Shocking: NYTimes Article On Virtual Goods Misses Huge Controversy
By Tom Foremski - November 7, 2009
The New York Times yesterday published a news story on the large profits being made in virtual goods without referring to the controversies that have rocked the sector this week.
In the article: Virtual Goods Start Bringing Real Paydays companies such as Playfish, Zynga, and games such as Farmville are mentioned. But there is no mention at all of the scandal that has rocked the virtual goods sector this week, and in one case resulted in a new CEO.
The closest the article gets to criticism is:
Instead of reporting the accusation of scams in the virtual goods world, as kicked off by Michael Arrington in Techcrunch a week ago, it lamely reports:
It's shocking that NYTimes editors would publish this article without any reference to the scams in online games which try to use "underlying human emotion or desire" to trick users into signing up for monthly charges for bogus services and using the allure of virtual goods.
The scams are spelled out in this article: Scamville: The Social Gaming Ecosystem Of Hell.
This publicity has led to virtual goods, online gaming companies and social networks to announce this week that they will be weeding out any scam advertisers and games. And in the case of Offerpal, one of the largest online gaming companies, the company announced a new CEO.
It's shocking that the NYTimes article would not mention the controversy since it is clearly relevant to the topic. Time magazine managed to notice what was going on: Facebook Game Scams Appear on Phone Bills - TIME. What's going on at the New York Times?
I expect more from the New York Times. I would also expect it to unleash its seasoned reporters and take this story further. After all, potentially millions of people have been harmed by these scams. Large companies such as the telcos are making tens of millions of dollars out of these scams by acting as the billing services. And the social networks are also making lots of money. Follow the money and you have a potentially great story.
And it is a story with legs, it continues to surprise. For example, in the latest update, Zynga, after promising to remove scam ads, hasn't -- but it tried to cover things up by blocking Mike Arrington from seeing the ads!
Just five days ago Zynga CEO Mark Pincus said mobile subscriptions, among other scammy offers, would be removed from Zynga's popular Facebook and MySpace games.
...They weren't taken down though. Or rather, they were, but just for me. Other users were still seeing the same mobile ads. And the filtering was clearly directed at me, since I logged in on the same IP address with a friends account and saw the ads.
... What's really disappointing is that Facebook, even after promising to enforce their rules, continues to just turn a blind eye to this stuff. I know Facebook hates the negative press, but I am really starting to think that they couldn't care less about their users getting scammed.
You can even bring in some prominent VCs that have invested in social gaming companies and therefore must have known about the scams. Take a look at Zynga's investors, it is full of top name VCs.
Geoff Corgis, a commenter on the Techcrunch story wrote:
Bing Gordon, Kleiner Perkins Caufield & Byers
Fred Wilson, Union Square Ventures
Sandy Miller, Institutional Venture Partners
Peter Thiel, Managing Partner Clarium Capital
Are active accomplices in one of the biggest scams ever generated on the web / social media, and should be held accountable with Mark Pincus.
I single them out from the Angel investors, as they take money from pension funds, who get their money from teachers/state employees, and then go and invest that money in companies that scam and bankrupt their children.
It's a great story. Newspapers used to be "muckrakers" uncovering graft in City Hall, publicizing corruption, and looking out for the defenceless in society. I was hoping the New York Times might remember that tradition.
What's the point in running a bland article about virtual goods when there is a far larger story to be had?
- - -
Please see:
"Horrible Things" Slink Back Into Zynga
Zynga CEO Mark Pincus: "I Did Every Horrible Thing In The Book Just To Get Revenues"
Offerpal Tries Out A New CEO. Shukla, Queen Of Scams, Is Out.
Facebook To Increase Enforcement Of Anti-Scam Rules
Analysis: The Business Opportunities From The Scam And Spam Epidemic
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Comments (7)
I don't know what scam you are exactly referring to, but this issue is much more complex than it seems on the surface.
At the end of the day, if someone sits in front of their computer 500 hours a year in virtual land, and it costs them a dollar an hour, they are using less resources than someone who gets in their car and goes into town to see a movie and grabs a meal once a week.
The wars in Iraq and Afghanistan, which are over oil, have caused me to question the value of a consumption economy that results in economic draining wars over oil.
I would however suggest that virtual purchases be made via a debit card rather than credit card.
Posted: November 8, 2009 10:50 AM
Here is an article along with some comments about virtual "economies" you might find interesting.
http://wallstreetchange.blogspot.com/2009/09/have-you-heard-of-virtual-internet.html
Posted: November 8, 2009 11:27 AM
the nytimes article is unbelievable! i wonder if these journalists are really clueless about the arrington-shukla saga or if they were paid hush money by the virtual goods companies for better publicity?
Posted: November 8, 2009 12:25 PM
The journalists were not paid hush money. But they are missing a great story and I can't figure out why. "Scam Scandal Rocks Emerging Silicon Valley Bubble."
Posted: November 8, 2009 10:17 PM
At first I thought I missed something from the article link that was provided. After reading it, I think its ok to suggest reading the wall street change blog article link provided above if you want a more rounded perspective on the issue.
I just don't think it is as obviously wrong as how I first reacted when I learned about virtual economies.
Posted: November 8, 2009 11:38 PM
Great post, Tom. I think I first sensed the problems with this kind of online universe when all of our friends were enthusing passionately about Second Life.
Any economy in which some entity controls the flow of capital -- in the case of these games it is the company that owns them -- has a sovereign ceiling risk. I warned about this in 2007 (http://www.lubetkin.net/blog/2007/07/second-lifers-start-hitting-virtual-atm.html)
When I was doing PR for the bond rating industry, we warned investors about the risk that the sovereign (usually a country) could change the rules of capital flows and that could have a negative impact on investors. Linden Labs controls capital flows in Second Life, just as these companies control the rules of their own "currencies." You agree to their terms when you sign up. And their terms always include a term that says "We can change the terms any time we like."
I'd be very wary about accumulating a significant amount of investment in a currency like that. Ask investors in Argentina what happened to their dollar-linked Argentine pesos when the government there decided to revalue. It wasn't pretty.
Thanks for pointing out these risks to people!
Posted: November 9, 2009 4:02 AM
I definitely would not invest a lot of money at any one time. Cost per hour should be analyzed before committing to be part of a virtual world.
It would be interesting if virtual worlds were required to reveal what the average cost per hour is for the "average user".
I would be cautious of any upfront payment unless it is a very modest monthly payment that can be terminated at any time.
If virtual games become more and more sophisticated, eventually some of them may teach users certain skill sets.
If someone was intrigued by the idea of becoming a farmer, what if they could pay 20 bucks a month and try farming virtually? If the software program is advanced enough, the person might learn after a month or two what they like and don't like about farming via a virtual world.
Eventually, we could see "real world" business franchises offering virtual "games" of how their franchise operates. Of course the danger here is giving out company methods.
On the other hand, what if a franchise was able to use a virtual game to help select who they want to run their franchises?
The Military uses virtual tools. Who is going to argue against giving someone training on the ground virtually as a preliminary step to any training the person may get flying a plane or operating a tank?
I think credit card companies are wise to be careful about these kind of purchases. If I ran a credit card company I might allow LOW COST monthly payments, but I would definitely not approve big time payments made within a short time of becoming a member of a virtual group.
Maybe one day some virtual worlds will be so well made they would be accepted as an educational accreditation if they actually educate as well as entertain.
Posted: November 14, 2009 3:26 PM