Offerpal Moves Further Into Mobile Social Monetization with Tapjoy Purchase, Publishes Mobile Ad Policy

Key social gaming mechanics — free games, viral growth, virtual goods — are still being figured by mobile app developers. But social monetization company Offerpal is trying to get a jump on the market with its purchase today of mobile developer TapJoy, as Offerpal chief executive George Garrick tells us. Like others in mobile and social gaming, he sees virtual goods monetization on mobile devices being at the same place as it was on social gaming a couple years ago — there’s a lot of room to grow. And, to avoid further issues around questionable offers and other forms of online advertising, the company also just released a set of mobile advertising guidelines.

Although Tapjoy began life building games like TapRevenge, it has morphed into providing services to other developers. These include a software development kit (SDK) that provides a virtual goods storefront, including processing for virtual goods purchases, a few types of advertising services, and e-commerce analytics.

Offerpal is best known for providing offers to social gaming companies that it gathers from third-party online ad networks; however, a substantial part of its business includes providing a customizable offer wall for games  that also includes various direct payment options, and alternative payments like pre-paid cards. And, it already provides additional services, like analytics. Although it has been running mobile offers already, the product has been more of a test so far.

So, overall, the fit between the two companies is pretty clear.

But the advertising, in particular, has a few key differences. Incentivized advertising offers have until now not been a significant portion of developer revenue on the iPhone or other mobile platforms, while they were a formative and still-substantial way for developers to monetize games on Facebook and other social web platforms. Social game developers typically make between 15% and 20% of their revenue from offers, with the rest being direct payments, as we estimate in our Inside Virtual Goods report. Offer revenue in mobile apps is still small for most developers simply because they are not widely used.

With a big caveat — as with social games, mobile developers have found it valuable to buy ads based on a cost-per-install (CPI) basis, or sell space in their apps so other developers can reach their users. Tapjoy has turned this form of advertising into incentivized ads on mobile ads, meaning a user could install a free app or three in exchange for virtual goods, such as a song download in one of Tapjoy’s games. This appears to be where it makes most of its money. Companies like RockYou have led the CPI model on Facebook, and Offerpal has focused more providing incentivized ads from ad networks. Tapjoy’s service means it will be getting deeper into CPI for mobile.

Mobile Advertising Issues

The norm, for mobile, is traditional online banner advertising. A wide variety of companies, including AdMob, Quattro, Greystripe, Adfonic and others run ads directly from brands and agencies, or provide them through third-party online ad networks, or let advertisers run their own, self-serve style. However, Apple and other mobile platforms do not appear to be regulating these ads for quality.

Progress has been made on this issue on Facebook, and mostly because Facebook itself has made a series of changes to weed out various forms of deceptive advertising over the past year. Today, Offerpal, and basically all of its offers competitors, as well as banner ad networks on Facebook, are forced to comply with Facebook’s rules prohibiting deceptive or otherwise inappropriate ads from third parties, or risk being banned themselves. MySpace has pushed similar requirements.

The situation is murkier on mobile platforms. Many of the leading advertising service companies do not appear to be monitoring the quality of their ads, as TechCrunch reported last week; the result is that some of the same type of deceptive advertising that has been removed from Facebook is appearing on iPhone apps. Indeed, Tapjoy, which has been testing out offers from Offerpal for months, was running questionable ads for mobile quiz subscriptions until the report, and similar ads can still be seen on other networks. Offerpal suspended those ads pending review, after the report, but the bigger question is how the mobile ad industry plans to regulate for quality.