Already contending with a weak advertising market, Web publishers have another beast to worry about: Gator.

The software company, known for hawking pop-up ads that let companies advertise on rival sites, is working a new variation on the theme–selling ads designed to block banners on sites such as Yahoo with pop-ups of the exact same dimensions, completely obscuring the original ad. The pop-ups hover over the banners even when the Web visitor scrolls down the page, making it even more difficult to discern that the visible ad is a substitute.

“It’s like getting Time magazine in the mailbox and somebody has pulled it out and pasted their own ad over the ones inside,” said John Keck, media director for Foote Cone & Belding’s interactive division.

And because Gator can monitor a person’s surfing habits across the Web, the technology can learn a person’s tastes and deliver related advertising on any site, rather than serve ads based on general site demographics.

For example, if a Gator user had visited the Volkswagen Web site in the past day, the service might show him a banner ad for car insurance while he’s surfing on the ESPN Web site.

Gator’s banner would appear over the banner space on ESPN’s site “two seconds after the page loaded,” said Scott Eagle, chief marketing officer for Gator.

The technique is the latest in an arsenal of guerrilla marketing tactics being pushed by developers of some free Web downloads, which include Gator and some popular peer-to-peer file-swapping companies. Such applications, which are increasingly bundled with software code known as plug-ins, help advertisers place highly targeted messages on Web surfers’ computer screens.

The latest trick pits advertiser against advertiser on their own war-torn battlefield: the banner. It could also cause additional concern for executives at Web sites suffering from a severe downturn in ad revenue.

One of the Web’s first and most popular ad formats, banners were designed to offer an unobtrusive link that interested readers could click on to get more information about a product or service, usually on the advertiser’s own Web site. But they didn’t accomplish what advertisers had expected of them: The vast majority of surfers do not click on them. As a result, publishers have turned to bigger and more invasive formats such as pop-ups to squeeze more responses from visitors–and persuade reluctant marketers to once again advertise on the Web.

Gator, among others, is aggressively courting consumers and advertisers. The company gives away an online helper application that manages passwords and user IDs and has millions of active users. While Gator is free, the company that developed it sells keywords to marketers that lets them launch pop-ups at opportune moments. For example, a shopper visiting Staples.com might, while surfing the site, receive a promotion for rival Office Depot.

Now the company is selling “pop-up banners,” delivered to fit exactly over existing banner space on any site.

Is it legal?

Although Gator executives say the practice is a service for consumers and is fully disclosed when they install the software, legal experts say that because Gator is profiting from the sale of advertising that feeds off another Web site’s advertising, it could be in a sticky legal situation.

The company is “preventing you from seeing the critical ad space that the site relies on for advertising–this is an act of unfair competition,” said Michael Overing, an attorney and adjunct faculty member at the Annenberg School for Communication at the University of Southern California.

“It’s like you’re driving down (the highway), and you’re wearing special sunglasses, and you look at a billboard advertising Coca-Cola–but through the sunglasses it says ‘Drink 7-Up.’ Is that an act of unfair competition?

“I think it depends upon on what the consumer understood when they received the sunglasses. Or in the case of a pop-up ad that covers another ad, did the consumer understand this was going to occur when they downloaded the program? If the consumer understood and consented, there may not be a claim,” Overing said.

“This is the kind of stuff that gets to the nitty-gritty of what the Web can and can’t do,” he added.

Similar issues arose with news publisher TotalNews, which framed the content of other Web publishers to retain readers and sell advertising within the frames. After several publishers took the company to court, it settled the case by giving consumers the right to block the frames.

Industry experts say that what Gator is doing is more egregious because in effect it is tampering with a Web site’s source of revenue.

“I can’t see anyone sitting around and saying that’s OK,” Paul Grabowicz, new media program director at the Graduate School of Journalism at the University of California at Berkeley.

“It’s pretty clear that in the name of the consumers they are now hijacking the advertising of a Web site. Obviously somebody is going to strenuously object to that and probably in court.”

In addition, the strategy could threaten an already hobbled Web advertising market.

