When Entrepreneurs Need Bodyguards, Something Isn't Right

There’s a running “joke” among industry insiders about one of the ad network companies, who’s founders need bodyguards. The reason is that they’ve received death threats and are harassed as a result of the deceptive ads being run on their network. It’s not really that funny though because it’s true. It’s the part of the seedy side of the social platform business and while not all developers are deciding to participate, it’s big money which brings in over $1 million a day for some of the ad networks.

Over the weekend Mike Arrington posted his attack on Offerpal (one of our sponsors) who he claims is one source of the problem. There’s no doubt that some of the offers running through the networks are not of the highest quality, however these companies claim that’s only a fraction of the offers. Do users really want to pay $19.95 for a quiz which tests their FarmVille knowledge? While they may want to take a quiz I’m not sure they really want to spend their own money (which is why it often ends up being their parents’ money).

Since this weekend, many of the IQ Quiz offers have been removed, however there’s an ongoing game that many ad networks play which involves blocking specific users from viewing all offers. As of this weekend, Facebook may have begun to turn up the heat on these ad networks to remove the junk offers from the network. As soon as the issue blows over, many networks will get back into the practice of running the ads.

It’s a cycle that we’ve seen in the past, however there ends up being casualties along the way. Last time it was SocialReach and SocialHour. This time we aren’t quite sure who it will be but there’s no doubt that a previously lucrative stream of revenue will be slowly phased out.

Facebook’s Ongoing Battle

Facebook has been continuously fighting with these ad networks to shut down aggressive ads. I have copies of one internal Facebook email sent to SocialMedia back in March from Facebook where they ask for aggressive ads to be shut down. The ads weren’t shut down right away but eventually they were. The issue was involved a daily back and forth with Facebook and ad networks to define what has become an extremely lucrative grey area.

Over time that grey area has become smaller and smaller, but it isn’t stopping many of the most aggressive players from participating. Even Facebook has generated revenue from some of the aggressive ads as they run through their network. While the company’s communication department has told us that the percentage of aggressive ads are far lower than on the ad networks, we have no way of independently verifying it.

Facebook has continued to focus on a positive user experience though which has resulted in the decrease of these ads overtime and I’d expect to see that accelerate over the coming weeks and months.

Mobile Companies Should Be Held Accountable

While Facebook developers, and networks, and the investors funding this space all have their hands in these scams, mobile companies are largely responsible for enabling these transactions to take place. Whether it’s the direct offer ringtones on T.V., horoscopes, or any of the other junk products, mobile companies help make these transactions possible.

With billions of dollars a year in revenue, it’s extremely lucrative for mobile providers. They collect 50 percent of every transaction, far more than credit card companies take from transactions. Since they get 50 percent of every transaction, should they not be held accountable for the sketchy transactions running through the system? I’d argue that they should but with large dollars going to support political campaigns, many politicians are happy to look the other way.

Brands Take Longer To Fill The Market Void

As the money switches hands along the way, we begin to realize that there are a lot of people responsible for every transaction. While all the people involved are responsible, it’s clear that this space is going to slowly diminish on Facebook as the company clamps down. The scammers will simply go to the next distribution channel available as well as create the next iteration of “IQ Quizzes” or “Free Ringtones”.

In the meantime, Facebook and the platform developers are left trying to figure out where to generate more revenue from. With large advertising budgets, brands appear to be the likely source, however they aren’t rushing in with their entire budgets. Fortune 100 companies think rationally and that means a gradual increase in expenditure as performance dictates.

If Facebook continues to perform well for brands, there is no doubt that they’ll continue to invest their budget, however it’s not overnight. The end result is that there may simply not be enough ways to generate revenue for many of the smaller players, who were previously able to profit in the grey area. Personally, I’m fine with seeing that shift take place but there’s no doubt that it will be painful for many.

Add with it Facebook’s platform changes (such as the removal of notifications) and you’ve got a fair amount of stress on the ecosystem. This is all just part of doing business on social platforms though. Those who are running businesses which require the protection of bodyguards will find somewhere else to go play and with millions in the bank, I’m sure they’ll have a hell of a time.

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