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The Spammer Next Door

Kansas City's Virtumundo tries to shed the reputation that made it a fortune.

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For Karl Barth, starting a job as the electronic postmaster at Drexel University in Philadelphia was like flipping the light switch in a room infested with cockroaches.

Barth became postmaster in July 2002. Since the previous March, the volume of junk e-mail clogging Drexel's servers had quadrupled. Barth, who had worked on big e-mail systems up and down the East Coast, made reducing spam his first priority. "Oh, my gosh, we're going to be overrun if we don't start fighting back," he remembers thinking.

The first e-mailer Barth blocked was Virtumundo, a Kansas City company founded in 1998 by a teenager.

"If I added it all up, they must have had a thousand of our addresses, maybe more," Barth says of Virtumundo. "They were just blasting stuff in. Always overnight, always at 2 or 3 in the morning. I'd come in in the morning, and I'd have all these complaints from people who'd say, 'Hey, I got this spam overnight. Can you do something about it?'"

Barth could. He built a digital moat that sunk messages with a Virtumundo return address, such as UBurnYourOwnDVDs@vmadmin.com. Before Barth dug the trench, he says, Virtumundo deluged each of its Drexel addresses with as many as five messages a day.

Barth is confident that he was right to block Virtumundo. No one complained to him when mail from the company's clients stopped arriving. "It wasn't like it was coming from Coca-Cola or Kraft Foods," Barth says. "It would be Joe's Off-Shore Casino and Sallie's Mortgage House in Montana."

Virtumundo once touted Miss Cleo, the supposedly Jamaican tarot-card reader. In 2001, Virtumundo's computers sent an e-mail that encouraged the mouse-clicking public to dial a phone number and hear about an exciting dream that Miss Cleo had shared with her "psychic associates." (Miss Cleo's own future dimmed considerably after the Federal Trade Commission accused her employer of misleading consumers. The Psychic Readers Network eventually paid a $5 million fine and forgave $500 million in customer charges.)

Advertising the likes of Miss Cleo can earn a company a bad reputation. Paul Graham, a programmer who uses statistical analysis to filter spam, has written on the Web that the word Virtumundo is as reliable an indicator of spam as the word teens.

Yet Virtumundo does not count among the industry's bottom feeders, the sort who spell Viagra with a filter-beating @ and come up with countless ways to deliver amazing news about the benefits of penis enlargement. The Spamhaus Project, a British-based organization locked in battle with unsolicited commercial e-mail, omits Virtumundo from its list of known spam operations. Virtumundo was also absent from the gaggle of spammers sued recently by AOL, Microsoft and other major Internet service providers (ISPs).

Virtumundo's CEO, Michael Shopmaker, resents the spammer tag. "We want those guys to go away," Shopmaker says. The company prefers to be known as a "permission-based marketing company." Shopmaker says Virtumundo's users, a prized database of 70 million e-mail addresses, have agreed to receive offers for, say, satellite-TV services and child-support collection.

Spam? Virtumundo hates the stuff. All the clutter, all the complaints hinder its ability to deliver what it believes are targeted messages to a willing audience. "If the consumer gets a hundred pieces of mail a day, they're much less likely to respond to anything," Virtumundo founder Scott Lynn, who is now 24 years old, says.

Lynn says Virtumundo sends offers to less than 10 percent of the names in its database in a given month. Systems administrators, meanwhile, say they've noticed less traffic emanating from the company's servers. Still, spam watchers regard Virtumundo with suspicion.

"I know lots of people who get spam from them," says John R. Levine, coauthor of Fighting Spam for Dummies. "I know lots of people who have them permanently blocked. They've told people they're going to clean up their act, but they have a lot of cleaning to do."

Spam sucks.

It lies ("Re: last night"). It cheats ("X¨nax for less"). It steals ("Well dear friend we need your assistance in transferring some of the money derived from gold").

The volume and vulgarity ("Go in for some muff-diving!") of spam mar a genuine innovation; checking e-mail now counts as a chore. And the ease with which junk e-mail can be distributed -- some spammers work out of mobile homes -- makes it far more pervasive than other modern annoyances, such as telemarketing and regular junk mail.

Spam haters equate unsolicited commercial e-mail to pollution. The logo adopted by Clueless Mailers, an anti-spam Web site, borrows heavily from hazardous-waste warnings. The site's rhetoric is no less apocalyptic. "Spammers are basically destroying e-mail as a means for the good of society," Bill Yerazunis, a Mitsubishi Research Labs scientist who also writes spam filters, tells the Pitch.

