With a Focus on Monetizing Mobile Apps, Tapjoy Leaves Its Scamville Past Behind

It’s hard to forget the shouting match that put an end to Offerpal’s heady days more than a year ago. The company, now known as Tapjoy, had become the prime target of Michael Arrington’s Scamville campaign for serving offers in Facebook games that signed up unwitting users for recurring charges.

At an industry summit, founder Anu Shukla ripped into Arrington’s accusations, calling them “Shit, double shit and bull shit,” in a now infamous exchange. Less than a week later, she was out. Soon after, the wild, early days of rampant growth on Facebook’s platform came to end, making way for a tougher, more expensive era in social gaming.

But one more CEO, a name change and a year later, Tapjoy has turned the corner by diversifying onto mobile platforms and keeping its offers clean with brands like Gap and Netflix.

It’s on track to have its highest total revenues ever on all platforms this quarter, says the company’s CEO Mihir Shah, who joined the company after Shukla stepped down. That’s on iOS, Android and Facebook. We’re also hearing from several sources that the company is close to announcing a third round of financing.

“It was frankly, blindingly obvious,” Shah said of the transition. “You saw a decline in virality and a lot more turbulence in the Facebook ecosystem while at the same time, there was this wonderful, clean environment on iOS.”

The key to the company’s turnaround is the acquisition it made last spring of Tapjoy, which was founded by Lee Linden and Ben Lewis, two game developers and former product managers at Microsoft and Google. It helped that both companies shared an investor, Rizwan Virk.

As game developers themselves, Lewis and Linden knew the problems firsthand of acquiring users. It was easy to get lost among hundreds of thousands of apps in Apple’s store.

So they built a different kind of advertising network for mobile applications. When playing a game, a consumer can get extra virtual currency if they install other developers’ apps. There are usually dozens or hundreds of choices, so ideally, a user will pick ones they’ll actually use. Publishers and developers only pay if their app is installed, instead of paying for clicks or impressions.

Originally, Tapjoy was supposed to operate as a separate unit up in San Francisco, independent of Offerpal down south in Fremont. But as iPhone and Android sales rose, the mobile side of the company took off. Rivals were also closing in on the same strategy including Flurry, with its recommendations engine AppCircle.

So the company shifted its attention, laid off 15 people, moved north to the city and rechristened itself with the baggage-free Tapjoy name.

Tapjoy was, quite literally, the acquisition that took over the company.

“Honestly, I wished we’d done that sooner,” Shah said. “Tapjoy has great brand recognition and it’s important to be in the city. Our biggest clients are here. San Francisco is the center of the app universe.”

Tapjoy’s network now includes more than 5,500 mobile apps and is now powerful enough to help developers break into the top echelons of the app charts. Once they get into the top 25, it’s up to the quality of the app to make it stick or not. If the app is bad, it will quickly tumble back down into obscurity.

The amount a developer needs to spend to crack the top of the charts varies considerably — a well-designed, engaging app will have to spend less to attract and retain users than a poorly made one. Shah wouldn’t say how much it costs, but other developers have told us breaking the top 25 costs at least $20,000.

Tapjoy’s shift comes at a time when the biggest success stories of the Facebook platform — the gaming companies Zynga, Disney’s Playdom, EA’s Playfish and Crowdstar — are eyeing mobile devices as their next frontier.

Even though Apple and Facebook’s platforms launched around the same time, it has only recently become possible to attract the same seven or eight-digit sized audiences a company could on Facebook, as global smartphone sales doubled this year.

All of the biggest companies are restructuring or hiring away top mobile talent to make this transition. Zynga acquired mobile game developer Newtoy and poached Yahoo’s senior vice president David Ko to oversee its mobile strategy. Crowdstar restructured; it used to have a separate mobile division that would serve all of its games. Now each game studio is also responsible for the mobile version of its title.

Tapjoy is layering on extra services to make sure it is indispensable to mobile developers. It has moved into powering stores for virtual goods and consulting with big brands like Macy’s on their mobile strategy. The company has also created an incubator in its Financial District offices to house emerging talent. Tapjoy behaves like a record label to these young developers, getting exclusive licenses to distribute their content.

At the same time, the situation on Facebook’s platform isn’t as dire as originally thought. Although Facebook launched its own virtual currency Credits and secured a string of five-year deals with the biggest game developers to use it, Credits is not yet the universal currency the social network envisions it to be.

Zynga, for example, is still using Tapjoy offers even though rivals Trialpay and Peanut Labs got plum deals to be the exclusive offers providers for Credits. Other companies in the offers space have told us that their Facebook revenues are still growing by about 20 percent quarter-over-quarter. But Shah concedes at some point, Facebook may one day just mandate use of Credits across the board.

“We are still the largest offers provider on the Facebook platform,” he said. “Even with Credits, it would take an act of barring us for them to displace us.”

Shah, who was vice president at RockYou before coming to Tapjoy, doesn’t begrudge Facebook for clamping down on viral channels and tightening ad standards either.

Tapjoy is a healthier company now. Maybe only 20 to 30 percent of Tapjoy’s revenues will come from the Facebook platform, instead of 95 percent.

“The value of the services we provide on mobile are much more defensible and higher value than what we ever provided on Facebook,” he said.