Friend of Maxim and documentary filmmaker Ben Gonyo dropped us a line about a new series he has put the finishing touches on called MMO Future Shock dealing with the ever increasing size of the gaming industry, particularly the massively multiplayer online segment.
Industry bigs, including former Boston Red Sox pitcher-turned game producer Curt Shilling, weigh in with their own thoughts on the direction of the genre and why more than 180 million people worldwide spend their waking hours in a virtual world.
While Activision Blizzard’s mainstream MMO blockbuster World of Warcraft charges users a monthly fee, many game companies, such as those which put out games like MapleStory and Free Realms, are changing the paradigm for making moolah.
Enjoy the first episode above and Gonyo promises additional episodes in the coming weeks, so stay tuned.

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Almaz Capital Partners has purchased a 23 percent stake in Russia’s casual web-based game publisherAlawar Entertainment.

The purchase price wasn’t disclosed. On the strength of its Russian-speaking audience, Alawar has risen to become one of the top 10 casual game publishers worldwide.

Almaz Capital Partners is a venture capital firm that invests in Russian technology, digital media and communications companies. It’s buying its stake from Finam Investment Holding, which invested in Alawar in 2007. The casual game industry is strong in Eastern Europe.

Alawar has 60 games on a variety of platforms: PC, Mac, iPhone, PlayStation 3, mobile Java and Android. The company distributes its games on its own in Ukraine, Poland, Germany and Finland. The company said its market capitalization has quadrupled in the past 2.5 years. Alawar was founded in 1999, and its games are available in 60 countries. It has published 200 casual games, including Farm Frenzy, Craze, and the Treasures of Montezuma. This year, it plans to enter the social game and massively multiplayer online game markets.

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If you are worried about the effect of violent computer games on your child, here’s a shocker: sex games with graphic visuals, including those which test the player’s ‘raping skills’, are making their way here, mostly from Japan.
Rapelay, a 3D game created by a Japanese firm, Illusion, with a storyline’ prodding the player to rape a woman and her two teenaged daughters in a moving train, a park and a restroom, is among the hot picks’ in the grey market. A source involved in direct marketing of foreign goods with suppliers in Chennai’s Parrys and Burma Bazaar markets told TOI that he sold 20 copies of Rapelay last week to customers who had placed orders in advance and that 50 more copies are expected in a fortnight. The game is available in grey markets in other metros too including Palika Bazaar in Delhi, he added.
These are mostly pirated copies made from an original smuggled in from Japan or ordered through online shopping websites earlier. Several websites like Amazon.com had removed Rapelay from its virtual shelves after protests in July.
Gamers say several such hentai (Japanese porn) games are also available on the net and can be downloaded on to mobile phones as well. “Young people addicted to these games may start seeing violence as an integral part of sex. While films make children emulate characters, such games where the player is the character can make them act it out,” warns sexologist D Narayana Reddy.

