20:03 PM

Shocking: NYTimes Article On Virtual Goods Misses Huge Controversy

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:

For outsiders, the selling of virtual goods -- items with no actual value in the real world -- might seem the very definition of a swindle.

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 not about the good itself, it's about the underlying human emotion or desire," said Moshe Koyfman, a principal at Spark Capital, which has invested in two virtual-goods start-ups. "The recipient knows the person took time, picked something meaningful and spent money on it."

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?

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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