The big ISPs are beginning to echo Internet do-gooders like Yerazunis. A lawyer for AOL warned last year of a "spam crisis." Bill Gates wrote last summer in The Wall Street Journal that MSN and Hotmail servers block 2.4 billion messages a day.

ISPs try to distinguish between commercial e-mailers who follow the rules and those who don't. One way spam shops are judged is by their method of gathering e-mail addresses. The shadier operations poach e-mail addresses by sending drones into chat rooms and by using the "dictionary method," which assumes, for instance, that approximately 10,000 Yahoo users can be reached by typing "Sarah" and any combination of four digits before the ampersand.

Companies like Virtumundo -- which advertises no porn, no illicit drugs and, as of 2003, no online casinos -- say they operate by a different model than the address-poachers who bounce ads for discount Valium off servers in Iran. "They are not in the business of mass-mailing unsolicited commercial messages to end users. That's just not their business," says Peter Kosmala, assistant director of the Network Advertising Initiative, an industry trade group.

Kosmala says his clients are not spammers because they have users' permission to deliver promotions and offers. "That permission is solicited, obtained and respected over time."

Of course, permission is not necessarily the same thing as desire. Every day, thousands of users agree to be spammed without knowing they've done so. Virtumundo's devil lurks in the details -- specifically, lengthy privacy agreements that might not have been read by a sweepstakes player or a racing fan signing up to receive NASCAR's e-newsletter. Click (or fail to unclick) the terms of agreement, and permission is granted.

Privacy policies serve to mollify regulators and the ISPs. (The ISPs maintain whitelists and blacklists, separating the "good" from the "bad" bulk e-mailers.) But among those who judge Internet behavior in moral rather than legal terms, the fine print carries little weight. Levine summarizes Virtumundo's 2,300-word privacy policy: "We will scrape every bit of information we can find if we think you're over 13 years old, and we'll do whatever we want with it.

"I think you can fairly say that their privacy policy is at the less desirable end," Levine adds.

The sheer number of people in Virtumundo's user base would seem to cast doubt on its collective willingness to accept advertising. At 70 million names, Virtumundo's database is larger than AOL's membership. Yet Virtumundo is a relatively obscure company. Says Drexel's Karl Barth: "I feel fairly certain that if I asked 100 of my users if they wanted mail from Virtumundo, that 100 out of those 100 would say, 'Who's that?'"

On command, Yerazunis can reach into his junk mailbox and find Virtumundo-sent ads for printer ink and life insurance. But he claims he's never given any company permission to advertise to him. How is this possible? Yerazunis offers a terse explanation: "To make it short, Virtumundo is a spam house."

"So, do you think everyone around here misses me, or are they just pretending? What's your guess?"

Scott Lynn is standing in the lobby of Virtumundo's Overland Park office, gently quizzing a receptionist. Earlier this year, Lynn restructured his company, dispatching Virtumundo to a modernist cube off College Boulevard. Though he still owns the company, Lynn is no longer Virtumundo's president and CEO. He's concentrating on a venture called Adknowledge, which aims to help Web publishers better "monetize" their user base.

Because Adknowledge is based on the Plaza, the dozen or so Virtumundo staffers who cross Lynn's path seem surprised to find him in their suburban office. He is dressed in a crisp, light-blue, button-down shirt and olive-green slacks. Lynn is tall and thin but not gangly. A pronounced nose lends bearing to a young face.

Lynn founded Virtumundo in 1998, when he was an 18-year-old University of Missouri-Kansas City student. College would not hold him for long. He had graduated early from Shawnee Mission Northwest High School, signaling that he preferred self-education.

The Internet was Lynn's passion, and he listened for opportunity's knock. He incorporated Virtumundo with money he had earned designing Web sites. When he was 15, he devised with a friend a program that would allow relative novice computers users to create their own Web pages. But the fledging business lacked funds and maturity. A few years later, Lynn saw Lycos pay $58 million for Tripod, a company with a similar product.

When Lynn started Virtumundo, the Internet economy emphasized page views. Sites rushed to attract and retain visitors. The "stickier" the Web page, the more advertisers would pay for banner space.

Lynn built his Web page around a proven appeal: the chance to win a big prize. His site, Treeloot.com, enticed users to find treasures of up to $25,000 hidden in pixels on a computer-generated tree. With more than 170,000 pixels on the tree, most "winners" settled for coupons from advertisers. (Lynn says Treeloot has given away $1 million in cash and prizes.)

Treeloot became one of the Web's most popular sweepstakes sites. Twelve million users visited each month. USA Today and The Washington Post sought interviews with the company's young founder. But not all publicity glowed. To attract visitors, Treeloot dared surfers to "punch" a monkey that scurried across Web pages; doing so took the user to Treeloot. Internet consultant Lawrence LaRose criticized the ad in a 2001 Wall Street Journal article about online advertising. "It's annoying, and it tricks you," he said.