This puts the onus on families to install parental control software to block access to such sites from computers and playstations, say counsellors.
It all started with a pop-up. Gautham Rao, a Class XI student in Hyderabad was surfing the net last October when the window showed a beautiful woman and prompted him to ‘dress her up’ using a variety of attires displayed on the screen. Rao spent hours dressing her, and later, undressing her. A list of similar sites took him down a dark virtual tunnel lined with bizarre games, where the player takes scores of avatars to undress and grope women of all ages, profiles and ethnicities. It took a few months before Rao’s parents discovered the boy’s horrible pastime and got him counselled by an expert.
A year later, the internet is today littered with games that allow players not just to undress and grope women characters, but to tie them up, torture and rape them. While violent sex games are getting more real with 3D animation and special effects, the authorities seem to be either ignorant or helpless. “We have not come across any such game CDs during our raids,” says C Sridhar, superintendent of police, central crime branch. What he does not say is that the police, while seizing CDs of pirated movies and porn films, seldom look for game CDs.
Cyber Society of India, which works in the area of internet security, is also yet to study the matter in detail. “We are an NGO with no criminal jurisdiction. We mostly deal with online credit card frauds and cyber crime, but now we think we need to look at online safety from the angle of such offensive games too. In fact, this was in the agenda of a meeting of the society on October 23,” says society secretary V Rajendran, who adds that the new IT Act which came into effect on October 27 has empowered the Computer Emergency Reaction Team- India (Cert-In) under the IT ministry to monitor and block offensive content.
However, Cert-In says it does not have the resources to monitor and block the scores of websites that offer rape and other violent games. “Only if there is a specific complaint about, say child pornography, can we step in,” says a senior official. “We are aware of websites with violent sex as content accessible from India, but it is technically unfeasible to block all these sites. When the servers of these websites are situated outside the country, we cannot do much. Pursuing cases against offenders is also a long-winding process.”
That puts the onus on parents. Says Bhavani K Raman, founder of Chennaimoms.com, an online community of mothers that discusses internet safety: “Parents must be aware that many phones and gaming consoles like PSP and playstations have built-in wireless access. So it is wise to install parental control software to restrict access.” The control software allows you to block certain sites or make only some sites accessible for children and tells you the sites visited and the duration.
Another concern is about browsing centres making all kinds of websites accessible to children. Despite guidelines issued by the police, net cafes do not run an age check on visitors nor do they have firewalls. “The most important thing,” Raman says, “is to create awareness in the child. Talk to your child about the danger and downside of using these games and sites. An informed child is a safe child.”
Advisory for parents
* Use Parental control software that helps you select the sites your child can visit and set duration
* Use kid safe browsers like Kidzui and Kidrocket
* Search engines have settings which exclude adult material from search results.
* Upgrade your browser as the latest versions have better security settings
* Keep the computer in a place where everyone could see the monitor
* In the computer, create one account for each child without administrative privileges
* Check browser history after your kid used the computer
* Monitor their computer usage in browsing centres which are becoming hot spots for gaming and adult material
* Talk to your child about the danger of using adult sites.

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Yesterday Offerpal Media changed CEOs. Cofounder Anu Shukla, who just last week denied that her company engaged in any questionable advertising on social gaming applications, was replaced by veteran startup executive George Garrick. For all the background, see our Scamville post and the related updates at the end.

Garrick, who has been the CEO of Offerpal for less than 48 hours, is already taking a polar opposite approach to his predecessor. He left a lengthy comment, reprinted below, on a post earlier today about Facebook’s policy and enforcement changes around application offers.

The full comment is below. But he doesn’t beat around the bush.

Garrick admits that Offerpal made mistakes – “I have quickly concluded that regrettably, Offerpal has been guilty of distributing offers of questionable integrity from some of our many advertisers.” And he says that recent communications with partners stating that Offerpal was in compliance with Facebook rules were innacurate – “…we’ve also made some erroneous communications to partners and developers about the state of our compliance. In particular, we recently sent a letter to our Facebook developers which assured them that we were completely in compliance with Facebook standards, when in fact we were not.”

Garrick also makes a series of promises in the comment, including “any offers we distribute meet stringent standards of integrity and quality, as specified by our partners, credible industry experts, and good old common sense” and “we will do everything we can within reason to lead the industry and set the example in these efforts.”

Garrick is very much taking the Mark Pincus approach to dealing with this situation. He’s admitting mistakes and he’s promising his company will do better. Compare his words to Shukla’s a week ago. It’s night and day.

Offerpal Today:

I am the new CEO of Offerpal (as of yesterday) and although I’ve only got 48 hours under my belt, and have entered this industry in the midst of a recent firestorm of controversy, I thought it was time to share some of my thoughts and plans.

Direct marketing, in particular lead-gen, has always been full of questionable, misleading, and outright fraudulent marketers and offers. We all get these daily via snail mail, email, phone, and late-night TV. Unfortunately, this is the nature of the Direct Marketing beast.

Although a distribution channel which carries or distributes such offers does not actually create the offers, I do believe that a channel that wishes to be perceived as credible and of high integrity does indeed have a responsibility to make sure that the offers it distributes are not deceptive or “scammy”.

