More than ten million customers of the UK's three largest ISPs will have their browsing habits sold to a company with roots in the murky world of spyware.

The deal has sparked fears over privacy, but today Phorm, the firm behind the new advertising system, strongly rejected such concerns.

BT, Virgin Media, and Carphone Warehouse have agreed to feed data on their subscribers' web activities to Phorm. Data will be fed into the Open Internet Exchange, Phorm's advertising network, where advertisers will pay to target interest groups. Frequent visits to the BBC's Top Gear site might result in being served up more car ads, for example.

In exchange, the ISP trio will get a cut of new revenue. Analysts estimate BT's cut will be £85m in 2010.

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There's no word on when BT, Virgin Media and Carphone Warehouse will begin sending customers' browsing information; but now that the broadband business is a high-volume, low-margin business, it's no surprise the providers are hungry for extra cash flow. Their choice of partner is ringing alarm bells in some quarters, however.

Phorm is run by Kent Ertegrul, a serial entrepreneur whose past ventures include selling joyrides on Russian fighter jets. Previously, his most notable foray online was as the founder of PeopleOnPage, an ad network that operated earlier in the decade and which was blacklisted as spyware by the likes of Symantec and F-Secure.

Security firm F-Secure describes PeopleOnPage's software here.

It says: "The spyware collects a user's browsing habits and system information and sends it back to the ContextPlus servers. Targeted pop-up advertisements are displayed while browsing the web.

"Each installation is given a unique ID, which is sent to the ContextPlus server to request a pop-up advertisement." ContextPlus was the rootkit that PeopleOnPage used to harvest data and hide its presence.

The similarities between this business model and that which will be kicked off by Phorm in the coming months are striking.

Phorm, under its previous name 121Media, floated on AIM in December 2004.

The accompanying announcement (pdf) explained how it envisaged its relationship with ISPs and their customers:

The company's business model revolves around distributing its PageSense technology to as many users as possible and showing users as many advertisements as possible, without causing negative reaction, to maximise response.

121Media currently acquires most of its users by integrating its PageSense Desktop technology with consumer software products known as distribution applications, which are offered free of charge to internet users in exchange for their permission to display advertisements.

PageSense Javascript can be embedded by a variety of partners, such as Internet Service Providers, serving pages to those connecting to the internet through them.

Sounds quite familiar, doesn't it? The difference between 121Media/Phorm and PeopleOnPage is that the newer company buys its targets direct from ISPs, rather than persuading people to download spyware. It aims to make its money strictly from legit advertisers and publishers, avoiding the sort of operators that gave pop-up advertising such a bad name in the early noughties.

Full article here.