When the dot-com bubble burst in 2000, the market for banner advertising evaporated. That fall, Virtumundo's monthly revenue for banner ads shrunk from $1 million to $250,000.

Designed as an advertising platform, Treeloot remained valuable for the information it collected. Consumers, in their excitement to win prizes, volunteered their e-mail addresses and, sometimes, their interests. Lynn told The Kansas City Star in 2001 that Virtumundo had added 800,000 user profiles in one month.

Advertisers, in turn, would pay to reach these users' in-boxes. Best of all, it could be done cheaply. The operator of a Treeloot rival described the richness of the opportunity to The Wall Street Journal in 2001: "It's direct mail without the postage, and the consumer does your data entry -- what could better?"

To add to its database, Virtumundo entered "co-registration" agreements with Iwon.com and other sites on which surfers must register to gain full access. Virtumundo was aggressive in seeking new partnerships and, by extension, new users. "We didn't care whether it was a gaming site or Loreal.com," says one former employee.

By 2001, having survived the dot-com collapse, Virtumundo employed forty workers and occupied offices in the Bernstein-Rein Advertising Building. Lynn held financial information close. Speaking to The Wall Street Journal that year, he put Virtumundo's sales figures between $10 million and $100 million. The profits were all his. It was not until December 2001 that Lynn sold an interest in his company.

If Lynn dazzled himself by achieving so much at such a young age, he's gotten over it. "I think it's what I like doing," he tells the Pitch. "I enjoy it. It's fun." He sounds as enthusiastic as someone facing a drive across Nebraska. "I don't know. It never seemed that significant to me, to be honest. Money is one of many things that makes people happy."

A former employee says Lynn is the youngest 60-year-old he's ever met. He's also guarded, reluctant to speak in specifics. He won't say how much money the company makes. He won't specify how many e-mails it delivers. He describes the client base in vague terms, calling them "medium-sized businesses" and "Fortune 1,000 companies."

Lynn is similarly discreet about his personal life. In 1999, he bought a home on Ward Parkway that is still being renovated. Lynn blames the delay on unforeseen structural problems and an original contractor he calls a "less than ethical businessman." The process has frustrated Lynn as well as his neighbors, who have contended with construction vehicles, mud and the sight of tarpaulin for more than four years. "We understand that there's been a lot of people that are anxious for us to complete construction and move in," Lynn says, referring to himself and his girlfriend, Kristina Plummer.

Lynn is wary of reporters. "Press attention, unless it has a valid business reason, is generally something I'm not interested in."

Lynn credits discipline for his company's ability to thrive. "It's an efficiently run organization," he says. The culture, he adds, is "very bottom-line driven, very execution-oriented."

"That, of course, has its pros and cons," he continues. "The pros are that I think it's helped us survive, because we're much more disciplined than most companies were. We weren't spending millions on trade-show booths and throwing $200,000 parties every weekend. However, it also has its downside. We attract a very specific type of person with a very specific talent. They have to love the industry. They have to love working hard. They have to be good at what they do. We don't tolerate a lot of mediocrity."

Some decide they don't have the stomach for Virtumundo after just days, even hours on the job. One former Virtumundite who wished to remain anonymous says the company took advantage of a tight labor market, often driving employees to anger or tears. "It just seemed like no matter how hard you worked or how much you tried to prove yourself, they would knock you down," the former employee says.

Though the Plaza office gestures toward fun and frivolity (former employees say there's a pool table and a beer keg), no one would mistake either of Lynn's companies for a fun place to work. Lynn works 11-hour days and expects similar effort from dedicated employees; a few years ago, the U.S. Department of Labor intervened on behalf of Virtumundo workers who qualified for overtime.

A dogged reader of CEO autobiographies and other management books, Lynn is constantly testing new theories, trying on new styles. Leadership does not come naturally to him. Former employees describe Lynn as smart but unwise, successful but not inspirational. "This is not a family," he once told the staff.

Jim McCarthy, the original contractor on Lynn's house, knows something about how demanding a boss Lynn can be. The job was hardly routine. Plans called for the installation of a wine cellar, a panic room, an elevator shaft and a subterranean art gallery with koi pond. "He had some pretty grand designs," McCarthy says. Lynn denies planning a panic room, elevator or underground gallery.

McCarthy and Lynn went to court over unfinished work on the house and the Plaza office. McCarthy claimed Lynn owed him $75,000; Lynn said he had been overbilled. During the proceedings, McCarthy filed for bankruptcy. "It was a lot more heartache than it should have been," McCarthy says.

