Entrepreneurial

TechCrunch founder gets last laugh

November 6, 2009

Michael Arrington

The saying “he who laughs last, laughs best” comes to mind in relation to a recent spat between TechCrunch founder Michael Arrington and Offerpal Media founder Anu Shukla over Arrington’s assertion that social gaming companies, like Zynga, are making hundreds of millions through “unethical” means.

Arrington’s original post on the issue, titled “Scamville: The social gaming ecosystem of hell”, details how social media sites like Facebook and MySpace are complicit in the scams, because “they’re getting such a huge cut of revenue back from these developers in advertising.”

Arrington followed this up by challenging Shukla at last week’s Virtual Goods Summit in San Francisco; claiming that direct-marketing companies like Offerpal act as middle men in facilitating these scams. Warning the following video has strong language:

It appears as though both sides have been busy doing damage control after the incendiary confrontation, with Offerpal posting a blog defending its position and following up by replacing Shukla as CEO with George Garrick, who formerly guided the successful IPO of advertising firm Flycast Communications, which was eventually sold for $2.3 billion. Garrick was quick to tackle the brewing controversy in his first Offerpal blog, titled “An open letter from Offerpal’s new CEO.

In it Garrick states: “I’ve only got 48 hours under my belt, and have entered this industry in the midst of a recent firestorm of controversy… I am not going to comment on events leading up to this situation, nor on other players in the industry, but I have quickly concluded that regrettably, Offerpal has been guilty of distributing offers of questionable integrity from some of our many advertisers.”

For his part, Arrington has continued to press the attack, blogging about the showdown and Shukla’s subsequent demotion and soliciting reaction from MySpace and Facebook (“Facebook to increase enforcement of anti-scam rules”). He also posted on Zynga founder Mark Pincus who admitted he deliberately ran these direct-marketing scams in order to raise revenues quickly and show investors his small company was profitable right off the bat. Warning, the following video has strong language:

For Arrington the main point, which is somewhat lost in the melodrama, is that these “scammy” practices by Zynga and others make it virtually impossible for other social gaming startups to participate equally in the space, without running the same unethical business model. In the end they just can’t compete monetarily, says Arrington, as companies like Zynga can outspend them on advertising to get their games on Facebook and MySpace.

“It’s time for this to stop,” wrote Arrington, who definitely had the last laugh in this one. “Facebook and MySpace need to create and enforce rules against it so that game developers aren’t tempted to get a competitive edge by scamming users. And if Facebook/MySpace won’t protect users, then the government will have to step in.”

What do you think of this controversy? Who do you support in the debate: Arrington or Shukla? Should the government police this kind of Internet advertising? Post your comments below.

Comments
5 comments so far | RSS Comments RSS

I think that Arrington was 100% correct in confronting the various players and shining a spotlight on these scams. I hope that he keeps up the pressure until we see some meaningful, aggressive movement by Facebook and Myspace in dealing with this problem.

Shulka was justifiably removed from his position; his comments and behavior suggest that these scams run by Offerpal were part of his business model and not aberrations. Zynga and other game developers should handle Offerpal the same way that they handled Tatto Media – fire them.

 

I think the facts are a little fudged in this summary.
The blogger in question attacked the CEO in a public form with 3 specific issues: kids are stealing credit cards from parents, advertisers are not getting value, and the platforms are complicit with this activity. From watching the video she gave data and facts to counter these accusations: they dont see that kids stealing parents’ credit cards is a statitistically relevant number, advertisers are happy with quality or they would not stay, and platforms hve published stringent guidelines that have to be followed.
Had the original question been- are there some or how many ads of less than savory quality – the answer may be different.
We will never know, but the blogosphere has distorted facts as is often the case.

Posted by steve sandbar | Report as abusive
 

Scams in social gaming is just the the tip of the iceberg, the bigger picture is the scam trio of: cpa networks, their affiliates and whoever is behind the shady offers you mentioned ["shady mobile offers, diet scams (hello acai!), homebiz offers, and teeth whitening etc.]

They (cpa networks, their affiliates and the shady companies running the scammy offes) are all making millions daily from deceptive advertising and ripping people off – Facebook, Google, Yahoo, Fox, media buy ad networks etc make millions from the ads and do little or nothing about them because they don’t want to lose the revenue?

A very short term outlook because long term damage is done to their brand equity and to the general perception of marketing and advertising online meaning it’s harder for the ethical companies to thrive…

When people find out the truth (or when they get scammed) they are going to (at least partly) blame the carrier – be that facebook, Google, ABC news website or wherever else they saw the ad.

So good on Arrington for the expose – how about a follow up giving the bigger picture?

Posted by John Hooper | Report as abusive
 

While I appreciate the challenges start-ups have in reaching critical mass and in attracting funding and investors, the ends don’t justify the means. How can a business expect to be viable and gain respect if they don’t respect their audience/customers? The bottom feeders are the first to leap to new platforms to ply their wares; ethical business leaders shouldn’t succumb to the appeal of “easy money” and instead build their business responsibly. At the same time, the investment community needs to differentiate between those building a business on a solid foundation vs those building one on a house of cards, and not be seduced by models that have to resort to deceptive business practices. I for one hope the FTC investigates and ultimately prohibits the spurious come-ons , protecting the consumer and fledgling start-ups who are trying to build a business legitimately.

 

It’s obvious from your remarks that I’m nowhere near as smart as you guys. But I am smart enough to know that if someone offers me a job to work out of my home and earn 78.00 an hour, that it’s a scam. I agree with what you have all said about these companies having a responsibility to their customers. However, these scam victims also need to take responsibility for themselves. If it sounds too good to be true, that’s because it is.

Posted by Dorothy Kuns | Report as abusive
 

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