Adware, Shareware, and Consumer Privacy

Abstract

Programmers can distribute new software to online users either for a fee as shareware or bundle it with advertising banners and distribute it for free as adware. In this paper we study the programmers' choice between these two modes of distribution in the context of a model that take explicit account of the strategic interaction between programmers who develop software, firms that advertise their products through ad banners, and consumers who buy software and consumer products. Adware allows advertisers to send targeted information to specific consumers and may therefore improve their purchasing decisions. At the same time, adware also raises privacy concerns. We study the effect of programmers' choice between shareware and adware on consumers' welfare through its effect on the beneficial information that consumers receive about consumers products on the one hand and their loss of privacy on the other hand. We also examine the implications of improvements in the technology of ad banners and the desirability of bans on the use of adware.