A big part of the debate about the lead gen scams plaguing Facebook and MySpace via social games is over how much money is being made on these “offers.” Zynga, by far the most successful at building and monetizing these games, is now telling us exactly how much – 1/3 of total revenues, according to Andrew Trader, a co-founder of Zynga:
Andrew Trader, co-founder of Zynga, said the company makes about a third of its revenue from advertising and another third from virtual goods transactions. The last third comes from companies that provide commercial offers, trading Netflix memberships and marketing surveys for in-game cash.
Zynga revenue guesses range all over the place, but are likely $250 million a year or more. That means $80+ million/year is being brought in from legitimate offers like Netflix subscriptions, as well as the really smelly stuff like recurring mobile phone and learning CD subscriptions that trick users into paying big dollars for little or no return value.
What percentage of offer revenue is scammy? We believe it varies over time, and is heading in the wrong direction. Legitimate advertisers like Netflix and Blockbuster, hit with countless laundered subscriptions from repeat subscripers, are said to be dramatically lowering bounty fees paid on signup. Far less scrupulous advertisers like Video Professor and Tatto take their place.
HotOrNot cofounder James Hong said it best in a comment to our post yesterday outlining the scams: “In a nutshell, the offers that monetize the best are the ones that scam/trick users. Sure we had netflix ads show up, and clearly those do convert to some degree, but i’m pretty sure most of the money ended up getting our users hooked into auto-recurring SMS subscriptions for horoscopes and stuff.”
Offerpal and others, who provide these offers to game developers, try to downplay the percentage of revenue that comes from scams. Clearly they are obfuscating the truth, to put it kindly.
Facebook and MySpace must takes steps to address this.
the FTC should stop this, you can’t rely on companies to regulate themselves when the regulation will cost them $$$.
This is akin to the tobacco lobby drafting smoking regulations. At the same time, there are multiple organizations within Facebook that have to cooperate and that will take time. Facebook, like Google, is not a start up anymore– they are a big corporation.
… says the guy who made $5 ecpm off my apps and paid me $0.05
Dennis, You have the worst reputation in this industry. Everyone knows you are a low life creep.
This is very interesting. Im sure that these types of revenues will not really be great for company valuation, because eventually they will decrease.
i’m really guessing that zynga gave this interview with their revenue breakdown prior to our posts this weekend.
Mike,
If you’re going to champion this cause, you should create or team with a non-profit and bring the issue to the FCC. They have made great headway regarding disclosure in online advertising, so I think they would be open to working on this issue. However, even though I understand your position and your passion, I think it would be beneficial to stop referring to the practice in question as a ’scam’ unless the consumer is never notified about the related fees.
In my experience, most of these lead gen setups eventually inform the user that they will be charged a fee, but that information is obscured in the fine print, which is technically not a scam, but rather an unethical practice that preys on user laziness. In cases where there is never notification, then yes, the term ’scam’ applies. That said, the goal shouldn’t be the destruction of lead gen, but to put standards in place that require advertisers, and perhaps publishers, to clearly inform the user of the true costs involved in the transaction.
Again, I think your challenge is valid, but if you approached it a bit more professionally, I think you may have a better chance of effecting positive change. Either way, better consumer education will no doubt lead to a drop off in conversion, so I’m sure you will receive some sort of negative feedback from existing advertisers and publishers who are getting paid from this type of practice.
For what it’s worth, Anu Shukla’s response to you at the conference was completely unprofessional. You obviously struck a chord, and she embarrassed herself greatly. It’s one thing to use that tone in a private gathering, it’s another to do so in a conference that will be publicly broadcast.
I usually drop a lot of hate in the TC comments section, but I support you fully here.
This story has a lot of ‘juice’ that mainstream media would like..I am surprised TV channels have not taken this up still..
Again, you can’t just point fingers at connected companies and cry ’scam.’ You have to approach things professionally and rationally. Build a case, get involved with the right people, further your case, and take it to the people who can actually make a difference. We are talking about a billion dollar market here. Politics are just as important as truth.
Don’t you mean FTC?
Go back to this past spring’s Social Gaming Summit, where Pincus proudly announced that 60%-70% of his revenues were coming from this channel.
I have a hard time believing that he’s shifted that much of his revenue away from Offers that quickly.
Mike, I’m not even sure that the 1/3, 1/3, 1/3 is still relevant quote any more. This was a commonly banded about number roughly a year ago by Zynga – Mark and A.T. both said it several times and different events.
However, that was all prior to Farmville/Cafe World explosions internationally. Who knows what the % could be now, I only assume it hasn’t gone down.
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well, first you need to fill out this IQ survey and then give us your mobile number…
I think you need to adress the fact that everything is Direct Response TC included.
These sort of scams are the reason that we pulled all of these sort of things from our games on Facebook.
