Friday, November 6, 2009

Offer walls and marketplaces: the real alternative to "scamville"

Let me just say one thing up front: well done, Mr. Arrington! From the first clash with Offerpal (former, it seems) CEO Anu Shukla, through this post and others, there's been quite a stir around offer walls and the big question of the legitimacy of their offers (some news sites in Israel literally copied the post's words. But that's another type of scam). Beyond the provocation, there are a few actual issues here, that I think are left out since "scamville" and CEOs being replaced are much more sexy.

Here's the thing: if the social gaming industry is a viable industry (which I think it is) it should, at one point, start to mature as one. Maturing doesn't mean moving slower or becoming less appealing to users, on the contrary, there's still huge potential and a momentum so strong can't just be stopped by a few posts. But what it does mean is that you start getting attention for your mishaps and you need to start addressing this attention in a tone that is way, WAY milder and more responsible than just saying "this is sh*t and bullshi*t" (look here for some current thoughts of industry leaders and how I'd respond to them).

Now, monetization has always been an issue. Money draws attention from both fraudsters and regulation, and new monetization mechanisms will draw more attention. Offer based monetization brings in some of the old, battle-scarred players of the online market, namely ad networks and affiliate network – but in a slightly new disguise. To anyone working in the industry long enough this is far from a surprise: for a long time, maybe right at inception, offers were based not on value to the customer but on the ability to move them to premium services without prior notification. This is not a viable business model, and it causes interesting effects like territory hopping (ad networks exploiting a territory until regulation kicks in, then moves to another) and cross-leading (affiliate networks using each other’s affiliates to create false leads for clients and boost the networks’ alleged lead generation abilities).

How do you fight these off? I don’t think that’s the main issue, and that’s what Arrington did well to uncover. First of all, if you adhere to regulation (the Mobile Marketing Association’s, for example) you’ll end up almost without this type of scams (and without a business model, but we’ll get there). I also think that knowing who are the bad players in the ads market, then not working with them, is easier than expected. If you’re a developer, go through your offers wall periodically, and contact your offers wall provider about ads you don’t want to see on your wall. If you’re Offerpal, SuperRewards or SupersonicAds and figure that you have an issue with scams, monitor more than just your incoming customer support tickets (the whole issue is about what’s NOT reported because people don’t notice it) – vet your advertisers up front (and I dare say – double vet your ad networks and affiliate networks) and control the velocity and conversion of your users comparatively between offers. I’d think that one indication of scam offers will be a low effort-high reward model since they presupposed higher revenue per user then an average offer; I’d also think that cross-leading is evident by looking at velocity of lead creation by segments (new vs. existing users, certain geographies). Use profiling and find the right data source – both practices discussed on this blog in the past. These can be done automatically, but require a first phase of manual review to understand what users actually do and build a group of domain experts that will enable proper planning of such a system in a way that's not as restrctive as you might think - killing legitimate traffic is really easy. If you don’t do that, it’s a race to kill your business – either regulation will limit your actions or you’ll lose all your money to churn and chargebacks, something that even developers are feeling today since almost no one will protect their virtual currency payments.

Are we done yet? Not quite. As I noted, I think that the main issue here is not fighting off scams but rather what is the viable monetization solution. Advertising has a bad reputation, but it seems like most developers are at a stage where they simply value ANY monetization, no matter its reputation. These days will pass soon (and they would have, even without TechCrunch’s direct attack) – offer walls will be more regulated, and while offer based monetization does provide more conversion, it cannot be the main or only driver for growth. The main driver, as always, will be user to user trade. Because this is where the free market reigns, and where prices can really soar not because you regulate them, but because there’s real demand. Controlling this kind of economy is a lot more complex, but not allowing it to happen will make “scamville” more and more of an issue. How do you allow user to user trade without drowning in fraud? That’s another, completely different issue. I’ll discuss it in a future post.

What do you think? Is offer-based monetization a real, viable model – and what will take to keep it going even after it’s highly regulated? Let me know!

I’d like to thank Yuval Samet for helping with the industry’s angle and live reporting for VGS!


Yuval Samet said...

I wonder if user to user trade is a common action for the average user.
IMVU's and 2nd life's experience indicates it is valid, though the revenues growth will not be exponential in this case.
I assume only a small portion of the users do trade (Pareto's principle is very relevant over here).

Do you believe Farmville users will find themselves selling crops in secondary markets?

Ohad Samet said...

Let me quote something I wrote in another forum: "I think that "offers wall" is rightfully termed differently because it introduces an incentive for the user to click an ad or complete an offer that's external to the inherent value (or lack thereof, in cases of scams) of the ad. It's an important distinction since eventually, if this model evolves, we'll start to see really valuable offers (such as, for example, microtasks/ESP games)."

I think that the industry offers innovative exchange mechanisms and users take them where they want to take them. I think U2U is the next logical step in evolution, and actually think that it's neither hard core, nor would it necessarily be a 20/80 trade. If there's a big enough mass of players and enough game options, a lot of users will sell just a few items each (and ebay is a good example).

The question is what will they sell, and what will they expect for in return. That's an issue for another post...