On December 27, 2001, Virtumundo sent an e-mail ("Receive great offers!" read the subject line) intended for a woman named Nadine at the web address nadine@honet.com. It landed instead in the lap of guy named Michael.

Michael Rathbun, a network consultant in Frisco, Texas, owns the domain name "honet." Rathbun designed his server to accept all deliveries. The real Nadine, he figures, mistyped her address.

Rathbun came to know a lot about Nadine. He took notice of the name because of all the crap addressed to nadine@honet.com in his bad-message sump. The real Nadine, Rathbun gathered, had entered a sweepstakes site hosted by a company called DeliverE.com. When she registered, Nadine presumably checked a privacy agreement that allowed DeliverE.com to sell her name to anyone with a buck and a modem.

DeliverE.com should have received a "no such user" message from Rathbun's server, but that hardly mattered. The offers came pouring in. From Harris Polls, SmarterKids.com, Webstakes.com, AT&T.

And from Virtumundo.

Rathbun attempted to contact the bulk e-mailers who pelted Nadine with ads. (Rathbun tells the full story at www.honet.com/nadine. One entry's partial title: "We Believe in You, Even If You Don't.") Many bulk e-mailers don't want to be found. Yet Virtumundo provided enough information about itself in its "Receive great offers!" e-mail that Rathbun was able to direct an e-mail to the company's CEO. "I dropped Scott Lynn a note and said, 'Are you guys really trying to go out of business in style, or what's your plan here?'" Rathbun tells the Pitch.

Rathbun was surprised when Lynn followed up with a phone call. Lynn, Rathbun says, even suggested there might be a job for him at Virtumundo. "That depends on how much advice you want to take," Rathbun says he replied.

Rathbun drove to Kansas City and addressed Lynn and key Virtumundo staff. (Rathbun treated the trip like a sales call and paid his own way. He says he billed Virtumundo for consulting on later occasions.) "I was explaining to them that there was no possible way on earth that Nadine could have signed up and given permission, because Nadine doesn't exist. It all comes to me, and I didn't sign up for it."

Rathbun suggested a way for Virtumundo to avoid future Nadines: Ask new users to confirm their existence and their desire to receive advertising (a mechanism known in the business as a "double opt-in"). Otherwise, spam critics say, consent gleaned from co-registrations and the like is flimsy. "Typically, permission means that someone typed the address into a Web form somewhere," Levine says. "So if I type your address into one of their Web forms, you opted in -- surprise!"

Virtumundo executives passed on Rathbun's recommendation.

"They just basically said, 'That's just too marginal a problem for us to worry about,'" Rathbun says. "They felt that if an address was obtained under the aegis of a privacy policy that says 'I agree to receive stuff from your marketing partners,' they felt that meant they could make free use of it, since the seller of the list had the right to sell the list."

Rathbun maintains that because such lists are sold freely, users essentially agree to receive e-mail from anybody on earth. "And nobody in their right mind wants that," he says. "You're not really giving informed consent."

Virtumundo gives users a chance to opt out of its list. The introductory "Receive great offers!" e-mail sent to Nadine provided a link that would have allowed her to unsubscribe. But such "confirmation" e-mails seem to exist for the benefit of lawyers more than for consumers. Only one user in twenty even opens such messages. And many spam fighters warn against unsubscribing because it tells unscrupulous e-mailers that a warm body uses the address.

Lynn says Virtumundo experimented with seeking a more affirmative form of consent a few years ago, but it only confused users. "This is your average, general Internet demographic that has a difficult time checking their e-mail, let alone figuring out how to use a double opt-in, so we stayed away from it."

Virtumundo, he says, honors requests to unsubscribe. AOL now makes the process as easy as a click of a button, he adds. "Relationships have been struck with several ISPs to make sure that if users are complaining or don't want to receive the mail, we immediately remove them from the list."

Lynn says Virtumundo is always revising its policies. The company, he adds, no longer buys databases of names the way it did in the past. In fact, in 2002, Virtumundo filed a lawsuit against the outfit that provided Nadine's name.

In the lawsuit, Virtumundo accused two California-based companies, Mindset and Inurv, of selling tainted data. According to depositions, after Virtumundo began contacting Mindset's and Inurv's names, users flooded ISPs and anti-spam organizations with complaints. "As a result, Virtumundo was notified that it would be publicly listed as an offender in that industry, i.e., as what is commonly referred to as a 'spammer,'" the lawsuit alleged.

The bad rep, Virtumundo alleged, lost the company clients and tried the patience of ISPs.