Eventually we couldn’t make money and couldn’t compete anymore… even with over 300 thousand installs and why we sold all of our apps to another company to focus on developing on other platforms where adding a social scam isn’t part of the business plan.
well, if past history is any guidance, scams and crappy money precedes quality/good money. so things i think are going perfectly according to the plan.
if only FB/MS don’t screw up.
SMS and such, the problem isn’t gaming companies, it’s phone companies. They are the companies that can stop this overnight, but too much money from this, and of course they won’t.
they are a big part of it, yes. but they also have unlimited lobbying dollars.
A comment from the SFGate article:
“I caught my teenager finding people’s cell phones to order this stuff..after I confronted him he explained its hard sometimes cause ALOT of teens do this to their parents or unsuspecting people when they leave their cellphones around”
no, offerpal made it clear that no one is being scammed and no one ever complains.
There have been 5 complaints in all, I heard!
they do not call offerpal. they call their carrier OR they call the provider of the offer. there are definitely complaints.
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Lead generation as such is not scammy. Companies that pay for leads differ the value depending on how good the conversion rate is from the particular source.
It is only the scammy part of it; the fine printed stuff that needs to be weeded away. Do we have an authentic stat on how many of the offers actually rip you off?
working on it. but the best data we’ve gathered so far is “the vast majority of it.” mostly because the good offers don’t pay as well (since they aren’t scams) and they get pushed out.
This is a good example.
http://i33.tiny....com/htya10.jpg
When they pay, they don’t break out the leads by offer. This industry works on untraceability — they don’t want applications to know which offers are lucrative (or scams), and they definitely don’t want leads to know where the $9.99 charges on their phone bills came from, or where to complain.
Wonder if you could set up a mechanical turks task for folks to record/screenshot the offers they’re delivered. A modest sample might generate statistically significant results.
Scams like these can’t go on forever. Since this industry is still in it’s infancy, companies are playing on the ignorance of the users. I think an expose of sorts about the actual scams would be a good start to educating the unaware.
Another article about this TC?
“Scams like these can’t go on forever.” – right. eventually every single person gets scammed and they have to come up with something even more insidious.
Who was it that said “A sucker is born every minute?” People will always want to lose weight, get rich quick, and find love– and so long as that’s true, clever advertisers will cater to that need. Does anyone honestly think that weight loss diets, fads, or scams will ever really go away?
Perhaps there will be stricter mobile enforcement and exposure of the fact that carriers take 50% of the revenue from what’s euphemistically called “premium SMS”. But go to the CTIA conference in Vegas and you’ll see folks living it up. Just ask folks like Mobile Messenger and Tatto what they think.
There will be new devices and new marketing channels– which initially emerge with little to no regulation. The cycle will repeat itself.
Cat-and-mouse game isn’t it?
This is similar in a way to the never-ending cycle of new malware infecting users and anti-malware to combat them. And the best solution to that problem, though not complete, was to educate naive users about how these things find their way into their computers and give them some simple guidelines to avoid them. I feel this is the best solution to root out these scams too – enlighten people about them and tell them how to spot them.
I guess these set of articles are a good start.
As someone mentioned above, this is partly the responsibility of the carrier. However, don’t hold your breath on them doing anything about it – they’ve been at this kind of shady business practice for far too long.
This kind of of stuff has been going on since the telephone industry was deregulated in the 80s – I mean nowadays if I asked you to dial a 1-900 number for a service would you? Of course not. However, there were some legitimate services that didn’t involve phone sex, psychic friends, crammers or the like that used 900 numbers (pay-per-incident technical support, for instance), but they were far outweighed by the scams. And the phone companies did NOTHING about them because they were making coin hand over fist.
The Offerpal scams and their ilk are just another version of the same old song.
What percentage of that 1/3 do you believe are offer-scams?
Ah, I see a similar question was posted as I was reading. Apologies for the repetition…
The access Facebook has given the application developers is the keys to the kingdom. The developers that came for the quick dollar do not care what condition they leave the kingdom in after they exit it.
I had no idea you could get billed through your cell phone just by responding to a text message. that’s insane.
For those of us like myself who used to work on the developer platform for the MySpace, none of these articles are too shocking and point out truths that have been apparent to us for quite some time (if not from the beginning).
Even the biggest social networking developers (who I won’t name) regularly pulled some very shady stuff on the users and we would have to call them up about it or suspend them.
MySpace actually has rules against spammy advertising and incentivizing users as does Facebook. But, try as you may to enforce the rules and require developers and advertisers to play fair and keep the garbage out, its difficult and costly to do.
