollars generated by spammers, and the cost to their victims comes into focus when you look at the evidence of court awards like the Guerbuez case in Canada, where a California court ordered a spammer to pay over $870M in US in damages to Facebook Inc.

The Guerbuez case also made evident how ineffective a civil court remedy is in dealing with spammers.  You can’t realistically expect to extract damages from a spam operator in the way you would from a legal corporate entity with real assets.  Mr. Guerbuez wasn’t a billionaire, or even a millionaire; he couldn’t pay the damages and he didn’t care that he couldn’t pay.  He simply ignored the court ruling while obviously enjoying the notoriety it gave him.

It’s difficult to find anyone who will commit to a firm figure when examining the ratio of dollars generated for the spammer to the dollars lost by targeted host entities, but there’s clearly something askew. You could say that spam is an asymmetrical economy in much the same way that terrorism is “asymmetrical warfare”.

The media tends, naturally enough, to focus on the big cases where spammers have embarrassed or damaged large companies, but these cases are aberrations.  Spammers rarely cause damage on a huge, “newsworthy” scale because they generally aren’t that successful.

And yet, as a group they continue to keep up a relentless pressure on virtually every online business, and they represent a tremendous drain on resources.

I’m curious as to why this is.  It’s not as if the spam industry represents a huge stream of reliable revenue that legitimate businesses are simply too decent or too squeamish to exploit for themselves.  It’s a marginal, difficult business with crappy returns that requires a tremendous amount of effort and constant innovation, and it alienates every consumer it touches.

There’s no repeat business in spam.  There are no loyal customers.  There’s no goodwill; no growth in net value; no hope of an exit or of acquisition. By definition, the spam business is bad business.

I’m convinced that the motivating factor that attracts operators to the spam business in more psychological than economic.  However, this is a difficult thesis to articulate, so I’ll leave it for my next post.

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Chris Ivey

Christopher Ivey is the CEO of ShareThink Ltd., a technology innovation company located in Almonte, ON, just outside Ottawa.

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