So much for the power of the press.
A month and a half ago, TechCrunch editor Michael Arrington’s “ScamVille” exposé seemed like it was going to blow up the entire burgeoning social games/virtual currency industry.
Mike’s big revelation was that Facebook gamesmakers Zynga, Playfish and Playdom were making huge portions of their revenues off of a business called “offers” marketing. (That’s where advertisers offer gamers free product trials in exchange for virtual currency.)
As Mike presented it, the problem was that “offers” were particularly susceptable to two types of scammers:
- Users who scammed advertisers by signing up for new games accounts over and over in order to keep getting free trials.
- Advertisers who scammed users with “free” products that didn’t also end up free. (Paging the Video Professor.)
Though the number kept changing, TechCrunch eventually decided that as much as 30% of Zynga’s revenues came through this sketchy offers business.
It was a big, sexy scandal, and like everyone else, we figured the social games industry was in trouble.
We were wrong.
Let’s recap what’s happened since the ScamVille scandal broke:
- Electronic Arts acquired the number two gamesmaker Playfish for $300 million and a $100 million earnout.
- The number one gamesmaker, Zynga, booted all offers from its games, telling us 90% of its revenues are users buying their own virtual goods.
- Then, making its employees and early investors rich, Zynga turned around and took a $180 million investment from Silicon Valley’s hottest investor, Digital Sky Technologies.
- DST CEO Yuri Milner told us the way Zynga handled the scandal made them feel even better about the investment.
- The number three gamesmaker, Playdom, came out and announced its profitable with $50 million revenues.
The “ScamVille” expose hasn’t gone entirely unnoticed in Silicon Valley. It whacked the middlemen “offers” networks that facilitated the transactions hard. After a calling Michael Arrington’s campaign “shit, double shit, and bullshit,” Offerpal CEO Anu Shukla is out of a job. Offers network Gambit was booted off Facebook.
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