Testing the emerging norms of online advertising, WebTV Networks Inc. has begun selling ads that appear between--and often on top of--Web pages owned by other companies.
The practice has outraged top executives at companies whose Web sites have been beset by the ads without permission, particularly because WebTV allows advertisers to target their direct competitors.
Banner ads for General Motors cars, for example, appear in the midst of Ford Motor Co.'s site, and ads for AT&T; invite users to leave MCI's site. Experts said the practice is bound to upset companies and consumers and could ignite a legal backlash.
"They're altering users' experience tremendously," said Daniel Janal, an online marketing expert and instructor at UC Berkeley's extension program. "I think you're going to see some very serious legal battles fought over this issue."
Though an extreme example, WebTV's new scheme is part of a never-ending effort by hundreds of Internet-based companies to find ways to extract revenue from the worldwide computer network. Many of these efforts have focused on developing increasingly sophisticated ways to target ads at specific types of content and users.
WebTV, which is owned by Microsoft, makes boxes that enable consumers to surf the Internet through their television sets. Its ads, which it sells under a program called Surf Spots, pop up on subscribers' screens when they move from one Web page to another. Company officials said the program is 2 weeks old, although some Web site operators say they began noticing the spots in mid-September.
The ads are visible only to WebTV's 175,000 subscribers and momentarily obstruct the view of the underlying page before dissolving seconds later.
Officials at the Palo Alto-based company argue that the ads are harmless and that not only are subscribers accustomed to the barrage of advertising that television provides, they are made uncomfortable by the frequent delays in loading Web pages.
"What we're doing is utilizing available air time between page views," said Joe Poletto, vice president of advertising at WebTV. "Our goal in this thing was to make the users' experience more informative."
But companies that spend millions of dollars to develop their Web sites argue that WebTV has no right to make money by sprinkling ads amid content that belongs to someone else.
Executives at some of the Internet's most popular Web sites said they were so outraged by the practice--and the fact that they weren't notified--that they have pulled the plug on negotiations with WebTV to jointly develop new services.
"It's breaking off deals," said one executive, who asked not to be identified. "We found out about it by looking at our site through a WebTV box while we were in the midst of talking about a deal."
Gene Quinn, senior vice president of online services at MTV Networks in New York, said his company complained to WebTV after discovering that Pepsic antacid and Honda ads were appearing on the MTV site.
"We believe the path between pages within our site is absolutely under our control," Quinn said. "Confusing customers is bad business."
He added that MTV and WebTV are in negotiations to resolve the matter, but he declined to elaborate.
One Web site developer said WebTV had promised to stop the practice more than a month ago. She said she discovered the ads had resumed when one popped up during a demonstration of a new site to WebTV producers.
"They're interfering with our own advertising," said Laura Buddine, general manager of Iacta, a Downey-based Web site developer. "Why should anyone advertise with us when they can put an ad on our site through WebTV?"
She added that the scheme has been controversial even within WebTV's own ranks, with some executive privately saying they disagree with the tactic.
AT&T;, one of more than 25 advertisers in the program, said the company did not target MCI specifically, but rather telecommunications sites in general. That did not appease MCI officials when the AT&T; ad was brought to their attention on Friday.
"It bothers me," said one MCI Web site manager who asked not to be named.
The ads also seem to bother WebTV subscribers. "It's so offensive, obtrusive and time-consuming," read one of dozens of postings to a WebTV newsgroup. "Shame on you. Take them off NOW."
Many of the postings expressed suspicion that the ads represent the influence of Microsoft, which purchased WebTV for $425 million earlier this year.
Indeed, this marks the second time that Microsoft has been involved in a squabble over selling ads that appear alongside other companies' content.
Microsoft was sued by Ticketmaster Corp. last April and was accused of "electronic piracy" by selling ads around links to Ticketmaster's Web site without permission.
In another well-known case, six media companies, including Times Mirror Corp., parent of the Los Angeles Times, sued TotalNews Inc. earlier this year, accusing the Arizona-based start-up of framing ads around news content supplied by others. TotalNews agreed to halt the practice in a subsequent settlement.
Several lawyers who handled these and other high-profile cases on the Net said WebTV could be in violation of laws that prohibit unfair competition and interference with prospective customer relationships.
"If somebody was superimposing a competitive ad on my site, I wouldn't be happy about it," said Bruce Keller, a New York attorney who represented the plaintiffs in the TotalNews case.
WebTV's Poletto said the company allows advertisers to target only general categories, not specific Internet addresses, even though the company's own Web site said advertisers can "target by Web site URL."
He also said the ads appear only during the "dead time" between page views and are downloaded while users are viewing one page so the ads don't slow down access rates when users jump to another page.
Poletto acknowledged the company has fielded complaints from subscribers but said they were "very minimal. I was expecting a lot more feedback than I've had."
WebTV is not the first company to employ the "interstitial" ads. Well-known Web sites, such as the trivia game "You Don't Know Jack" (www.berksys.com/products/jack/jack.html), insert spots between their own pages as a sort of commercial break. But WebTV is believed to be the first to insert the ads between pages created and maintained by others.
Experts said the new ads could mark the beginning of a hard-fought debate over who controls the dead air of the Internet--companies that provide connections or companies that create the content.
"Maybe the Web will become more like TV and interstitials will have a place," Janal said. "But I think companies that do interstitials are in for a strong consumer backlash."