Over the last year, the use of offer-based payment systems such as Offerpal has skyrocketed, and it’s pretty clear today that the industry has not kept up with its explosive growth in terms of properly policing the offers that are being distributed.

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.

The policies we’ve had up until now have not been thorough enough to prevent such offers from airing, nor has our organization had the proper focus and accountability to ensure quality assurance over the offers we distribute.

As a result, we’ve had a number of offers which were recently taken down by either ourselves or our partners. Although we believe that the majority of our offers were valid and not misleading in any way, we have acted conservatively by taking down the majority of our offers and we are now in the process of letting them back into the system after inspection.

However, we’ve also made some erroneous communications to partners and developers about the state of our compliance. In particular, we recently sent a letter to our Facebook developers which assured them that we were completely in compliance with Facebook standards, when in fact we were not. This was not a deliberate tactic of any kind, it was a mistake that reflected our ineffective checks and controls. But nevertheless, it was an inaccurate claim and for that we take full responsibility, and I apologize to Facebook and to their user community.

The good news in all this is that it has brought to light some very important issues for our collective industry which need to be addressed immediately. For our part, we will be doing the following:

1. It will be a fundamental part of the Offerpal culture that any offers we distribute meet stringent standards of integrity and quality, as specified by our partners, credible industry experts, and good old common sense.

2. We will individually inspect and approve every single individual offer before it is allowed to go into distribution on our system.

3. We will customize our offer profiles to meet the needs and standards of each partner and will not attempt to have a “one size fits all” approach.

4. We will do everything we can within reason to lead the industry and set the example in these efforts.

Over the coming weeks you will hear much more from us on this issue, but more importantly you will see action and results. I will remain personally involved in this initiative and consider it one of my highest priorities in assuming my new role here.

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I can’t play poker, but I do enjoy watching it on TV. We’re in the middle of the 2009 World Series of Poker, an event that draws thousands of professional and amateur players to Las Vegas every year. The grand finale is the Main Event, a massive Texas Hold ’Em tournament with thousands of players and millions of dollars for the winner.

Tournament poker used to be the province of professionals. But starting a few years ago, a huge wave of amateurs has invaded the game. As a result, of the thousands of entrants into the Main Event, only a few hundred are real pros.

To my surprise, I’ve actually learned a lot about entrepreneurship from watching the World Series of Poker. But it shouldn’t be too surprising. Both rely on acting strategically under conditions of extreme uncertainty. And, in both, small changes in your odds of winning can have a big impact on the final outcome. In fact, I now routinely use the Main Event to help entrepreneurs cope with a frustrating paradox.

Why are some terrible entrepreneurs so successful?

Because the structural barriers to creating a high-tech startup have been lowered dramatically in the past few years, we’re experiencing a huge influx of entrepreneurs. This is a great thing. But it’s meant that there are an awful lot of startup stories floating around. When those stories take on the status of myths, they create tremendous confusion. Naturally, we want to emulate those that have been successful. But that’s not always a good idea.

In the World Series of Poker, no professional has won the Main Event in seven years. When you think about it, this is very surprising. Professional players are so much better than amateurs that they can make a living – in many cases, becoming very very rich – by exploiting the difference between their level of skill and the level of the people they play with. The best of the best win many tournaments each year. By any objective measure, they are much better players than the amateurs. Yet the Main Event has been won year in and year out by a complete unknown player. Some of those amateurs go on to become semi-pro players. But most have never won another tournament after their big win. Why?

The reason is that being a professional player shifts the odds of winning a given poker hand in the professional’s favor, just a little bit. Over the course of a year, a given pro will play thousands of poker hands, and so this shift in probabilities adds up to dramatic winnings. But on any given hand, they still have a significant probability of losing — even if their play is perfect.

Similarly, given enough amateurs in the field, the law of large numbers means that at least some of them will get lucky enough times to outperform even the best pros. That’s why I can say with some certainty that an amateur will win the Main Event this year, even though I have absolutely no idea which of the six thousand entrants it will be.

