Last week Zynga CEO Mark Pincus said that they would take steps to remove scammy advertising offers from their social games. There have been a couple of missteps since then, and Facebook responded by taking Zynga’s newest game, FishVille, offline.

Zynga insists they are serious about cleaning up the industry. And today Pincus has announced that the company will remove all offer advertising from their games.

This isn’t a meaningless action. Offers account for 1/3 or so of Zynga’s rumored $250 million in revenue.

All offers will be removed by the end of today, says Pincus, “until we can control their inclusion and presentation ourselves.”

The blog post also discloses that Zynga is an investor in DoubleDing, an offer provider that competes with OfferPal and SuperRewards. DoubleDing was serving the mobile offers that popped back onto Zynga on Friday.

Pincus’ blog post:

Zynga’s most recent Facebook game, FishVille, has temporarily been taken offline by Facebook for advertising violations.

FishVille will remain suspended, Facebook tells us, “until Facebook is satisfied that Zynga demonstrates compliance with Facebook restrictions — as well as Zynga’s own restrictions — on the ads it offers users.”

This is a relatively light slap on the wrist since the game only launched two days ago and had a couple of thousand users (Update: Zynga says FishVille had 875,000 users yesterday. wow). Zynga’s other games, including FarmVille with 63 million monthly users, remain online, despite the fact that they were showing the same ads.

But this does send a clear message to Zynga and other game developers that Facebook isn’t ignoring the problem. Whether it’s a real concern over the user experience or simply embarrassment from the press suggesting Facebook is a haven for scammers is somewhat irrelevant.

Facebook has also shut down a total of four ad networks in recent months for ad violations, including Tatto Media and Gambit. Other networks, such as SendMe Mobile, which was founded by ex-CNET executives, have largely taken their place by offering similarly questionable offers that trick users into mobile subscriptions.

This is also a bit of an arms race. Zynga may be specifically filtering Facebook employees from seeing ads that violate Facebook terms and conditions, making it difficult for Facebook to enforce the rules.

And the relationship between the two companies is complicated. Facebook battling Zynga on the advertising scams. But Zynga is also one of Facebook’s largest advertisers, probably accounting for between 10% and 20% of total Facebook revenue.

Just five days ago Zynga CEO Mark Pincus said mobile subscriptions, among other scammy offers, would be removed from Zynga’s popular Facebook and MySpace games. “We have also removed all mobile ads until we see any that offer clear user value,” he said.

So we were surprised yesterday to see a screen shot clearly showing a mobile subscription ad in a post on InsideSocialGames about the launch of a new Zynga game, FishVille.

I went to the game to check myself, but those mobile ads weren’t there. I assumed they had quickly been taken down, or there was some other reasonable explanation.

They weren’t taken down though. Or rather, they were, but just for me. Other users were still seeing the same mobile ads. And the filtering was clearly directed at me, since I logged in on the same IP address with a friends account and saw the ads. I held a laptop showing the ads up next to my screen that didn’t show the ads and took a picture:

Zynga CEO Mark Pincus said earlier this week that he intends to make sure his company’s games don’t include scammy offers in the future. Our full background on this story is here.

But what he didn’t say in that blog post is that Zynga has been scamming users from the beginning quite intentionally as part of their revenue model. Rather, he pointed much of the blame at middlemen offer companies: “We need to be more aggressive and have revised our service level agreements with these providers requiring them to filter and police offers prior to posting on their networks.”

Last spring, though, he gave a much clearer explanation to an audience at a Startup@Berkeley mixer, admitting that scamming users was part of Zynga’s business model from the start. And it was all caught on video. I think everyone sort of knew that this was exactly Zynga’s gameplan. But to hear it said so directly is just shocking.

The full 30ish minute video is here. We’ve taken the relevant section of the video, roughly starting at around the 10:40 mark, and embed it below. From the video:

I knew that i wanted to control my destiny, so I knew I needed revenues, right, fucking, now. Like I needed revenues now. So I funded the company myself but I did every horrible thing in the book to, just to get revenues right away. I mean we gave our users poker chips if they downloaded this zwinky toolbar which was like, I dont know, I downloaded it once and couldn’t get rid of it. *laughs* We did anything possible just to just get revenues so that we could grow and be a real business…So control your destiny. So that was a big lesson, controlling your business. So by the time we raised money we were profitable.

Facebook published a long blog post today about their enforcement efforts around app advertising and offer scams. And while they didn’t mention all the negative press that has hit them this week, that’s the reason for the new communication.

