Pixels and Policy previously reported on the potential risks of building an online gaming platform around the concept of real money transactions, or RMT's. Customers have proven willing to shell out large sums of money for virtual goods in the form of microtransactions, the $1 - $5 purchases common to games on Facebook and MySpace. So what's the problem?
There's an emerging legal question regarding RMT, and it centers on the growing partnership between online game developers and marketing agencies. What happens when a developer offers "free credits" for filling out "trial" offers? As social gaming titan Zynga found out, offering another venue for RMT is proving far more complicated than planned.
A Financial House with a Questionable Foundation?
Dan Lyons of the website Fake Steve Jobs recently fired a salvo that pointed out the strange divide between coverage of Zynga's marketing in the mainstream New York Times (which recently botched a Second Life fashion article, to its increasing discredit) and on prominent games-industry news websites.As it turns out, no one from the New York Times took any note of the fact that a slew of industry blogs and games industry veterans were slamming Zynga for its allegedly deceptive contracts and real-money transactions for virtual currency. Reading the New York Times article, it's almost as if no one ever said a word against Zynga's methods.
From Lyons' response:
Now, maybe they did all the reporting before Arrington's stuff broke. In which case they should have gone back and updated their info. Or maybe, just maybe, Zynga's PR people teed up a Times story as a kind of rebuttal to what Arrington was reporting.
Either way, that's what ended up happening: Zynga used the Times to deflect the bad shit flying at them from Arrington. They need good press because they're hoping to cash out by going public next year. That story in the Times will be worth millions. Many millions.
But what are Zynga's supposedly questionable business practices? According to a critique of Zynga's policies on Techdirt, the company is far from transparent in its offers of in-game currency to often underage consumers. In order to receive "Farm Cash," users can take surveys and receive "free trials" of products - most offers only require a cell phone number.
The problem comes along with the cell phone bill. Free horoscopes end up signing the user on to a cell phone "downloadables" contract, which offers ringtones and games for a set monthly fee. Failure to return the "free trial" products within a week can saddle unsuspecting users with heavy bills. This, Techdirt argues, is the heart of Zynga's financial success, and it's no way to run a company.
Virtual Currency, Real Profit
Techdirt may have a point, and similar offers have taken root in graphical virtual worlds like Second Life, where kiosks offer Linden Dollars to users who sign up for free trials of products or provide personal information to survey companies. The highest Linden Dollar rewards, of course, go to those who complete offers that have the potential to cost them huge sums of money.
Since Zynga is a private company, there is no way of knowing precisely how much revenue is generated from questionable surveys and trial offers like those in FarmVille, but if user participation in Zynga's Haitian charity drive is any indication, a substantial population of Farmville users carry large amounts of "Farm Cash."
This is hardly just a virtual world issue. As Zynga prepares to offer public stock, its financial methods become a major issue of concern for institutional investors interested in riding the booming financial market for online game developers. If any of Zynga's revenue earning methods come under legal scrutiny, it could badly damage public interest in the company and shutter its hopes for expansion through public investment.
Another question that might interest potential investors: If fine-print and legal trickery are Zynga's main revenue creating pushes, what of the much-touted virtual currency market? How many players of Zynga games purchase Farm Cash outright as opposed to the purportedly "free" option of filling out surveys?
If Zynga's currency market is limpid save for those holding potential free trial time bombs, might the luster of Zynga's social media gaming operations fade in the eyes of large investors? Faced with serious questions from other bloggers and industry veterans, Zynga would do well to respond before taking any further steps towards a possible disaster.
Offerpal Dodges a Public Relations Bullet
Most browsers familiar with the Internet are at least tangentially acquainted with the types of advertising offers Offerpal pushes. The user fills out a few pages of personal information (marketed to third parties) and fills out a "free trial offer" for a product or service in exchange for anything from game tokens to credit towards a Playstation 3.Enter Offerpal's recent rethinking of its free trial programs. According to an article from Fox Business News, Offerpal is upending their previous business model and bringing in layered oversight to calm agitated participants. Among Offerpal's planned reforms:
Creating a "Compliance Server," which will serve as a 24x7 electronic watchdog to look for any unapproved deviations to an advertiser's landing pages in order to ensure that any violations are caught and removed within five minutes.
Upgrading our Customer Support facilities by adding more representatives and better tools to ensure that every ticket is processed within 48 hours.
Partnering with well-known industry associations and other offer provider platforms to jointly form standards boards and committees that will establish industry-wide standards and regulations;Refining the company's multi-step review and approval process to ensure that every offer it distributes is in complete compliance with the developers and publishers through whom the offer is distributed.
Most intriguing among the batch of frantic reforms is the move to create industry standards, with Offerpal firmly in the driver's seat of any suggested best practices. It appears Offerpal is prepared to capitalize on the current complaints by turning a potential public relations disaster into an opportunity for Offerpal to press other, smaller web marketing companies into standardizing the process.
By successfully addressing
potential problems early, Offerpal has effectively taken the momentum
out of future complaints by proactively offering to fix any future
problems through calls for standards and best practices. Whether
Offerpal intends to follow through or not remains to be seen, but in
the short-term, it appears Offerpal may have avoided the worst of the
fraud discussion currently surrounding its big partner.
How Zynga's Troubles Are a Boon for Offerpal
With Offerpal leading any potential meeting on the standardization of "free trial offer" marketing, no other marketing company will be able to push for standards that unduly limit Offerpal's ability to continue its business along the current vastly profitable lines.This is both a shrewd business move and evidence of why Offerpal continues to thrive even as its major corporate customers take hits over the nature of Offerpal's deals. The development of better customer service and fraud reporting also helps negate claims Offerpal isn't doing enough to prevent the kind of deceptive advertising Zynga is now looking to drop.
Last year Offerpal responded to criticism of its marketing
methods ahead of its rollout on Facebook, and as a result the negative
press fizzled. If only Zynga had approached the blogs and industry rags
with the same awareness of social media's power. It's almost ironic.
Now Offerpal is poised to continue its profitable venture without
fighting Zynga's battles. Cutting their losses by dodging the question entirely could prove to be a shrewd business move.
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