New York under zero: some thoughts on the Engage! Expo

"If there are any Mattel engineers in the audience, the astronaut Barby's space suit is not crash proof" (loose paraphrasing on Will Wright's keynote)

Yep, the keynote was entertaining and Engage brought a lot of vendors to snowy New York's Javits center. The two day event, though a bit low on developers, had a few interesting sessions and some interesting chances to share opinions. So what did I pick up from these two full days?

Payments and mobile

This Engage was heavy on payments companies, and by payments I mean mostly - if not exclusively - mobile payments focusing on SMS billing through carriers (obviously Paypal was there - a few of my colleagues and me - and additional sponsors). While the value of mobile payments for a streamlined, high conversion purchasing experience is clear (on the verge of overstated), the abundance of these companies over such a small space only served to emphasize how not-that-different these companies are from one another. Better coverage, low fraud and a promise for lower fees in 2011 were the value propositions.

Now, while I think mobile payments are clearly an avenue the industry must pursue, it was clear to me that until operators make a big leap of faith to embrace mobile payments, this field will not move much unless the companies themselves move to a Zong+ like, account based system that allows users to add a financial instrument and for the mobile payments company to charge it directly. And, as you are soon to find out, account based systems are a whole new world of pain - while with direct billing you charge a prepaid or underwritten balance an operator is liable for, accounts are a much more complicated structure. Plainly put, you start writing big fat checks directly to fraudsters' pockets. Looking at chargebacks in hindsight, as at least two of the participants suggested, just doesn't cut it. So mobile payments are looking for the next big breakthrough, and if fees don't drop soon (and they probably won't), I'm expecting some M&A work as competition heats up.

Offers and tasks

I'm a long time advocate of offers. Yes, offers have their "dark side", when misused, however they have a huge potential for creating incremental volume - something I personally love. When at the conference I heard that Offerpal are integrating tasks from Amazon's Mechanical Turk, and have been hearing assertions that competitors are going to follow suit (also heard it on stage from IMVU.com's CEO). Why is this good? I think that using social gaming to crowdsource simple but human intensive tasks is good for user education - do something good instead of just signing up for Netflix (nothing bad about Netflix, though); plus, it's good for the potential work providers - ideally, research institutes, advanced OCR services and others. In short, tasks are the new "green". Two caveats in this optimistic view, though: the first is that there is a serious chance of shortage of tasks, at least until this market picks up; the second is that abusing this model is still doable, maybe even easier than standard offers - if I were a fraudster, I'd immediately outsource my CAPTCHA operation to Amazon. Oops! Better read previous posts and do some risk analytics, guys, or you'll find you're breeding an ecosystem of thieves.

Zero cost of goods

I had this feeling in the past, but the conference reassured me: the "zero cost of goods produced" concept is both a blessing and a curse. Why a blessing? Because developers, bathing in the sensational bliss of high margins, were keen on trying new things - new business models, new payment options (30% take for mobile payments? come on) and various experiments in user interaction (offers, vanity items and many other really cool stuff). Why a curse? Because the notion has outgrown its proper boundaries, actually harming some of the developers. Assuming that if you just auto-refund your zero-cost virtual good, the problem of chargebacks goes away is a mistake, and not checking operational costs related to this "zero cost" work will make your bottom line look pretty bad eventually. Additionally, zero cost of goods got many developers focused on solely growing their user base and ARPU - both important but, as a few speakers noted, shifted attention from a few other very important stuff. Like fraud, like going international, but also like pricing - when the third pretty senior person suggested to developers that going all-in on a freemium model just isn't a good idea, I started to understand that the problem transcends risk management and controls; it's starting to detach companies from sound business judgment. So this is probably time to reconsider - it's all a part of growing up as an industry.

P.S. One last thing

I was delighted to meet a few young and talented entrepreneurs working exactly on the things I find exciting - namely p2p trade and new, great ways to engage users. It's fun to see how ideas evolve, and I'm looking forward to hearing more about them and others like them. Well done, guys!

In defense of offers

Question: Who’s the bad guy in the house? (All together) OFFER WALLS! (Once again) OFFER WALLS! (Didn’t hear ya) OFFER WALLS!

Ok, ok, enough with the chanting. Bashing offers is so popular these days it’s almost a new sport. Can’t blame most of the commentators, it’s tempting, and the whole “scamville” charade just made it even more fun. And why not? Offers can be easily portrayed as devil’s spawn, the portal to mischievous premium billing without your consent, money laundering, call it what you may. It’s so easy to terrify non-technical people that you’re almost inclined to join; and if one can benefit a bit from it (no paid service to rid your computer of scam offers yet? Don’t worry, it’s just around the corner), then why not. So looks like we’re covered. Or are we?

Where is my mind? Way out, in the water

(As I'm writing this, EA has announced it has bought PlayFish. All the more reason for a call to the industry to stop panicking and start taking responsibility for its own faith with big fish coming to play. But read on...)

One of the many highly useful skills I learned in Officers' course was artillery aiming. There was a lot more fun stuff I could imagine doing in any given afternoon, but there's definitely nothing like it. And when you just don't have an option (and believe me, in officers' course you don't have an option), you just give it your best shot. Pun intended.


So there I was, trying to get 155 mm cannon to hit a barrel. I don't know if you know how these things go, but artillery aiming is some simple arithmetic and a lot of art. You aim the cannon one way, then course correct the other, then again - in shrinking intervals, until you hit the target (or 50m away from it, which is considered good enough). It must have taken me 5 or 6 attempts to hit the goddamn thing - the gun crew was not a group of happy campers, nor was I. But all in all, it was a good drill, and I passed the test, and got my rank of deputy lieutenant, and mom was happy.

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).

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?

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...