Facebook says that deceptive ads are a widespread problem on the Web (which is true), and they say they’ve been fighting these scams for some time (which is also true, albeit a little slowly sometimes). They point to their updated policies on third party ads on the Facebook platform from July – which are aggresively pro-user but have rarely been enforced. They also note that they have disabled two ad networks since then, and are disabling two more now.

In my talks with Facebook earlier this week they took the position that they’ve been aggresively protecting users, and they’re taking the same tone in this blog post. They say that with so many ads and so many apps its impossible to monitor the entire platform effectively. My answer was that it took me about 10 seconds to find really scammy ads on FarmVille, the most popular social game on Facebook with 63+ million monthly users. If they just start with the big guys, a lot of the problem will go away.

Over the past few weeks, it’s definitely been crunchtime as we’ve been putting together the panels and demos for our Realtime CrunchUp on November 20 in San Francisco. Get your tickets here. After much back and forth, and with the help of our Realtime Board, we finally have an agenda we are very excited to present (see below).

Speakers will include Twitter COO Dick Costolo, Salesforce CEO Marc Benioff, Facebook VP of Product Chris Cox, Foursquare CEO Dennis Crowley, angel investor Ron Conway, FriendFeed co-founders (and now-Facebook VPs) Paul Buchheit and Bret Taylor. The CrunchUp will take place at the Intercontinental Hotel in San Francisco and will kick off with a big roundtable discussion and one-on-one interviews, followed by startup demos and panel discussions drilling down into geo streams, media streams, marketing, and venture capital.

Electronic Arts has brought its very popular Spore franchise to Facebook, with the launch of a new game called Spore Islands. The game, while thematically similar to the well known PC game that was released last year, has gameplay that’s entirely different. Rather than roaming around a 3D world, Spore for Facebook is more of a stategy game: you tweak your creature and then watch how it fares against the other beasts inhabiting your island.

I took the game for a spin last night and found it to be pretty fun, though there’s a bit of a learning curve. The game is effectively broken down into two main sections: the creature builder, where you can tweak both the appearance and the attributes of your character (things like speed, reproductive rate, and over a dozen others). Once you’ve fine tuned your creature to your satisfaction, you can go into ‘observation’ mode, where you watch miniature versions of the island’s animals fight over food, eat each other, and reproduce (by way of eggs hatching). The graphics in the simulation portion are pretty basic — everything is presented in a 2D, top-down view, but they’re charming and get the job done.

A Facebook developer named Yvo Schaap has uncovered a massive security flaw present on both Facebook and MySpace that would give hackers the ability to steal all of your account data, including your photos, personal messages, and basically everything else you’ve ever put on the social networks, without you ever realizing it.
Update: MySpace tells us that in their case no private data was actually exposed, see their statement below. However, Schaap believes that MySpace is simply wrong, and that they were in fact open to the exploit.

Schaap stumbled upon the exploit and contacted both Facebook and MySpace. According to his blog MySpace has since fixed the bug, and while his blog indicates that Facebook is still working on it we’ve confirmed that they’ve fixed it as well. So what exactly could the exploit do? From Schaap’s blog:

You don’t need much time to think of all the ways this could be exploited. All what has to happen is a active session, or a “auto login”-cookie and a URL which hosts a exploiting Flash file. For example when accessed, a automatic “post update” could be made, that would lure friends of the user to access the exploit URL, and the exploit would spread virally. An more invasive and hidden exploit could harvest all the users personal photo’s, data and messages to a central server without any trace, and there is no reason why this wouldn’t be happening already with both Facebook and MySpace data.

It wasn’t all that long ago that Digg captured our collective imagination. In fact, even last year Google thought it was important enough to seriously consider buying Digg, only to back out at the last minute. Digg was the future of news. It was crowdsourced, democratic editorial. The masses decided what was news, not some 50 year old guy in a skyscraper in New York, who secretly hated the Internet.

a lot of the shine has come off Digg. And while it still drives a tremendous amount of traffic, it’s amazing to see just how completely it has been eclipsed by Twitter, which in turn is still just a drop in the Facebook bucket.

Comscore worldwide data says Digg, Twitter and Facebook have 32 million, 58 million and 411 million unique monthly visitors (September 2009), respectively. Google Trends says much the same thing, but the growth over time is fascinating visually. We started with Digg, then added Twitter, and then added Facebook. In the end, Digg and Twitter are just footnote blips in the chart.

About a third of all Internet users worldwide visited Facebook in September 2009, says Comscore. A year ago it was 17%. And what about Digg? They grew from 15 million worldwide unique visitors a year ago to 32 million today. And they tripled page views to 171 million. So it’s not really about Digg doing anything wrong. They just pale in comparison to the guys currently in the spotlight – Twitter and Facebook.

