Reconstructing Zynga: the industry's opinion on fraud in social games

My previous post about fraud in Social Games raised a few objections and spun a few sub-discussions. That's great, because it shows people are interested, and there's a LOT to be discussed in this field. I wanted to circle back to some of the main points that were raised in this discussion.

There's nothing new about fraud. Really. Ever since people walked this planet, I would assume, there has been fraud - more and more as time advances and human kind introduces additional currencies that replace tangible goods. It's beyond the limited availability of tangible goods; being able to control supply and demand through a symbol (call it cash, checks, virtual currency or repackaged subprime mortgages) is the basis for modern economy. But is the fact that fraud isn't new merely a reason for underestimating it? Definitely not; if it were, then why is the Spanish Prisoner scam, better known in its current days' reincarnation as the Nigerian Scam, still rampant on the web?

Deconstructing Zynga: what's up in Social Gaming fraud

Talking to friends in a party I had to hold myself from becoming too smuggy-smug-smug. Yep, the lot of "I'm too good for Mafia Wars" geeks fell prey to the eggplant-growing rhythm of Farmville. Eggplants. My friends. I don’t even like eggplants, but still felt responsible in a way, though they’re only a drop in Zynga’s estimated 15M+ daily users (the numbers keep growing...). But things were only getting better for me that day.

“You know”, said one of the guys, “this social gaming stuff is really worth a lot of money. I know someone who made $100K off this thing”.

KACHING!!! Immediately he had my full attention. You don’t just MAKE $100K playing social games by the book, even if you break a finger playing Texas Hold’em. I had to know.

There's a kind of hush

Yes, it's gaining momentum. TechCrunch posted today of an acquisition in the field of micropayments for gaming. We're at the verge of an explosion - the mass proliferation of startups and technology companies trying to get a share of this growing industry. They're goig to face a lot of challenges (beyond fraud - even managing a payments or dispute resoluion operation is costly), but I'm personally interested, obviously, in the rise of marketplaces.


Yes, buying virtual credit using a stolen credit card gets you... virtual credit. That you can later find a way to sell, that's true, but marketplaces are such an ever-green environment for fraudsters to operate, since they let you exit funds so much easier. And these guys, no doubt, are going to be a lot more creative and tech-savvy - in a non-tangible, rapid environement.

Why is this a problem? Because most risk controls today rely of the item being shipped (to a real address, that matces the billing address of the card, and also matches at the bank). They also rely on the ability to delay shipment when yuo suspect someting. Don't buy tales about sophisticated "dynamic risk scores", I tell you, it's all AVS and some additional blacklists. And at this point exactly, in these quick, electronic transactions with no account history, statistical models and standard risk controls are failing. Let the arms race begin.

This summer is about digital goods

"Bogdan Ghirda is paid £70 a month to do what most bosses would fire him for. From the moment he arrives at work he plays computer games on the internet."
(From the 2005 Observer article, "Virtual sweatshop")

Gold farmers didn't invent digital goods, though they've been around for quite a long time. People are not only buying MMO money - the market has expanded. What started as a black secondary market for harvested goods soon became a profitable channel for gaming companies that make their money - surprise surprise - based on the interface of your all-favorite social networks. Yes, while Facebook is struggling for monetization, companies like Zynga make hundreds of millions of dollars by running social games that are multi player, asynchronous, and let you buy any type of addition, from "special powers" for your vampires to "new clothing" for your soccer team.

You gotta love this culture. Honestly, it's amazing to see the thought, time and money invested in these games. There are numerous trends in this area, attracting more and more talented people who feel the buzz and want to take their share. And as they advance in creativity, these games move to main stream social network users but continue to evolve in the complexity they provide and the story they allow you to tell.

With them, obviously, come the fraudsters. In an industry so used to checking physical shipping destinations (via AVS) and managing proofs of shipment as a tool for dispute resolution between sellers and buyers, how do you deal with instantly delivered, non tangible goods where quality is sometimes purely in the eye of the beholder? In addition, fraudsters looking to steal digital goods are usually a mixture of sophisticated internet users and kids using their parents' money, sometimes referred to as "friendly fraud". So, if you're in the Risk business, mobile payments or into social networking in general, expect a pretty hot summer in everything digital, with fierce behind-the-scenes competition and major losses to fraud. I am looking forward to seeing which will be the winner in this field - is Paypal stirring something up with the new API, are small players like Boku.com going to lead or is Facebook going to make its debut in payments supporting the tidal wave of social gaming on its site? The coming months will tell...