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TinotopiaLog → The Economic Fallacy of Spam Redux ( 7 May 2003)
Wednesday 07 May 2003

The Economic Fallacy of Spam Redux

Yesterday, I wrote about my skepticism about the business of spamming. Specifically, I challenged the common assertion that spam makes money despite abysmal response rates, and I mentioned that I was disappointed in the Wall Street Journal for accepting this assertion without comment.

Today’s Journal carries a story (subscription required — this link might work if you’re not a subscriber) on the front page about Earthlink’s attempts to track down a particularly obnoxious spammer.

Earthlink alleges that over a year, Howard Carmack, of Buffalo, NY, opened 343 Earthlink accounts using stolen or fraudulent credit card numbers, and that he sent approximately 825 million spam e-mails.

[… In] the fall of 2002, EarthLink filed an amended complaint adding the names of individuals who owned phone numbers or post-office boxes affiliated with the spam. Among those was Angelo Tirico, a Florida man who was selling “Mother Nature’s Wonder Pill,” an herbal stimulant, over the Internet.

Mr. Tirico told EarthLink investigators that he found a man named Howard Carmack on a Web site promoting spamming services in May 2002, according to a lawsuit filed by EarthLink. He said Mr. Carmack advertised himself as a “mailer with extra bandwidth looking for a project to mail.”

After a series of e-mails and phone calls, Mr. Tirico said, he agreed to pay Mr. Carmack $10 for every sale of the herbal stimulant he generated. Mr. Tirico said Mr. Carmack bragged that he had sent out “over 10 million” spams on his behalf. All those spams generated a mere 36 sales, and he paid Mr. Carmack $360 for his efforts. But the huge volumes of spam were generating tons of complaints, Mr. Tirico says, so he asked Mr. Carmack to stop spamming.

So for sending out “over 10 million” spams, you get $360. The article doesn’t say anything about how much money Mr. Tirico made from selling the actual product, but it can’t have been worth the trouble, because he gave up the practice.

If we assume that Earthlink’s total of 825 million e-mails is correct, and if we assume that Mother Nature’s Wonder Pill is a representative product in terms of response rates, and that he actually sent out ten million e-mails on Mother Nature’s behalf, we can conclude that Mr. Carmack grossed about $29,700 in the last year. Out of that, he’s got to pay for his time in setting up new Earthlink accounts (nearly one new account every day), he’s got to acquire stolen or fraudulent credit card numbers, he’s got to rent mailboxes, he’s got to buy computers, he’s got to buy or develop software, he’s got to pay his phone bills, and he’s got to spend money on marketing his own services to others.

Oh, and in doing all this, he exposes himself to enormous civil and criminal liability. For $30,000 a year. How is 36-year-old Mr. Carmack doing these days?

Mr. Carmack is a body-builder and was a high-school football star, according to his uncle, Joseph. Relatives and neighbors say Mr. Carmack lives with his mother in a run-down neighborhood of Buffalo, near the state-university campus, in a modest brick house with sky-blue linoleum siding.

He’s living with his mother in a run-down neighborhood.

There’s a long tradition of doing illegal things for money. It’s possible to get quite rich by doing work that’s illegal or only tenuously legal. Classically, though, this work pays extraordinarily well, because of the legal risks involved. This is why Tony Soprano’s house is so large; he makes a lot of money for work that’s not all that sophisticated because he’s always running the risk that the FBI will show up at his door with a warrant. He’s got, besides the large house and the nice cars and that boat, thousands of dollars in cash hidden around the place for emergencies.

Not only does it look like Mr. Carmack isn’t getting compensation for his legal risks, he apparently isn’t even making enough money to move out of his mother’s house.

I have to conclude that most spammers are at least a little stupid, and that they underestimate the cost of the risks they’re taking. This lack of compensation for risk is the only thing that makes spam remotely possible these days. Never mind the cost to society in lost productivity and wasted money on scams; the cost to the spammers themselves isn’t being recouped by spam.

The Journal doesn’t explicitly point this out in today’s story, but at least this time the facts are all there, and the reader can draw his own conclusion: spam doesn’t pay.

Posted by tino at 14:41 7.05.03
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I think people should know to be aware of all medications, but I think it is up to them wheather they would like to take a particular drug. Only you know what is best for your body. The thing I look at more overweight people eat themselves to death, because nothing that they have tried really work like other medications that are taken off the market.

Posted by: Amelia Ballew at September 8, 2003 11:37 PM