If you could only use one service, which one would you choose? I’d be unhappy about the forced decision, but I’d go with Twitter, even with all its flaws.

Charts below:

A battle has been brewing for months now: Google and Facebook both want to be the social layer that sits on top of every site on the Internet. So far, at least in mindshare, Facebook has been winning this battle with Facebook Connect. Google’s offering, Friend Connect, is the sibling that gets no respect. But that could change starting today with some new features and functionality.

There are actually a number of new or tweaked features in Friend Connect, but the overall gist of the changes is that they will allow site owners to offer a more personalized social experience to their visitors, while making it easier for visitors to connect with each other. “Normally we do one feature at a time, but this is a set of features,” Friend Connect product manager Mussie Shore tells us, noting that this is a special launch to his team.

NBC is gearing up for the 2010 Winter Olympics with some changes to its mainstay site, NBCOlympics.com, scheduled to go live tomorrow. (See screenshots below). Once again, just as it did with the 2008 Summer Olympics, NBC will be using a video player based on Microsoft Silverlight technology to offer full HD videos. Except this time, the video player will have DVR-like functionality, with the ability to rewind the video, highlight clips and save them.

The video player will also incorporate Facebook Connect, to allow people to chat with their friends as they are watching the events. NBC expects the addition of Facebook chat to make the videos a more social and engaging experience, and also hopes viewing times will subsequently increase.

Zynga changed their lead gen scam policy this morning (the whole Scamville background is here, see updates at bottom as well). And now RockYou is taking steps to clean up their act to, according to an email we’ve been forwarded.

In an email to RockYou’s publishers, they say that they will begin complying with Facebook’s rules on offer scams (and like you, we’re not sure why they haven’t been complying all along, but lax enforcement is likely the cause).

Two interesting nuggets from the email though. First, RockYou says that from now on you’ll only see “clean, safe surveys from top tier brands advertisers.” All of the surveys we’ve seen are mobile subscription scams, so I’m not sure there’s such a thing as a clean, safe survey.

Second, the email says “the Facebook compliance team will be keeping a very close eye on offer walls starting tonight.” We’d heard that Facebook is coming down hard on app developers around scams right now, but Facebook won’t comment about it other than to say that they have always been monitoring application offers and enforcing the rules. From what we’ve seen, that enforcement didn’t bring much in the way of results, but perhaps they’re more serious about the situation now.

The full email:

Well that didn’t take long. We outlined the not-so-ethical ways that the big social gaming startups are generating revenue through lead gen scams and subscriptions through a series of posts over the last week. Starting with Social Games: How The Big Three Make Millions and Scamville: The Social Gaming Ecosystem Of Hell. We also threw in some comments by other companies and a former scammer, and a quote from Zynga that 1/3 of their revenues come from offers, much of which are scams.

We thought this would be a fight that would take months to end successfully, and we thought that only Facebook or MySpace would make the move to clean up their own platforms.

But boy am I surprised today to see Zynga, the worst of the offenders, admit publicly to the problem and take quick steps to change. CEO Mark Pincus says:

Michael Arrington posted over the weekend about CPA offers within social games and questioned why facebook, myspace, zynga and others would expose these to our users. He raises good points about ‘scammy’ advertisers and the bad user experience they create. I agree with him and others that some of these offers misrepresent and hurt our industry.

Later in the post he also says:

Forgive us for not noticing sooner, but last week Google’s social network Orkut announced that it is rolling out a complete redesign. The new site is faster and, like every other social network these days, puts the activity stream front and center. Orkut has actually reduced the number of pages so that the most popular actions can all be done from the home stream. For instance, there is now in-line commenting for status updates, photos, and videos. And the various notifications (”friend requests, testimonials, community requests or birthday announcements”) have all been consolidated onto the homepage as well.

Orkut also now has video chat, in addition to regular text IM. Access to other Google properties such as Gmail, maps, and search are now integrated at the top of the homepage. Profile pages are more customizable, and photo uploads are faster.

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.

