The Economics of Spam
By Sam Vaknin
Monday, December 13, 2004; 10:40pm EST
Tennessee resident K. C. "Khan" Smith owes the internet service
provider EarthLink $24 million. According to the CNN, last August he
was slapped with a lawsuit accusing him of violating federal and
state Racketeering Influenced and Corrupt Organizations (RICO)
statutes, the federal Computer Fraud and Abuse Act of 1984, the
federal Electronic Communications Privacy Act of 1986 and numerous
other state laws. On July 19 - having failed to appear in court -
the judge ruled against him. Mr. Smith is a spammer.
Brightmail, a vendor of e-mail filters and anti-spam applications
warned that close to 5 million spam "attacks" or "bursts" occurred
last month and that spam has mushroomed 450 percent since June last
year. PC World concurs. Between one seventh and one half of all
e-mail messages are spam - unsolicited and intrusive commercial ads,
mostly concerned with sex, scams, get rich quick schemes, financial
services and products, and health articles of dubious provenance.
The messages are sent from spoofed or fake e-mail addresses. Some
spammers hack into unsecured servers - mainly in China and Korea -
to relay their missives anonymously.
Spam is an industry. Mass e-mailers maintain lists of e-mail
addresses, often "harvested" by spamware bots - specialized computer
applications - from Web sites. These lists are rented out or sold to
marketers who use bulk mail services. They come cheap - c. $100 for
10 million addresses. Bulk mailers provide servers and bandwidth,
charging c. $300 per million messages sent.
As spam recipients become more inured, ISP's less tolerant, and both
more litigious - spammers multiply their efforts in order to
maintain the same response rate. Spam works. It is not universally
unwanted - which makes it tricky to outlaw. It elicits between 0.1
and 1 percent in positive follow ups, depending on the message. Many
Jupiter Media Matrix predicted last year that the number of spam
messages annually received by a typical Internet user is bound to
double to 1400 and spending on legitimate e-mail marketing will
reach $9.4 billion by 2006 - compared to $1 billion in 2001.
Forrester Research pegs the number at $4.8 billion next year.
More than 2.3 billion spam messages are sent daily. eMarketer puts
the figures a lot lower at 76 billion messages this year. By 2006,
daily spam output will soar to c. 15 billion missives, says Radicati
Group. Jupiter projects a more modest 268 billion annual messages by
2005. An average communication costs the spammer 0.00032 cents.
PC World quotes the European Union as pegging the bandwidth costs of
spam worldwide at $8-10 billion annually. Other damages include
server crashes, time spent purging unwanted messages, lower
productivity, aggravation, and increased cost of Internet access.
Inevitably, the spam industry gave rise to an anti-spam industry.
According to a Radicati Group report titled "Anti-virus, anti-spam,
and content filtering market trends 2002-2006", anti-spam revenues
are projected to exceed $88 million this year - and more than double
by 2006. List blockers, report and complaint generators, advocacy
groups, registers of known spammers, and spam filters all
proliferate. The Wall Street Journal reported in its June 25 issue
about a resurgence of anti-spam startups financed by eager venture
ISP's are bent on preventing abuse - reported by victims - by
expunging the accounts of spammers. But the latter simply switch
ISP's or sign on with free services like Hotmail and Yahoo! Barriers
to entry are getting lower by the day as the costs of hardware,
software, and communications plummet.
The use of e-mail and broadband connections by the general
population is spreading. Hundreds of thousands of
technologically-savvy operators have joined the market in the last
two years, as the dotcom bubble burst. Still, Steve Linford of the
UK-based Spamhaus.org insists that most spam emanates from c. 80
Now, according to Jupiter Media, ISP's and portals are poised to
begin to charge advertisers in a tier-based system, replete with
premium services. Writing back in 1998, Bill Gates described a
solution also espoused by Esther Dyson, chair of the Electronic
"As I first described in my book 'The Road Ahead' in 1995, I expect
that eventually you'll be paid to read unsolicited e-mail. You'll
tell your e-mail program to discard all unsolicited messages that
don't offer an amount of money that you'll choose. If you open a
paid message and discover it's from a long-lost friend or somebody
else who has a legitimate reason to contact you, you'll be able to
cancel the payment. Otherwise, you'll be paid for your time."
Subscribers may not be appreciative of the joint ventures between
gatekeepers and inbox clutterers. Moreover, dominant ISP's, such as
AT&T and PSINet have recurrently been accused of knowingly
collaborating with spammers. ISP's rely on the data traffic that
spam generates for their revenues in an ever-harsher business
The Financial Times and others described how WorldCom refuses to ban
the sale of spamware over its network, claiming that it does not
regulate content. When "pink" (the color of canned spam) contracts
came to light, the implicated ISP's blame the whole affair on rogue
PC World begs to differ:
"Ronnie Scelson, a self-described spammer who signed such a contract
with PSInet, (says) that backbone providers are more than happy to
do business with bulk e-mailers. 'I've signed up with the biggest 50
carriers two or three times', says Scelson ... The Louisiana-based
spammer claims to send 84 million commercial e-mail messages a day
over his three 45-megabit-per-second DS3 circuits. 'If you were
getting $40,000 a month for each circuit', Scelson asks, 'would you
want to shut me down?'"
