Economics of spam

As seen on Freakonomics:

Since last Wednesday, the torrent of junk e-mail coursing through the internet has been slowed dramatically, with 40 percent or more of it cut off at the source.

The source of all that spam? San Jose, California. That’s where a group of servers responsible for much of the world’s spam had been operating until they were severed from the internet last week.

The servers had controlled some of the world’s biggest botnets, the legions of hijacked personal computers that flood your inbox with ads for male-enhancement drugs.

The shutdown could be a major blow to spammers’ finances. Every day the botnets remain down means revenue lost. But how much revenue?

Nobody knows for sure, but a team of computer scientists at U.C. Berkeley with an ingenious plan recently reported the first-ever hard numbers on the economics of spam.

After taking over part of an existing botnet, the Berkeley team waged its own spam campaign, sending out almost 350 million pieces of junk e-mail over 26 days. By the end of their trial, they had netted a whopping 28 sales. That’s about one response for every 12.5 million e-mails sent, a conversion rate of less than 0.00001 percent.

They estimate the yearly revenue of the botnet they had infiltrated at around $3.5 million (their full paper is available here).

To put that in perspective, spam costs U.S. companies $33 billion a year in lost productivity, according to one estimate, and $100 billion worldwide.

That means it seems likely the spam industry generates far less wealth than it destroys.

But the parasitic scam will remain with us as long as one in every 12 million or so of us buys the product they’ve been spammed for.

So what are the characteristics of the 28 good souls who decide to click on through and make a purchase?

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