One of Britain's biggest technology success stories, Blinkx, saw its shares collapse by as much as 50 per cent yesterday after it was accused by a Harvard professor of "sneaking on to users' computers and defrauding advertisers".
In a blog post on his website, Benjamin Edelman, an associate professor at Harvard Business School, said he had "grave doubts" about the video advertising firm, due to the alleged "long-standing practices" of two businesses acquired by Blinkx. He claimed that Zango and AdOn are using "deceptive" techniques to install third-party advertising software on people's computers, which then target the user with unwanted pop-up ads.
He alleged that its "pop-ups perpetrate various advertising fraud, most notably 'lead stealing'" – which forces online retailers to pay commission on sales not generated by the pop-ups.
Mr Edelman also claimed that the business inflated its traffic by "forcing users to visit the Blinkx site" and questioned the quality of online traffic generated by portions of the business.
"I would not be surprised to see outsized short-term profits in adware, forced-visit traffic, and other black-hat practices of the sort used by some of the companies Blinkx has acquired," Mr Edelman said.
Blinkx, founded in Cambridge in 2004 but now headquartered in San Francisco, had a valuation of $1.2bn (£728m) at its height. The company connects advertisers to online viewers and is based on the world's most advanced video engine, based on technology conceived at Cambridge University".
It has media partnerships with ABC, NBC, Condé Nast and Bloomberg. The company reported half-year revenue of $112m in November, up 36 per cent year on year, while pre-tax profits jumped 335 per cent to $10.7m.
Shares in the AIM-listed company collapsed yesterday, knocking as much as £400m off the company's value, but recovered slightly after a note from Blinkx's joint house broker, Citigroup, called the sell-off a "significant over-reaction".
The broker said: "This is a company where general levels of understanding (and therefore comfort in) the business model are low. Our own view is that Blinkx's business model is no more unusual than that of many ad tech companies."
Blinkx said it "strongly refutes the assertions made and conclusions drawn in the blog" and stressed that "there has been no material change to the operational and financial performance or outlook for the business".
The company also claimed that Mr Edelman was "paid by unnamed third parties" to write the article. Mr Edelman told The Independent that he was paid to research Blinkx by a client, but was not paid to write his article, adding that he "negotiated for and received the right to tell others too. Having figured this out, I didn't want to keep it secret".
Blinkx's founder and current chief strategy officer Suranga Chandratillake was earlier this month appointed a partner at the London-based venture capital firm Balderton Capital. Balderton, whose previous investments include LoveFilm and Betfair, declined to comment on the allegations.
Blinkx was originally spun out of Autonomy, an enterprise software firm where Mr Chandratillake was chief technology officer.
Blinkx closed down 56.75p at 118.75p.Reuse content