But in a countersuit, Mindset and Inurv suggested that Virtumundo's shoes were too muddy for it to mount a white horse. They said Virtumundo soured the database by barraging the addresses with as many as five messages a day. Furthermore, Virtumundo's "reputation as a spammer in the industry" preceded the contract.

The lawsuit was settled out of court.

With hostility toward bulk e-mail rising, Lynn has tried to diversify.

Last year, his company unveiled a product, NewtonKnows, designed to deliver advertising from a perch on users' desktops. Adware, which detractors call spyware, piggybacks on other downloaded programs, such as screen savers or music-swapping software. Once installed, the software monitors users' surfing habits and feeds them targeted pop-up advertisements.

NewtonKnows wasn't a simple parasite. Its toolbar offered utilities: spell-checking, e-mail alerts, auction tools. One of its inventors, Mike Reed, spent hours in online forums trying to assure privacy-minded users that NewtonKnows had value, that it helped deliver free software, that without advertising, economies crumble.

In his postings, Reed is the model of earnestness. "I am bound and determined to prove that we can deliver high-quality features for free, using real target advertising and a great deal of flexibility as the revenue source, and that we can achieve a real win/win," he wrote in one entry at SpywareInfo.com

Reed opened the floor to constructive criticism. He received an eyeful. "Not On My Computer Laddie!" typed one forum guest. "MY DESKTOP IS PRIVATE PROPERTY, NOT YOUR PERSONAL f*ckING BILLBOARD," entered another.

Reed received users' sometimes harshly worded complaints with good cheer. ("Your feedback is honest, heart felt and expressive," he wrote.) In a few instances, Reed took their side. He seemed to regret that certain programs installed NewtonKnows without a user's permission: "I just did some research and we are a mandatory install on three packages right now: statblaster, aaascreensavers and audiobliss. Wish I had some different news to report."

NewtonKnows was still being refined when Reed participated in the forum. Reflecting the spirit of openness among programmers, Reed assured users that he would carry their advice into product meetings. "I hope that with your help that I can make your points heard and that the business logic behind being good citizens will assure that we selected the right path," he wrote.

One meeting of NewtonKnows brass was scheduled to take place at 1:30 p.m. on August 25, 2003. In an 11:20 a.m. posting, Reed seemed hopeful that users would appreciate his mockup of an installation panel, which showed the features included with the product. He promised to lobby for other user-friendly improvements.

Five hours later, Reed returned to the forum. His report was brief but telling: "The meeting did not go well ... enough said." He punctuated his sentence with a sad-face emoticon.

In the forum's last entry, posted two weeks after the meeting, a user noted that Mike Reed had resigned from the company and had posted in another forum looking for a job.

NewtonKnows was eventually scrapped. Lynn says it was a "convoluted value proposition" -- in English: Consumers, finding the advertising more annoying than the features worthwhile, uninstalled it in droves.

Two years ago, Lynn told the Star that Virtumundo was the nation's largest "targeted e-mail advertising" company. To hear Lynn today, Virtumundo is a minor player.

"We send out of a lot e-mail," he says. "There are a lot of people in our database. But generally speaking, I think, Virtumundo -- again, I haven't been with Virtumundo for three or four months -- they're probably below the top 1,000 e-mail marketers, I'm going to say. So it's a lot of mail, but relatively speaking, there's many more."

Virtumundo gets paid for the number of responses it generates, not the number of e-mails it sends out. The model rewards accuracy and relevance. ISPs and major clients, such as Wal-Mart and S.C. Johnson, will not countenance mindless spamming, Virtumundo officials say.

Virtumundo CEO Michael Shopmaker says the company even refused to deliver an offer from Weight Watchers because some of the successful dieters were photographed in swimwear -- cheesecake being a hallmark of spam.

But Lynn concedes that Virtumundo has sent unwanted mail. "We struggled with that for years," he says. "The fact of the matter is, we only mail to people who opt in. We honor unsubscribes. We make every attempt possible to prevent the receipt of mail that people aren't interested in. Direct marketing's not perfect, but we try our very best."

Lynn also concedes that spam is such a plague that users may not differentiate between "good" and "bad" e-mail advertising. "The average consumer considers spam is spam is spam," he says.

Lynn defends his baby but keeps his distance from it. He consented to be photographed for this story, then backed away before finally agreeing to send his own photo. "Considering the article is mainly about Virtumundo, I don't want to upstage the new CEO," he wrote in an e-mail. "It's bad form on my part."

Lynn's evasiveness extends to his company, apparently. In the "About Us" section of the Web site of his new company, Adknowledge, there's a tale that essentially tells the evolution of Virtumundo itself.

But the V word is nowhere to be found.

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