Entrepreneurship is similar. So much of what makes a startup successful is totally out of our control: the timing of the market, the behavior of competitors, the IPO or M&A window, underlying technology trends and, of course, the human factors of investors, co-founders and employees. Truly successful startup methodologies like customer development or the lean startup can only hope to increase our odds of success — they can’t guarantee it. The converse is also true: even entrepreneurs who do everything wrong sometimes get lucky and make a lot of money anyway. Some even do it repeatedly.

That’s why, for any tactic or strategy — no matter how hare-brained — you can find some “proof” that it works in some company somewhere. That’s what makes processing startup advice so hard. Just because someone has had a success doesn’t necessarily mean they understand why they were successful at all.

Which brings me to the second thing I’ve learned from the WSOP. It’s called a disciplined laydown. In poker, winning requires that your hand beats your opponents hand. The problem is that you don’t know what your opponent has. Amateur players often believe that their success depends on the quality of the cards they are dealt. Consequently, they fold their bad cards and wait for that one big hand to get their chips in with. Unfortunately, having a big hand doesn’t mean you’ll win — your opponent could have an even bigger hand. That’s why the most important skill in poker is not bluffing, counting cards, or computing the odds. It’s figuring out when you need to fold a big, big hand. Watching the pros do this on TV is amazing. Over time, they develop an uncanny instinct for knowing when they are beat, and not throwing more money after bad.

In fact, once you realize that this is the most important skill in poker, it becomes clear that when professional players bet, they are really probing for information. Everything is calculated to help them figure out if their opponent has one of those big hands that might beat them. Folding in those situations saves chips that can be used more profitably later in the tournament.

I think there’s some wisdom here for entrepreneurs, too. We get attached to our big ideas, but it’s those big visions that get us into trouble. Just because we’ve sunk a lot of time and energy into an idea doesn’t necessarily mean it’s a good one. In fact, the main reason we need to get out of the building and validate our ideas is so that we can realize we’re beat before it’s too late and pivot. Once you have that insight, you realize that all of the work we’re doing in building an initial idea — from minimum viable product to split-testing to customer validation — is all designed, like the bets of a poker pro, to promote learning about where we stand.

And that provides another possibility for dealing with startup advice. Instead of making an exhaustive search for all the smartest, most successful people and copying them — learn to place small bets. Take any advice (including mine), and think it through for yourself. Do you understand the underlying principles? Can you see how it applies to your specific context? Can you tease apart the impact of luck? And, once you think you have some advice you might like to follow, try it out. Find a way to pilot it without betting your whole company. And then be prepared to fold if it’s not working. Each time, make sure you do a root cause analysis, and figure out what you learned.

And, if you find advice that seems to work, be ready to go all-in.

Eric Ries is a serial entrepreneur and author of the blog Startup Lessons Learned.

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Planning your time at school should be like designing a game. That’s the advice of Jenova Chen, co-founder of That Game Company, best known for creating the PlayStation Network title Flow. No matter what sort of school you’ve decided to attend, you need to set goals and determine how you can make the most of your experience.

Landing (and keeping) a job in the game industry requires dedication and drive. Your time in school is no different. Chen, who attended the University of Southern California’s (USC) Interactive Media division for graduate school, took a markedly different path from Kim Swift, who studied at the game-centric DigiPen Institute of Technology.

But they both wound up with successful jobs in the industry that they love. Another young developer, John Edwards, made games in his spare time while studying at a more traditional university, and he found work in the game industry, too.

These three developers illustrate how different academic paths can lead to the same place, and the route that’s right for one personality type can be entirely wrong for another.

Where to Go?

Jenova Chen attended the USC when its Interactive Media division was still in its first year. As a major university, USC offers solid all-around education, should a student decide to major in something unrelated to video games. In fact, Chen didn’t necessarily intend to study games when he was accepted into the program, though he had made independent titles during his undergraduate education.