When it comes down to it, all the hype around monetization of social networking really relies heavily on scamming the users with junk and spam like this and the business model in general is flawed. The application platforms themselves only brought attention to what was already happening in the ads on these sites. It’s unfortunately, for the reasons Dennis Yu pointed out, become a core part of the revenue stream for them as well as the ad networks.
I think the situation for them is just the same though as what Dennis described for ad networks. If MySpace and Facebook put their foot down and start strictly enforcing the policies they already have in place for this type of stuff it will end up being too costly for them. In the end, the social network that is sleezy enough to allow it will make more money and displace the others.
Clearly users appreciate a “cleaner” network and that’s one of the reasons for Facebook’s success over MySpace in the last few years. But the problem here is systemic and industry wide as we can clearly see that Facebook has finally matured as a social network and they’ve reached a point where they’re having to deal with the same problems MySpace has been struggling with.
Quite frankly, I think the only reason Facebook remains as “clean” as it is right now, is because unlike MySpace, Facebook doesn’t have a big corporation on top of it shouting “Money, money, money!” and enouraging these types of revenue scemes just to squeeze some more money out of their social networking properties.
The truth is though, these scammers, advertisers, and shady developers are out in full force on both networks still.
In my opinion, the internet ad industry in general needs a little regulation. Many of the ads I see today on all social networks are out-right criminal and shouldn’t be allowed. They make false claims and lie to users.
Unless you can uniformly enforce higher standards across all of the advertisers, this trend will continue and the ad money will go wherever the sleeziness is allowed.
We’d all like to think that what users want really determines the direction of the product, but the truth is that it just follows the money trail. In the end, this is a business not UNICEF and the money makes the rules. Which as it so happens… is what led us straight to this.
Brandon,
Your comment is the most insightful and accurate I’ve seen on this. Wow– you should have written this article, not me!
getting our posts mixed up, are we? you didn’t write this article. michael did.
@dennis_is_confused same topic, same series of articles, even the author of this article refers to dennis’ and the others so I think it’s all ok
@dennis yu thank you. i actually really enjoyed reading your article as well. you gave an excellent summary from your point of view and it’s interesting to see that the two align
Michael can you check your stats and do a bit more research? The “offers” part of their revenue also contains direct payments from companies other than paypal.
Offerpal also stands as a processor for payments from paymo, paybycard and others who charge your CC or your phone directly (no recurring fees here) or sparechange. According to our offerpal stats this kind of direct payments is the overwhelming majority of the total revenue. relatively very few people actually choose sms offers.
I to think you are going too hard on offerpal (or $R) on this one. The first to blame here is the mobile carriers who get the most of the revenue. Offerpal is really just a manager of affiliate market ads.
If there are more profitable and legitimate affiliate ads, they would use these ads instead.
In the end, you’re a lawyer. You know these affiliate ads are legal. If you think they should not be, shutting down offerpal media would not change anything because the recurring sms companies would continue to thrive – it’s the mobile carriers themselves that should be stopped.
One question : Why isn’t anyone blaming facebook for this scamming ? Aren’t they resposible for this? Can we never have a clean social networking site?
because even if you completely shut down facebook, these scams continue to exist elsewhere. It’s like shutting down magazines that advertise cigarettes to stop people from smoking
And your point is?
You seem like someone who makes money from scamming people.
Correct me if im wrong?
you’re wrong. I use offerpal, though. if you believe they’re a scam, then you can probably inform the authorities. i can’t because i m not american. And i ‘m not going to remove them just because MA doesn’t like them.
more related to your question: arrington is pissed exclusively at offerpal because they dared call his argument s##t double s##t and bulls##t.
that ’s the sole reason for the series of (currently) 4 articles
Actually, listen to the exchange and read the posts. They were disingenuous and had no answer to his questioning other than to yell “BS”. If they could actually refute his accusations, then they need to do so rather than use evasive language and misdirection.
i agree that the way offerpal responded was completely unacceptable.
However, MA is trying to blame superrewards + offerpal for all the scams that lurk all over the internet. i m trying to keep perspective here: All 3 techcrunch banners on my page currently promote “Make $1000 a day” . Is that less of a scam?
I ‘m not deliberately trying to take offerpal’s side, but you must understand that that company manages CPA offers available from other networks. They are just 1 part of the chain and even if they were completely removed, the chain still works.
What nobody has mentioned yet. You can find the EXACT same scam offers on mashable.com and many other “legitimate” sites. Yesterday TC had the “make 1000$ / day ad running, syndicated through GOOGLE (do no evil).
In fact google adsense network is running a huge amount of these scam ads.
That doesn’t make the situation better, but worse. @Techcrunch can you please call on google and the other advertising networks?
Facebook just won 711 million dollors from the self-proclaimed “Spam King” where as thousands users are being spammed and scammed on facebook platform where is thing going ?
