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Ad-based social media games under fire

A little-known sector of the online social games industry has come under fire over accusations of deceptive and fraudulent advertising.

The concerns have been raised over so-called "offers marketing," under which free virtual currency or virtual goods are offered to people who play games linked to social networks like Facebook, in exchange for the players' accepting certain marketing offers-–for example, subscribing to Netflix, or filling out a market research survey.

In recent weeks, offers companies have come under attack in the blogosphere, with accusations that many companies trick consumers into unwittingly signing up for subscriptions or other purchases.

As an example, TechCrunch posted an offer that ran with an "IQ Quiz" where people entered their cellphone number to receive quiz results and were unknowingly charged $9.99. A class-action lawsuit was filed on behalf of game players against Facebook, Zynga Inc. and others, claiming the companies ran fraudulent offers.

The companies providing these services, as well as the gaming companies who rely on their revenue and the investors who back them, are sorting through the damage to see where the sector is headed.

The controversy has caused Facebook to take action against some advertisers, including disabling some ad networks and suspending dozens of games. This has caused many game developers to cut back on these offers until they can figure out a policy that works.

The vast majority of game players, about 90% according to some estimates, play social games for free, meaning that about 10% of users bring in revenue. Of that 10%, offers make up anywhere from 20% to 50% of game publishers' overall revenue, according to several industry experts. In 'Freakout Mode' Murtaza Hussain, president and co-founder of offers company Peanut Labs Inc., said he had spoken with 15 or so developers who had all seen offers revenue down sharply, up to 50%.

"Everyone is in sort of a freakout mode," Hussain said."They're absolutely concerned about [the controversy], but what they are more concerned about is Facebook shutting down their games. Between the two evils (losing revenue or losing a spot on Facebook), a number of developers decided to shut out their offers completely."

Zynga, the largest social gaming company with 100 million monthly unique users, pulled all of its offers marketing from its games in early November after the controversy arose, and is still evaluating how to reincorporate them. The company just raised a $180 million financing round, mostly from Russian firm Digital Sky Technologies. Previously it had raised $39 million from investors including Union Square Ventures, Kleiner Perkins Caufield & Byers, Institutional Venture Partners, Avalon Ventures and Foundry Group.

"We've always been about user experience," said Vish Makhijani, chief operating officer at Zynga."We haven't been as good as we should've been about screening those offers. So we've taken a really hard line."

Gaming companies that haven't dropped offers have still seen their revenue decline, as offers companies drop the promotions that have been the most profitable but that are now coming under increased scrutiny. One game developer, Ken Walton, co-founder at KlickNation Corp., estimates the company has lost about 20% to 35% of its revenue from offers.

"As a developer we sort of have had a love-hate relationship with offers," Walton said."And a lot of our users do find them annoying or distasteful or downright fraudulent...Thirty percent is nevertheless a pretty good chunk of our revenue. When everyone else is using them we feel we have to [in order] to compete." Offers Companies Wade Through Controversy

There are about 25 offers companies of varying sizes operating in the space, with several that are venture-backed, including Offerpal Media Inc., Super Rewards, TrialPay, Peanut Labs, Sometrics Inc., gWallet Inc. and RockYou Inc.

Offerpal Media just announced policies to ensure that offers are legitimate. The company is backed with about $20 million from D. E. Shaw & Co., InterWest Partners and North Bridge Venture Partners.

While the problem of fake offers and tricks does exist, said George Garrick, chief executive of Offerpal, the problem has not been as bad as it has been portrayed.

"It has happened, but it's not rampant or malicious," Garrick said. The changes in the industry will affect the bottom line, Garrick said, even though offers will rebound and eventually thrive.

Источник: Total Telecom

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