Payment mechanisms in the wake of the Zynga scandal

An offer you can refuse?

When Zynga was hit by a scandal around advertising offers late last year, many commentators cried foul, claiming that the company was dodgy and unethical. A Ratner-like moment of honesty by its CEO at a conference was cited as proof that Zynga was knowingly fleecing customers using scams.

Columnists heralded Facebook’s suspension of apps which promoted the scam. Zynga got its just rewards – half its revenues were threatened, pundits forecast.

Now’s a good opportunity to investigate the murky world of such offers, and assess both the scandal and the revenue stream’s potential for online game operators.

The offers market’s roots were in e-loyalty companies like Beenz or MyPoints, which awarded cost-conscious consumers virtual currency for completing surveys or signing up to e-commerce promotions. After initial consumer interest, they lost momentum by failing to popularise their artificial currency, losing out to client brands’ own loyalty schemes and cash-back sites. Meanwhile online advertising was booming, with high values paid for cost per acquisition. As e-loyalty companies faded, new advertising middlemen aggregated and sold on these lead generation promotions to a wide range of sites such as Skype, Gap, Real and Adobe, incentivising larger purchases or converting free visitors wanting premium content but reluctant to pay.

In late 2008, offers found their perfect partner with social network games operators, who could now monetise free players by establishing an exchange rate between their virtual currencies and CPA offers. Offers like ‘Try out Netflix for a month and get 80 Playfish cash’ were brokered by Trialpay for Playfish and other clients, attracting advertisers such as American Express, Disney, Time Magazine and even Weightwatchers. Powered by mainstream advertising dollars, offers initially drove a third of a social network game’s revenues, although this fell as direct item sales grew through 2009.

From the late 2000s, criminal gangs have posed as advertising buyers from kosher, big-name companies. They cold-call advertising sales representatives desperately searching to shift their unsold ad inventory, placing bogus ads laced with malware. Many were taken in by the scams. Sites like Google, Fox News and even the New York Times were fooled by malicious ads that looked real but contaminated visitors’ PCs.

In late October, it was Zynga’s turn to be scammed. A company called Tatto Media created ads promising IQ test scores but fraudulently signing people up to $9.99 subscriptions via premium SMS. Tatto distributed it via several offers companies, including a Zynga offers partner called DoubleDing. DoubleDing failed to double-check the offer. Thousands were scammed. Facebook cried foul, pulling the offending applications. A video surfaced showing Zynga’s Marc Pincus admitting he’d done ‘horrible things’ to get Zynga’s revenue flowing. Accusations of unethical behaviour were hurled. Zynga’s minority stake in DoubleDing muddied the water further and it struggled to win back the media initiative. Finally, Facebook as well as Zynga was served with the latest in a series of lawsuits flying around a new sector.

What’s interesting in the coverage is the moral outrage, often reminiscent of tabloid editorials. Take the criticism of Zynga for not cleaning scammed users’ PCs: when The New York Times unwittingly ran a fake Vonage maleware ad, it offered users advice and was in turn offered sympathy for being scammed. Zynga, despite itself being a victim, was excoriated in a noisy witch hunt.

To say much of the complaints were unreasonable is an understatement, like demanding Zynga check every piece of advertising run by someone else on its gigantic service. Many whiffed of schadenfreude, since there was nothing intentional about Zynga’s role in the scam, beyond seeking revenues by a route all its competitors use. All Zynga could do was apologise, admit failings which it hoped to fix and force its advertising sellers to institute better controls.

Eight weeks on, what has been the fall-out? All Zynga’s apps are live again. Its traffic dipped momentarily before powering onwards, reaching 100 million monthly users. It is currently instituting new standards for its offers partners which will soon return. Despite senior staff at other social network games companies being sniffy about offers, they are still standard. The biggest players in social network games all still use them, including Playdom and EA’s Playfish.

While offers, like e-loyalty companies before them, could be replaced by operator discounts or cash-backs, I think they are more likely to survive and grow as advertising slowly revives. Following a wave of proliferation, many offers companies will die off or be consolidated, but the larger ones with anti-fraud measures and big brand clients will thrive – because they reach a large but inaccessible audience with more concrete leads than vanilla advertising.

So, if you’re looking at payment mechanisms for your online proposition, should you make use of offers alongside your premium virtual currency? Yes, as long as you use one of the larger, better providers which check their inventory and offer high levels of service and customisability. Most offers are harmless, can help your site generate revenue from free players and may be your only meaningful advertising revenues this side of 2011.

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