In other words, facebook is not interested in stopping current scams, they are only interested in suing companies AFTER the money source dries up cry “spam’ and claim more money. Is that what you were implying?
Hm, if I’m not totally mistaken this is the same issue Germany has tackled and solved already some time ago.
Here, people often got tricked into buying some kind of “subscription”…buried in the fine print…for useless stuff like recipes.
However, lawmakers put an end to that quickly…I’m too lazy now to look up all the details – but you definitely dont have to PAY if you were tricked.
So my question: why would people PAY in the US if they were scammed/tricked into all of this? Would any of the scamming companies really take this to court?? Or, in the end, is the consumer just not well enough protected? Then it really would be most efficient to simpy bombard your congressmen with screenshots of those scams and have them outlawed quickly.
But maybe I’m missing the point…
P.S.: I’m sure some German blogger would be happy to write up the issues we had over here in English.
hey techcrunch,
you forgot one of the biggest internet scams in history, google adsense.
most advertisers register to google adwords in order to use it’s search ads, what most of them don’t know is that google automatically presumes they also want to display their ads on their adsense networks, which is – essentially – crap(cost per conversion wise).
if google is so honest and does no evil, lets see them make people opt in to adsense instead of opt out.
hope techcrunch goes after the big ones and not only after the small fish
You’ve never tried Adwords, have you?
the guy speaks the truth, “advertise on adsense” checkbox is “on” by default. I used to save companies $1000s in ad budgets by telling them “just turn off the adsense, poor people”
google scams both sides. it takes $10 from clients and pays 0.01 to the publisher (for the same click)
TC taking a shot at lead gen scams could potentially trigger a major shitstorm, because EVERYONE IS INVOLVED
There’s a HUGE difference between Google Adsense/Adwords and facebook spyware/mobile phone subscription traps.
Just because you’re not clever enough to make money from Adsense, doesn’t mean it’s a ripoff. Learn how to use the internet, kthx.
“clever”, don’t be pathetic, dude.
All u “bright internet marketers” are gonna BURN
soon
People didn’t learn from ringtones, they didn’t learn from dating sites, they didn’t learn from horoscopes…
people just aren’t going to learn.
As long as people want to make money, and stupid parents keep giving their teenagers cellphones, stuff like this will continue.
That’s entirely three different generations of teenagers, I would say..
Mike, really good to see that you’re taking this issue up.
People, please blog about this more…let’s start the war on spam
If Zynga goes public maybe Video Professor should too.
Mike Arrington, moral guardian of the internet
I wrote a column about Zynga and their management team a while back for Going Concern.com.
“Party Like A VC-Not As Easy As It Looks
http://goingcon...nal-racke-1.php
Paying people for trial has always had mixed results, but ultimately, if the incentive is both powerful and misaligned with the value prop of the advertiser, it’s not a qualified lead (regardless of the “targeting” that goes on behind the scenes). All of which goes to say that legitimate advertisers will pay much less once the conversion and attrition sort themselves out, and questionable advertisers will enjoy the ride. The legitimate advertisers (Netflix) have a both a mass appeal and a halo effect on the questionable offers, so I suspect they’ll successfully negotiate pricing, which will probably help the questionable advertisers and lead gen facilitator even more. For an even more egregious abuse of PPA look at the local listings business, where even the legitimate advertisers are often too naive to understand what’s going on.
Click Here for you Free $100 Walmart Gift Cert <– I wonder what conversions are on 40+ year old women.
Hey, look at that giant elephant in the room! The term “scam” used in this article goes both ways. It’s worth mentioning the millions of dollars that users are scamming out of advertisers by fraudulently completing “offers” and filling in leads for which they have no interest whatsoever. This is simply “free iPod” 2.0, and a major correction will shake out the scammy advertisers and eventually shake out the scammy users.
Such a correction won’t happen, for the very reasons you cite- it’s in the best interest of consumers to get as much as they legally can, and it’s in the best interest of some companies to rope in recurring revenue by obfuscating the transaction. It’s a fundamental flaw in social media ecosystem- the incentives have nothing to do with the lead qualification process.
jealous????
How do you charge to cell phone numbers. I wonder why the carriers don’t just block these types of scams, it would seem quite high to tack on these extra charges to the cell phone and not notice it.
I made my allvoices account here today just to try to get 5 yocash for yoville. Since a lot of these offers don’t pay out, I don’t really expect to get it. I have 44 junk mails in my spam box today. Whoo hoo. It was funny to find this article right off the bat when I signed in. How beautifully ironic.
Mike, when are you going to address Patentsquatting?
Dear TechCrunch, what you haven’t seen is ads that forces users to enter in their information before taking them to where they really wanted to be. I think VC, Offers with options are completely fair to users, unlike ads like Smiley Media. That forces people to subscribe to SMS offers before completing some sort of registration process.