Last night we wrote about the lead generation scams within social gaming networks. This is a guest post by Dennis Yu, the CEO of BlitzLocal, a privately held 50 person advertising agency in Denver, Colorado, specializing in local search engine marketing for franchises and professional service firms via Google and Facebook. BlitzLocal is no longer in the business of spam, but they do specialize in Facebook advertising and are now using the platform they’ve developed to run campaigns for big brands and small businesses. Dennis writes a blog at dennis-yu.com

Did you know how Mark Zuckerberg supported Facebook in the early days, before he got venture funding? Casino ads. And how about those advertisers who were making over $100,000 a day selling Acai Berry and other weight loss products – they are friends of mine, pioneers of new advertising channels. You see those ads saying “Inbox (5). Nick, someone in San Francisco has a crush on you!” (with your name, profile picture, and city in the ad). I generated millions of dollars from these offers on Facebook – I am not proud of it, but it was very lucrative.

I will walk you through how these online scams work on Facebook and other social networks – the mechanics of how the money is made, some of the people involved, and who is actually clicking on ads. If you’re reading this article, there is a good chance that you are not the type of person actually clicking on these spam ads, but are you curious as to who actually is?

In June 2007, Facebook opened up their application developer platform so that anyone could build games on top of the social network. By having access to user data, game developers could instantly make engaging, viral games. Rate who is hottest among your friends, share quizzes, race cars, grow vegetables, and so forth – all with a click of a button. Users in one click gave the game permission to access their profile data and they didn’t think twice about it.

Facebook is much more than a social network. Twitter is much more than an information network or serendipity engine. Each represent a dashboard for your attention, a foundation for conversations and collaboration, and a matrix for your social graph and contextual relationships. In other words, Facebook and Twitter essentially represent the entrée to the future of the social Web as each strive to host, what Facebook founder Mark Zuckerberg, and others, refer to as our personal social operating system (OS).

What Windows is to PCs and OS X is to Macs, Facebook and Twitter are to our social architecture and enterprise. Certainly there’s a David and Goliath element here depending on which company you immediately view as Microsoft or Apple. However, Mac and Windows are simply operating systems, not networks per se, and that’s where the metaphor of an OS breaks down. Either way, there is the perception that there is a competition between Facebook and Twitter for your attention and your network.

Last weekend I wrote about how the big social gaming companies are making hundreds of millions of dollars in revenue on Facebook and MySpace through games like Farmville and Mobsters. Major media can’t stop applauding the companies long enough to understand what’s really going on with these games. The real story isn’t the business success of these startups. It’s the completely unethical way that they are going about achieving that success.

In short, these games try to get people to pay cash for in game currency so they can level up faster and have a better overall experience. Which is fine. But for users who won’t pay cash, a wide variety of “offers” are available where they can get in-game currency in exchange for lead gen-type offers. Most of these offers are bad for consumers because it confusingly gets them to pay far more for in-game currency than if they just paid cash (there are notable exceptions, but the scammy stuff tends to crowd out the legitimate offers). And it’s also bad for legitimate advertisers.

The reason why I call this an ecosystem is that it’s a self-reinforcing downward cycle. Users are tricked into these lead gen scams. The games get paid, and they plow that money back into Facebook and MySpace in advertising, getting more users. Who are then monetized via lead gen scams. That money is then plowed back into Facebook and MySpace in advertising to get more users…

Here’s the really insidious part: game developers who monetize the best (and that’s Zynga) make the most money and can spend the most on advertising. Those that won’t touch this stuff (Slide and others) fall further and further behind. Other game developers have to either get in on the monetization or fall behind as well. Companies like Playdom and Playfish seem to be struggling with their conscience and are constantly shifting their policies on lead gen.

The games that scam the most, win.

In case you didn’t yet realize it, tonight is Halloween. And if you didn’t yet realize it, maybe you don’t have plans yet. If not, as usual, the Internet comes to your rescue. If you’re stuck at home tonight for whatever reason, you’ll be able to load up Facebook and watch Heidi Klum’s Halloween party, streaming live.

Sure, it’s not as good as being there, but it beats doing nothing. And it’s being done with the help of Modelinia, a site devoted to capturing the lives of super models. Enticed yet?

Jed Stremel, Facebook’s Director of Mobile who has been with the company for four years, has resigned, according to a post on his Facebook profile. Stremel was charged with leading the company’s mobile strategy, and was previously involved in Business Development at Facebook.

Below is Stremel’s bio, taken from last year’s MobileBeat conference page.

Jed Stremel oversees Facebook’s mobile strategy transforming how individuals find and express information relevant to their life. Prior to Facebook, Jed played key partnership, business operations, and strategic roles at high-growth businesses. He spearheaded mobile initiatives for Yahoo! building the company’s efforts to empower seamless communications across SMS, WAP, Java, BREW, and other mobile technologies. At Tellme Jed managed distribution, promotion, and licensing relationships with leading online and telecommunications partners.