Part 2 – The Fallout

When your publication reaches close to a million readers that is some serious leverage, and Michael Arrington leverages his power to the fullest. Techcrunch is not a traditional publication of impartial news stories but really an op-ed platform. So, when he began to rail on the current monetization of Facebook applications, he got his wishes. That can be a good and a bad thing, and in this case both are true. Cutting through all the emotion and conspiracies, Arringtongate beginning with his Scamville article really comes down to the offers that run on the alternative payment platforms’ equivalent of an offer wall. These are the offers that users can do in order to earn the currency they want for their game. These are the offers that make the platforms like OfferPal, SuperRewards, Gambit, et al manage, tracking user activity and awarding points. Not surprisingly, those applications who make the most money have the highest take rate on the ads on the platforms. The platforms who make the developers the most money have the ads that convert the best. The ads that convert the best, though, aren’t necessarily the best ads. They are the ads built by performance marketers who understand what converts. And, they get higher placement by the platforms because they convert and make everyone more money.

As mentioned in Part 1, the Scamville piece is really about mobile subscription services without subscription services in general also being included. This story is the same one as exists with the fake blogs. It’s the story of yield in an underdeveloped ecosystem. It is not a story about greed, conspiracy, or good applications not winning because they don’t run certain ads. It’s the same story that has existed for years and years. The good part about Arrington stirring up this pot as that it can lead to greater awareness and ultimately greater accountability.The bad part though is that he has in one broad stroke completely miscategorized an industry, and while enabling some change, it wasn’t a true step forward. Showing Arrington’s power, only days after calling them scammers, Zynga, the largest purveyor of social games on Facebook, CEO Mark Pincus wrote on his personal blog, " I agree with him and others that some of these offers misrepresent and hurt our industry." He like Arrington also calls out Tatto Media, large sponsors of ad:tech who luckily probably haven’t had many people stop by their booth to talk about this issue.

In addition to Zynga taking down all mobile subscription ads, Rock You, not called out in any of the initial articles, also modified their offer policy and sent a note to publishers which Techcrunch republished. The same holds true for MySpace, also featured in an article, who updated their terms of service for app developers, namely, prohibiting "promotions that include hidden renewals without specific opt-in will not be permitted. The largest shift though probably occurred at Offerpal, who named a new CEO in a move they won’t say relates to the events that transpired but whose timing will lead to those assumptions. At the request of Techcrunch, weighing in as well in a guest post is Alex Rampell, CEO and founder of TrialPay whose business also operates in the alternative payment space but didn’t start as a managed offer platform for social gaming. In his very thorough and thoughtful piece, he compares the current race to the bottom (that is race towards monetization at all costs) as a social gaming tragedy of the commons, saying, "Many app developers don’t want to run scammy offers but don’t have a choice if they are to stay competitive…". For further reading, also see Andrew Chen’s detailed analysis on the Scamville series.

For us, here are some of the more pertinent points surrounding the Scamville series and the current intersection of performance marketing and social gaming / social media monetization.

1. It’s not lead gen – Read any of the articles relating to the Scamville / Arrington gate and you will see the words lead gen throughout and in such phrases as "lead gen scam policy." It’s not lead gen. The offers in question here are as MySpace points out in their terms of service change, opt-out offers. These are subscription services, continuity programs with negative option billing. They fall into the broad categories of performance based marketing, performance marketing, and online customer acquisition but they do not qualify as lead generation. Lead generation does not involve any direct billing. It involves only data when users express an interest in a good or service. There is a multi-billion dollar ecosystem of expressed interest that does and should not get lumped in to this fray.
2. Mobile not the problem – A couple of companies come out worse for wear, such as Tatto Media, but the real loser is mobile. In many cases, the applications banned all mobile ads. Mobile isn’t the problem. Ringtones, which has had its share of issue in the past, is all things considered well regulated and very different from the quiz offers. The quiz offers added very little value to the user. And, it’s quite likely that many users agreed to be charged because the connection between phone and wallet is not strong. We can go into a whole slew of conjectures as to whether it is kids billing their parents, people who sign up but intend to cancel, etc., but either way two things hold true. A push based text service will have a hard time defending the the $9.99 monthly price point, and you have to be really unsophisticated to know you aren’t getting charged. Today, all opt-in messages are explicit; they have to be if companies want to keep their short code.
3. Facebook no co-conspirator – Arrington somewhat accuses Facebook of turning a blind eye because of the advertising revenue they receive. The truth is that like Google, it isn’t that Facebook doesn’t care, it’s that they really don’t understand online marketing. Ask Zuckerberg about IQ Quiz, and he will have no clue. Ask him how developers make money, and he can answer in general terms, but the nitty gritty is not what they think about. Even their head of platform development or monetization doesn’t think about these things. Once on their radar, they like Google will crack down. They will turn down $50mm in revenue any day if it means harming the users.
4. People don’t work for free – Monetization for developers and all players in the food chain has dropped. There is a good amount of money that has just exited, and its impact could send ripples which lead to layoffs, less support, and less talent working on the social media / gaming ecosystem.
5. Better offers – It’s not the developers, social media sites, or offer platforms. At the end of the day, it’s the offers that lack. We can and should criticize the race to the bottom, but that’s just human nature. Fake blogs are the same. People copy the one that monetizes the best so that they can compete. Hence the IQ quiz ads get run by all and they get more and more deceptive in order to monetize the best. Running them is like putting a square peg into a round hole. They are there because no other offers are. The same offers that ran during the Free iPod era shouldn’t run now. But they are. The real opportunity is in bringing a new generation of advertisers and teaching them about incentives. Gurbash "G" Chahal of Blue Lithium fame, writes on his blog, "Bringing large brands and agencies into this space requires an extensive amount of education. You have to teach these players how to create value; you have to create specific social media offers that are different from traditional advertising or affiliate network buys." Until that happens, we’re going to see the performance guys make it work – square peg, round hole.