"When I was applying to USC, I was in China," he says. "I knew nothing about what interactive media would be in the future, but I did care that [the Interactive Media division] was in the cinema school, where I could learn film and animation. In fact, originally I applied to have animation as my major, but they said, ‘You have an indie game background, why don’t you go to this new division? You can still take the animation classes within the same school.’ So I decided to do that."

Portal co-creator Kim Swift got her start with a game called Narbacular Drop, which she and her team made while she was in school at DigiPen in Redmond, Wash. DigiPen has entire programs devoted to learning how to make games, and Swift knew what she was signing up for.

"When I was in high school," she says, "I decided that I wanted to work in the game industry. So I decided to go to DigiPen Institute of Technology in Redmond. I wasn’t sure what role I wanted to play in game development, so I enrolled in the Real- Time Interactive Simulation program, which is DigiPen’s fancy name for a computer science degree, to get a good idea of the technical side of creating a game."

Single-Handed

Can someone still get a job making video games if she or he attends a school that doesn’t offer any game courses at all? That was the case for John Edwards, founder of Pistachio Productions, which created the Independent Games Festival (IGF) award-winning title Ocular Ink. He made that game, as well as earlier works, while attending college, but not using any of the school’s resources. It was a true independent project.

Edwards now works with Chen at That Game Company, but previously, he attended a liberal arts school in Iowa called Grinnell College. It wasn’t exactly the perfect place to make video games.

"I didn’t go specifically intending to study games," Edwards admits, "and it certainly wasn’t even an option there. I went there basically by default. I wasn’t really sure that I wanted to go to college, but when I was deciding really late in the game that it was probably better than just sitting around at home, that’s when I was able to go to Grinnell and just do something. I wasn’t sure [that I even wanted to make games], and I realized Grinnell wasn’t going to support that directly. I figured that I probably didn’t need a degree in game making if I did it just in my own time."

The fact that the school wasn’t supportive was not a deterrent to finishing his game, says Edwards. "When I was working on Ocular Ink, I was actually working on it so much that I was failing my computer science class," he says through a hint of nervous laughter. "The professor called me into his office and said, ‘John, do you want to pass my class?’ and I said, ‘Well I’ve been working really hard on this game, and I’m the lead programmer on this game team.’ He asked if I had been making any money on it. I said no, and he said, ‘Well, you’d better start turning in your homework.’ I did get a C+ in that class, but it was just a totally separate thing. They’re a traditional liberal arts school. Games are a bit out of their scope."

A Leg Up

Would-be game developers and game students often find that once they start their higher education, they find many other students who are in the same boat: They want to get into the industry, but don’t know exactly how to go about it.

In Jenova Chen’s case, a fellow student and team member by the name of Eric Nelson became an advocate for his group. Nelson pitched the idea of a school-funded indie game to the higher-ups in the program before it was even game-focused, and got some funding. In part, it was a case of finding the right people at the right time, and sticking with them.

"They gave us a little money so we could work through the summer without dying of hunger," Chen says. "That [project] wound up being Dyadin."

Everyone on Chen’s team was in the graduate department, meaning they had a little bit more experience than undergraduates. "We had made things like games before … so we teamed up. Then, because of the success of Dyadin, the school started to see a lot of value in projects like this. So the second year, they actually used the money from EA [which gave a multi-million dollar grant to the school for game studies] and the Game Innovation Grant, and asked the students to pitch ideas and projects. Because of the success of Dyadin, our team was established and we won the grant." The grant-funded project became Cloud, which has since won an IGF award.

Valve’s Swift took a more direct businesslike approach. She set out to create a game that would get her and her team noticed by the big guys.

"The main goal we had in mind when we sat down to design Narbacular Drop was to use this game as a showcase of our abilities to get us jobs," she says. "We knew the game had to be something new and different so we could get attention, and we knew that the game needed to be fairly simple and short so we would have time to polish our game mechanics. In the end, we settled on a design that was fun and original, and we accomplished exactly what we wanted: It got us jobs."

