To explain what spyware is, we'll first explain what adware is. Adware is 'freeware', whereby ads are embedded in the program. These ads will show up when you open the program. Most adware authors provide the free version with ads and a registered version whereby the ads are disabled. As such, you the user have the choice, you either use the freeware with ads served or you purchase the registered version.

Spyware, however, is published as 'freeware' or as 'adware', but the fact that an analysis and tracking program (which reports your activities to the advertising providers' web site for storage and analysis, the 'spyware' agent) is also installed on your system when you install this so-called 'freeware', is usually not mentioned. Even though the name may indicate so, spyware is not an illegal type of software in any way (see PMC's analogy). But what the adware and spyware providers do with the collected information and what they're going to 'feed' you with, is beyond your control.

Hardware spyware

Nowadays spyware can even be found accompanying hardware you buy and install in your system. Yes, the software you install with hardware purchased from certain manufacturers (some even well-known) may include spyware agents.

Spyware categories

• Adware networks
  The backbone for big time spyware is ad-serving networks that pay publishers of games, utilities and music/video players per download, to include their ad serving programs. Ad serving networks are DoubleClick, Web3000, Radiate, SaveNow and GAIN.
• Stalking-horses
  A number of programs that enable the adware networks to function on desktops are bundled in many popular programs and often (not always!) presented in installation disclosure screens as desirable add-ons to their Trojan horse hosts. All collect information. Included in Top Text, Cydoor, OnFlow, Medialoads, Delfin, WebHancer and New.net.
• Trojan horses
  These popular Internet downloads usually come with the ad serving network basic software and at least one stalking horse. Included in KaZaa, Grokster, Morpheus, Limewire, AudioGalaxy, iMesh and DivX. 
• Backdoor Santa’s
  Stand-alone programs that incorporate similar approaches have no links to ad serving networks and collect information from users. Included in Alexa, Hotbar, Comet Cursor, eWallet, CuteFTP and BonziBuddy.
• Cookies
  Netscape Navigator and Internet Explorer will still send out existing cookies even after disabling cookies in the browser settings. You must manually delete any/all cookie files on your system to eliminate being tracked by third-party ad networks or spyware or adware providers.

Spyware threats

 Spyware threats come in different flavors. The spyware agent can be malware (modifies system settings, and can perform undesirable tasks on your system), hijacker (redirects your browser to web sites), dialer (dials a service, most likely porn sites, for which you are billed!), Trojan horse (is attached to a program, and performs undesirable tasks on your system), collectware (collects information about you and your surfing habits).

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