The line between permission-based or "opt-in" e-mail marketing and
spam is getting thinner by the day. Some list resellers guarantee
the consensual nature of their wares. According to the Direct
Marketing Association's guidelines, quoted by PC World, not
responding to an unsolicited e-mail amounts to "opting-in" - a
marketing strategy known as "opting out". Most experts, though,
strongly urge spam victims not to respond to spammers, lest their
e-mail address is confirmed.
But spam is crossing technological boundaries. Japan has just
legislated against wireless SMS spam targeted at hapless mobile
phone users. Four states in the USA as well as the European
parliament are following suit. Expensive and slow connections make
this kind of spam particularly resented. Still, according to
Britain's Mobile Channel, a mobile advertising company quoted by
"The Economist", SMS advertising - a novelty - attracts a 10-20
percent response rate - compared to direct mail's 1-3 percent.
Net identification systems - like Microsoft's Passport and the one
proposed by Liberty Alliance - will make it even easier for
marketers to target prospects.
The reaction to spam can be described only as mass hysteria.
Reporting someone as a spammer - even when he is not - has become a
favorite pastime of vengeful, self-appointed, vigilante
"cyber-cops". Perfectly legitimate, opt-in, email marketing
businesses often find themselves in one or more black lists - their
reputation and business ruined.
In January, CMGI-owned Yesmail was awarded a temporary restraining
order against MAPS - Mail Abuse Prevention System - forbidding it to
place the reputable e-mail marketer on its Real-time Blackhole list.
The case was settled out of court.
Harris Interactive, a large online opinion polling company, sued not
only MAPS, but ISP's who blocked its email messages when it found
itself included in MAPS' Blackhole. Their CEO accused one of their
competitors for the allegations that led to Harris' inclusion in the
Coupled with other pernicious phenomena, such as viruses, the very
foundation of the Internet as a fun, relatively safe, mode of
communication and data acquisition is at stake.
Spammers, it emerges, have their own organizations. NOIC - the
National Organization of Internet Commerce threatened to post to its
Web site the e-mail addresses of millions of AOL members. AOL has
aggressive anti-spamming policies. "AOL is blocking bulk email
because it wants the advertising revenues for itself (by selling
pop-up ads)" the president of NOIC, Damien Melle, complained to
Spam is a classic "free rider" problem. For any given individual,
the cost of blocking a spammer far outweighs the benefits. It is
cheaper and easier to hit the "delete" key. Individuals, therefore,
prefer to let others do the job and enjoy the outcome - the public
good of a spam-free Internet. They cannot be left out of the
benefits of such an aftermath - public goods are, by definition,
"non-excludable". Nor is a public good diminished by a growing
number of "non-rival" users.
Such a situation resembles a market failure and requires government
intervention through legislation and enforcement. The FTC - the US
Federal Trade Commission - has taken legal action against more than
100 spammers for promoting scams and fraudulent goods and services.
"Project Mailbox" is an anti-spam collaboration between American law
enforcement agencies and the private sector. Non government
organizations have entered the fray, as have lobbying groups, such
as CAUCE - the Coalition Against Unsolicited Commercial E-mail.
But Congress is curiously reluctant to enact stringent laws against
spam. Reasons cited are free speech, limits on state powers to
regulate commerce, avoiding unfair restrictions on trade, and the
interests of small business. The courts equivocate as well. In some
cases - e.g., Missouri vs. American Blast Fax - US courts found
"that the provision prohibiting the sending of unsolicited
advertisements is unconstitutional".
According to Spamlaws.com, the 107th Congress discussed these laws
but never enacted them:
Unsolicited Commercial Electronic Mail Act of 2001 (H.R. 95),
Wireless Telephone Spam Protection Act (H.R. 113), Anti-Spamming Act
of 2001 (H.R. 718), Anti-Spamming Act of 2001 (H.R. 1017), Who Is
E-Mailing Our Kids Act (H.R. 1846), Protect Children From E-Mail
Smut Act of 2001 (H.R. 2472), Netizens Protection Act of 2001 (H.R.
3146), "CAN SPAM" Act of 2001 (S. 630).
Anti-spam laws fared no better in the 106th Congress. Some of the
states have picked up the slack. Arkansas, California, Colorado,
Connecticut, Delaware, Idaho, Illinois, Iowa, Kansas, Louisiana,
Maryland, Minnesota, Missouri, Nevada, North Carolina, Oklahoma,
Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virginia,
Washington, West Virginia, and Wisconsin.
The situation is no better across the pond. The European parliament
decided last year to allow each member country to enact its own spam
laws, thus avoiding a continent-wide directive and directly
confronting the communications ministers of the union.
Paradoxically, it also decided, three months ago, to restrict SMS
spam. Confusion clearly reigns. Finally, last month, it adopted
strong anti-spam provisions as part of a Directive on Data
About the Author
Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, and eBookWeb , and Bellaonline, and as a United Press
International (UPI) Senior Business Correspondent. He is the the
editor of mental health and Central East Europe categories in The
Open Directory and Suite101.