For Edwards, since he created his earlier games without any school support, he and his team had to push forward without assistance. Edwards says he had been reading the industry forum www.gamedev.net, which inspired him to write a project proposal and send it to four of his friends back home.

"It was just for the sake of making games; there was no intention of publicizing it or anything," he says. "That informed a lot of the design decisions, since we weren’t looking for accessibility or anything. It was only after we had created the first game, Mutton Mayhem, while I was in college that we heard there was this [IGF] student showcase thing — and we just submitted it on a whim. We didn’t expect it to get accepted or anything, but it did. It sort of snowballed from there. At that point we thought, ‘Hmm, we could get some recognition for this!’ One of the people on our team, Stuart Young, it was his job to look around for opportunities like that."

For those keeping score, that’s a second tick on the chart for having a dedicated advocate for your game and team’s projects.

The More You Know…

The relationships you form and experiences you have at school can be just as important as the skills and knowledge you learn in class. That was the case for Swift, who says that even at an early stage, it’s all about who you know. "It’s really important to make strong lasting friendships and be supportive of others," she offers. "The people you are going to school with are going to be the next generation of game developers who one day might help get you an interview, or get you a great publishing deal, or in my case be fellow teammates working on a game together. The game industry is a tightly knit community, so build bridges — don’t burn them."

Since Edwards had difficulty enjoying his actual classes, he turned to extra-curricular learning. Many famous game developers are self-taught with no official training. While a formal game education is great, structured in a way to build specific skills, it’s not the only way. As Edwards demonstrates, it’s possible to go to college and major in physics, as he did, and still learn how to become a developer.

"A lot of it is just practice makes perfect," Edwards says. "I was big-time into Gamedev.net, and I read Gamasutra.com a lot, back when it published mainly technical articles. I’d also buy books from Amazon or get them from the library. It was a combination of all that. There certainly was a focus (for me) on the academic side of it, and I think that helped, but primarily it was from just saying, ‘How do I think games should work? How do I think games should be made?’"

Without formal structure, Edwards was left to his own devices. "No one was preventing me from making games any certain way, so I decided to just do it and see what worked. I tend to write down my theories, and I’ve looked back at a lot of them and they’re largely ridiculous, but it’s still on the path to improvement."

Headlong Plunge

There are multiple ways to get into the video game industry, and it helps to keep an open mind. Jenova Chen, for example, found that his educational experience started to shape his ideas for the future, prompting one hand to fall into game creation and the other into business. "I went to EALA to do internships twice," he says. "There are also a lot of industry people coming to the school to teach. In fact, a business class that was taught by Bing Gordon [of EA] had a big influence on me. That’s actually how I believed that we could form our own game company and make our own games. If I didn’t take that class, I wouldn’t have even known that."

Edwards wound up joining Chen’s team after college, through the magical power of networking and the indie game community. "It’s basically all thanks to the IGF and Slamdance and those competitions," he says, "where we were actually able to go in-person to those competitions and meet other people. The intent wasn’t networking, but it just happens because you’re with all these likeminded people who love to make games."

Kim Swift, like Chen, was able to use her school’s resources for her benefit, but in a much different way. "One thing that sets DigiPen apart is that they are really actively trying to get students involved in the industry and are very helpful in finding jobs for graduates. Every year DigiPen holds a job fair for seniors, where they invite representatives from many game studios to come in and take a look at the students’ work and game projects," she says.

"Because of the job fair, my team and I were invited to Valve’s offices to show our senior project Narbacular Drop to Gabe Newell and several other notable Valve developers. After watching our demo, Gabe hired us on the spot to create Portal, which still completely blows me away even though I’ve been working here for nearly two years."

Size Matters

Ultimately, if you want to build yourself into a developer, you’re going to have to knuckle down and start creating games. Edwards believes this is of utmost importance. "Make a game," he advises. "If you can’t program, make a board game. When I was younger, that’s what my friends and I did. But if you can program, or can convince someone to program for you, do that."

