Don’t look now, but the adware industry is trying to shed its pariah status – the lowly image it has among not only consumers and privacy advocates, but also some investors.

The first move came as WhenU.com, a leading adware company, announced last week that it closed a $15 million round of venture capital funding, led by Trident Capital. That announcement came a week after the Wall Street Journal reported that Microsoft was in talks to purchase Claria, another leading adware provider, which, in an effort to gain traction in more traditional markets, said it would stop distributing its software on the Kazaa file-sharing network. Meanwhile, adware firm 180solutions announced it was alerting consumers that have its software installed and offering them specific instructions on how to remove it.

Of course, such initiatives didn’t come as a result of the adware industry finding digital religion. Instead, these developments signal that the industry is making an effort to repair its seriously damaged reputation – and thereby grow its share of the multi-billion dollar online ad industry.

Adware’s growth has risen almost in tandem with peer-to-peer (P2P) networks, since, until recently, many adware software companies paid to have their software coupled with these programs. Adware companies would send pop-up ads to users whether they were using the P2P network or not, and would track their online behavior, targeting them with ads relevant to the sites they visited.

But consumers have become more vocal in their opposition to dubious adware and spyware practices. A survey released on July 6 by the Pew Internet and American Life Project found that nine out of ten Internet users said they’ve changed their online habits to avoid spyware. Furthermore, Download.com, a leading site for downloading programs, tightened its software policy in April – no adware or spyware is now allowed on any program distributed through its site

The U.S. government also has gotten involved, with a Senate anti-spyware bill, the SPY BLOCK (Software Principles Yielding Better Levels of Consumer Knowledge) Act (S. 2145), currently in committee, and a correlating anti-spyware bill, H.R. 2929, making its way through the House.

It’s not simply consumer angst and political pressure, however, that have forced adware companies to make an about-face. Much of this decision is being driven by the bottom line. Adware companies have seen a negative business impact as a result of image issues. Claria, for instance, had to withdraw its planned IPO last year when the market gave the company a chilly reception, in large part due to adware backlash.

What’s more, many consumer privacy advocates are unconvinced by the industry’s efforts and remain determined to fight adware.

“I don’t think the right way to view recent events is as any substantial resurgence for adware companies,” says Ben Edelman, a noted spyware critic and consumer advocate. “These companies are PR masters, but the fact is, users hate their software.”

For years, privacy advocates and consumers’ rights organizations have raised several concerns with the adware industry. Consumers are often unaware that they’ve downloaded adware onto their systems, since it’s packaged among other programs. Also, it’s often difficult to remove adware. And there’s the often murky or non-existent disclosure of what information is tracked and to whom it is sent.

“I remain skeptical of this industry,” says Chris Hoofnagle, director and senior counsel for the Electronic Privacy Information Center. “Most of the changes they have made focus on PR rather than substantive privacy reform.”

Bill Day, WhenU.com’s CEO, says he was well aware of consumer and privacy concerns when he joined the company in October 2004. Like most adware companies, it attaches its adware to free downloadable games and other consumer-focused software. Since then, he says he’s worked hard to address these issues and to change the way his company operates.

“Installation is now very clear,” Day says. “Branding that the ads are from us is now very clear. It’s very easy to uninstall now.” (Historically, one of the major consumer complaints against adware companies is that they have not included “uninstall” files with the program, and hidden the program on a user’s hard drive, making it very difficult to find and erase the program.)

Each application now has an 800 number on it, which consumers can call if they have complaints about the ad or want to get rid of the software.

“We’re only getting 10-20 calls per day on that line,” Day says.

Trevor Hughes, executive director of The Network Advertising Initiative, a trade association for traditional, banner-based Internet advertisers, lauds the adware industry’s recent initiatives, but also says much more is needed before the industry sheds its negative image.

“These companies need to distinguish themselves more clearly from spyware firms,” Hughes says. “The entire industry needs to put down its competitive nature and define some best practices and standards…They need to put some teeth into those standards and then take them out to the world.”

Day agrees that strict best practices are needed across the industry if adware companies are to continue their recent momentum. Even with the continued pressure from privacy advocates and consumer groups, though, he’s bullish about WhenU and the industry’s prospects. “The company has gone through a lot of scrutiny recently, and we’ve survived,” he says.