“I would have some real problems” with an advertiser intruding on inventory sold to Sony, said Bob Gruters, director of media at Sony. “These types of pop-up units don’t engage anybody, don’t bring the consumer into my family–they’re extremely intrusive and are…counterproductive to what we would do.”

Gruters said that because banners are becoming “like wallpaper,” Sony looks to tap opportunities where it can create a relationship with the consumer. “I would be very upset if I know a competitor could come into an area that I were branding,” he said. “It’s like you and I having a dialogue and the operator cuts in on the line.”

Insight into consumers

Gator’s Eagle says that the company’s tactics are justified because consumers invite the company to serve pop-ups when they install its software. In addition, he said advertisers are gravitating toward it because the results are much better than those for traditional banners.

“The technology is not targeting a given site. It’s targeting sites that do have banner ads,” he said. “We have much greater insight into what consumers do across the Web (than Yahoo and others). Yahoo has no visibility and Gator does.”

Despite such claims, many media executives say they have mixed feelings about the potential benefits and minefields inherent in such marketing. Some say they are familiar with other companies attempting to cannabilize banner space from others, but many say they would be reluctant to do so.

“Not only do I have to consider the ramifications from the legal perspective for my clients but I also have to pay attention to my relationships with the publisher of the site,” said Adam Gerber, media director for the DigitalEdge.

“If I’m known as an agency that ambushes Web publishers’ pre-existing advertising, it could put the relationships we have with mainstream publishers at risk and that could be a detriment to my clients.”

Others are stuck on the ethics of such advertising.

“People like me buy Yahoo thinking that when that page is loaded, people have seen my ad,” said Charles Pinkerton, senior vice president of interactive marketing and media for Martin Interactive, which plans and places advertising for such clients as UPS, Olympus and Coca-Cola.

“At a minimum, it’s a bit of an ethical problem.”

Nevertheless, many companies are seeking to attract advertisers with tools that insert ads into Web pages without the consent of Web publishers.

The maker of TopText, an application bundled with popular file-sharing programs such as iMesh and Kazaa, sells advertising that links to text on Web pages across the Internet. San Francisco-based eZula sells the rights to more than 7,000 keywords, such as real estate and travel, and then links those words to an advertiser’s site on any Web page that the consumer visits.

Microsoft has developed similar technology, called Smart Tags, which link keywords to pages of Microsoft’s choice. The software giant had plans to include the tags in the browser that will be bundled with the upcoming release of Windows XP, but reversed course after facing a wave of criticism.

Installing and uninstalling

Companies such as Gator say that because consumers agree to install the software on their computers, it’s perfectly legal to deliver advertising superimposed on other Web sites. Consumers can move the banners to view the original site’s ads or click on a tiny X to close it.

However, some consumers have complained about software such as Gator because it often comes installed with little notification. For example, plug-ins that piggyback on downloads may bury such disclosures deep within dense licensing agreements.

Yahoo representatives declined to comment on Gator’s ability to block ads on its network of sites, which consistently ranks as the Web’s most popular destination.

Gator software has also been criticized because it can be difficult to uninstall. For example, when consumers want to remove Gator from their computers they must uninstall two programs: Gator and Offer Companion, the program that controls the advertisements.

Some media executives say they are concerned that such tactics will undermine efforts in the industry to focus on online advertising’s positives.

“Is that a good thing? Somehow I’m not so sure. It’s clever, if it gets a response. But is that what we should be doing as an industry?” Keck said.

For his part, Gator’s Eagle said he believes the service fills a gap in online advertising that has proved frustrating for both advertisers and consumers.

Marketers are already feeling cheated by banner advertising because it doesn’t deliver qualified results, he said, while consumers are hit with ads that do not interest them. His company’s technology seeks to improve those results by targeting consumers with ads for products that are more likely to get a particular individual to respond.

“Advertisers feel that they’re getting gypped by a 0.2 percent success rate for banners anyway,” said Eagle, adding that “the amount of pop-up banners we’re doing juxtaposed to the gazillions of banners on the Web is a tiny fraction.”

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