Another crucial element for beginners is scope. "Keep it small," says Edwards, "so you can actually finish something. For Mutton Mayhem I had all these guidelines for how we should finish the project and I think 95 percent of them were completely misguided and probably hurt our productivity in the end. But the underlying thing that I said was most important was that we keep the game small. And by doing that, we were able to get it out."

Swift agrees that making games is the only way to break in. Learn by doing, she says.

"If your school doesn’t have a game class like DigiPen’s, make a mod or a small game project with fellow students or friends in your spare time. Practice makes perfect, and chances are you’ll fail a few times before you can make a game you’re proud of. I know that we did! [Making games] will help you become familiar with working in teams of people. Game companies want to know that you can see a project through from start to finish, and the more finished products you have on your resume, the better."

Passion Begets Talent

Given his success story, aspiring developers sometimes turn to Chen for advice, and he mentions two major points he likes to share with them: "The first is that there’s no natural born talent — but there’s passion, and if somebody cares about what they’re doing, they’ll spend more time thinking about it and more effort practicing it. As you think about these things and try to do them, the passionate person gets better and learns more than the person who spends less time. When that gap becomes bigger and bigger, that’s when you start calling this person a talent. If you love what you do, you will be great."

His second piece of advice takes us back to where we began: design a plan for school as you would design a game. Chen is a believer in mapping out his aims and progress, laying out classes and short-term goals as though he were building stats in an RPG.

He admits that setting goals is difficult, especially for people who aren’t sure of their direction, but "it’s really important to start," he says. "You probably can’t have a huge goal, but when you do, you need to be aware of the intermediate goals, where you are and where you want to go in the future. You should establish something you can accomplish today, or tomorrow, or next month, or next semester. That way you can feel progress and the rewards it brings. Also like a video game, you want to adjust the challenges before you with your current abilities … That way it won’t become too boring or too hard. Make sure you’re having fun!"

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Last weekend I wrote about how the big social gaming companies are making hundreds of millions of dollars in revenue on Facebook and MySpace through games like Farmville and Mobsters. Major media can’t stop applauding the companies long enough to understand what’s really going on with these games. The real story isn’t the business success of these startups. It’s the completely unethical way that they are going about achieving that success.

In short, these games try to get people to pay cash for in game currency so they can level up faster and have a better overall experience. Which is fine. But for users who won’t pay cash, a wide variety of "offers" are available where they can get in-game currency in exchange for lead gen-type offers. Most of these offers are bad for consumers because it confusingly gets them to pay far more for in-game currency than if they just paid cash (there are notable exceptions, but the scammy stuff tends to crowd out the legitimate offers). And it’s also bad for legitimate advertisers.

The reason why I call this an ecosystem is that it’s a self-reinforcing downward cycle. Users are tricked into these lead gen scams. The games get paid, and they plow that money back into Facebook and MySpace in advertising, getting more users. Who are then monetized via lead gen scams. That money is then plowed back into Facebook and MySpace in advertising to get more users¿

Here’s the really insidious part: game developers who monetize the best (and that’s Zynga) make the most money and can spend the most on advertising. Those that won’t touch this stuff (Slide and others) fall further and further behind. Other game developers have to either get in on the monetization or fall behind as well. Companies like Playdom and Playfish seem to be struggling with their conscience and are constantly shifting their policies on lead gen.

The games that scam the most, win.

And some users aren’t dumb, either. For every user who gets tricked into some fake mobile subscription, there’s another who can beat the system. That’s where the legitimate advertisers, like Netflix and Blockbuster, get hit. Users sign up for a free trial with a credit card, get their game currency, then cancel the membership and start over. Netflix has a policy of only paying for a user once. But game developers use a complex set of partner chains to launder these leads and try to get them through for payment. Netflix sees an overall lowering of quality and pays less for leads. Game developers, desperate to monetize, then search for ever more questionable offers to make up the difference. In the end, the decent advertisers are out, and only the worst of the worst remain.

Left alone, the system really will slide into a full blown disaster. The platforms (Facebook and MySpace) are in a position to regulate this, and even have rules prohibiting some scams. But those rules are routinely ignored by developers, and are rarely enforced by Facebook and MySpace.

There can be only one reason Facebook and MySpace turn a blind eye to user protection ¿ they’re getting such a huge cut of revenue back from these developers in advertising. If they turn off the spigot, they hurt themselves.

Zynga may be spending $50 million a year on Facebook advertising alone, fueled partially by lead gen scams. Wonder how Facebook got to profitability way ahead of schedule? It was a surge in this kind of advertising. The money looks clean ¿ it’s from Zynga, Playfish, Playdom and others. But a large portion of it is coming from users who’ve been tricked into one scam or another.

And recent moves by Facebook to shut down application spam only make the problem worse in some way ¿ game developers have to spend more money on advertisers to get users now that the viral channels are shut down. That means the games have to monetize even better. Which means more scams.

It’s time for this to stop. 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.

There’s an easy way to determine if something is a scam or not. For any particular offer, ask yourself if anyone would buy the product or service if the terms were clearly spelled out for them, and they weren’t being bribed with in-game currency. The answer for many of these is a resounding "no." A few examples are below.

Examples Of Scams:

A typical scam: users are offered in game currency in exchange for filling out an IQ survey. Four simple questions are asked. The answers are irrelevant. When the user gets to the last question they are told their results will be text messaged to them. They are asked to enter in their mobile phone number, and are texted a pin code to enter on the quiz. Once they’ve done that, they’ve just subscribed to a $9.99/month subscription. Tatto Media is the company at the very end of the line on most mobile scams, and they flow it up through Offerpal, SuperRewards and others to the game developers.

As you can see in the image below, nothing in the offer says that the user will be billed $10/month forever for a useless service.

Another scam: Video Professor. Users are offered in game currency if they sign up to receive a free learning CD from Video Professor. The user is told they pay nothing except a $10 shipping charge. But the fine print, on a different page from checkout, tells them they are really getting a whole set of CDs and will be billed $189.95 unless they return them. Most users never return them because they don’t know about the extra charge. Woot. Again, sites like Offerpal and SuperRewards flow these offers through to game developers. See here for more on the Video Professor scam.

Of course, there’s no mention of any of these payments in the offer itself:

An Industry In Denial

Yesterday I attended the Virtual Goods Summit in San Francisco. In the Q&A session of one panel I asked Offerpal CEO Anu Shukla to explain the ethics of her business, and outlined my ecosystem of hell argument above. Shukla went on a tirade, calling my points "shit, doubleshit, and bullshit" (yes, really), but never really addressed the points. A video of the exchange is below, care of Alexa Lee.

Offerpal now has a blog post up on the exchange, but they still don’t address the issues. They offer misdirection, denials and a shield of rules that are never actually enforced.

Sadly, most of the audience of game developers was on Offerpal’s side. Many of these developers see quick dollars with lead gen scams and they don’t really care about how users are affected.

In one session earlier in the day, IGG Cofounder Kevin Xu recommended that game developers "get users in the door to play free, then monetize the hell out of them once they’re hooked." Sadly, it’s simply human nature to push the rules until they break. It’s time for Facebook and MySpace to protect their users from this stuff and make sure it stops.

p.s. ¿ An interesting development. Offerpal defended their mobile survey scams on stage and in the blog post referenced above, saying there was no scam involved. But today those offers have quietly been pulled down from all the games I’ve checked. If there’s no scam, why remove them? At least some good is coming from my ongoing rants.

Update: Two Companies That Said No To Social Media Scams

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We’re at the Virtual Goods Summit in San Francisco, where +8* analyst Benjamin Joffe recently gave a great presentation on virtual goods in Asian markets. In his 127-slide deck, he breaks down revenue among leading market leaders in China, Korea and Japan, the profitability of industry leaders like Tencent, and much more. He also talks about the cross-Pacific history — and future — of gaming.

Joffe notably calculates that the virtual goods market in Asia is worth $7 billion this year, versus our calculation that the US virtual goods market is worth $1 billion.