Webware

If social gaming is Hollywood, the people aren't as pretty. Well, maybe the avatars are.

Yes, yes, we know that social games are taking over the bloody world: earlier this week, gamemaker Playfish announced its $300 million sale to Electronic Arts, and on Thursday, rival Playdom retorted with the announcement of $43 million in venture funding at a $260 million valuation, and the acquisitions of smaller gaming companies Green Patch (manufacturer of Facebook-based games like Lil Green Patch and Farm Life) and Trippert Labs. Green Patch's games will up Playdom's reach on Facebook by 30 percent, the company said.

Expect to see more of these sales, as smaller developers find they're having trouble treading water in an industry where the big guys--Zynga, Playfish, Playdom--have chomped up most of the market share, and where Facebook, the biggest destination for these games, has shown that it can change the rules at whim. And the big companies, too, want to scramble to get bigger.

Plus, as Playdom co-founder and chairman Rick Thompson explained to CNET News: When gaming companies grow large, they have to deal with a lot of stuff that can get in the way of producing new games and staying on top of consumer trends. That's one reason to keep investing in new talent through acqusitions.

"The hitmakers start spending all their time on operations, and on things that don't improve or enhance the games, and so they become essentially owners and operators," he said. And likewise, "people who can create things shouldn't necessarily be operating a gaming company."

He drew the evolution of a social gaming company parallel to an entertainment studio: "a lot more like Hollywood or the traditional gaming industry" than a Web start-up.

But here's the catch when it comes to acquisitions in this space: Gaming, especially social gaming, is a hit-driven business. If a parent company buys up a hot Facebook game, that game could already be running out of shelf life: which is, indeed, sort of like a Hollywood establishment signing a contract with an actor who's had five hit films in a row, as he could easily be over the hill before long. (Hello, Rob Lowe.)

"I think we're getting pretty good at really looking at their data now, and modeling how these games will evolve over time," Thompson said. "But I think there's essentially a life cycle of growth and then decay. What we really look at in acquisitions is not just daily active users, but bringing on additional team members that can really help create new games in the future."

The industry P.R. frenzy over scams in ads and offers on social networks goes on: Facebook announced on Thursday evening in a post on its developer blog that since it updated its developer platform terms of service this summer, it has disabled two ad networks that it says were running deceptive advertisements.

This comes in the wake of allegations that some companies that power offer- and survey-related moneymaking operations for social-gaming applications on platforms like Facebook's have effectively been scamming users into paying for services without disclosing those costs. One of them, Offerpal Media, has been particularly visible in the crosshairs.

"This battle is not new and it's far from over," the post by Facebook's Nick Giano wrote. "We faced stimulus scam ads on our own system earlier this year and pushed them off the site with rigorous enforcement. We did the same months later when deceptive ads from third-party ad networks appeared in applications. We're doing that again now as we see them appear in the form of offers."

Additionally, Facebook--which has said for quite some time that many of the activities highlighted in the "app scam" controversy are already banned by its terms of service--included in the post that more than 100 developer applications have been either "suspended or brought into compliance" over advertising issues, and that more than half of them were used by at least 1 million Facebook members per month. It's not clear whether these were all related to scams, or to other advertising-related infringements like the Burger King marketing campaign that encouraged users to "unfriend" their contacts in exchange for a free cheeseburger.

Facebook representatives declined to name which ad networks or applications it has banned. But the company did ban two companies in June, Social Hour and Social Reach, citing ad network policy violations. It's possible that the two ad networks mentioned in Facebook's blog post were banned months ago, given the "since July" language.

Earlier this week, MySpace--another big destination for social-network apps--announced that it had updated its terms of service to ban app scams. Prior to that, several prominent application manufacturers announced that they had banned potentially deceptive offers, despite the fact that they are responsible for a big chunk of virtual-goods revenues.

An update was made to this post at 7:51 a.m. PT on November 6 to note that Facebook banned two ad networks in June.

It looks like the brouhaha surrounding social-app moneymaker Offerpal Media is bigger than founder Anu Shukla's "sh*t, double sh*t, and bullsh*t" response to the accusation that its business is built on scamming consumers. It's got upcoming developments in two lawsuits, one in which it's the plaintiff and one in which Shukla is a defendant.

VentureBeat's Dean Takahashi reported Thursday that a lawsuit was filed in an Alameda County, Calif., superior court against Shukla and co-founder Michael Liu on behalf of Kevin Halpern, who alleges that he helped found the company and was then shut out. In a court complaint, Halpert says that in exchange for offering his social-networking expertise to what would become Offerpal, Shukla promised him a 15 to 20 percent stake in the company that never came to fruition.

The defendant's motion to dismiss the breach-of-contract suit is scheduled for November 24, according to public court documents. On Wednesday, Offerpal had announced that Shukla would be leaving her post as CEO and would be replaced by digital-ad veteran George Garrick.

But that's not the only legal dispute that Offerpal is in. There's a judicial settlement conference scheduled for Friday in the trademark infringement lawsuit that Offerpal filed against Kickflip, a former customer that went on to create a competing business, called Gambit, according to a person familiar with the court details. The suit was originally filed in April, and the status of a potential settlement is currently unclear because most of the events thus far, as well as Friday's scheduled meeting, have been behind closed doors.

But the reason why Offerpal has been in the news so much as of late has been because of Shukla's public altercation with TechCrunch's Michael Arrington at last month's Virtual Goods Summit in San Francisco. In response to Arrington's allegations that Offerpal's profitable business, used by many social-gaming companies as a way for users to earn virtual goods in-game, actually misleads players into signing up for paid offers and subscriptions.

Following the Arrington-Shukla spat, a number of high-profile names in the gaming and social-networking world came out against developer-app scams and misleading ads. Offerpal maintains that it runs a legitimate business. But it's clear that this company's issues run quite a bit deeper than a single PR fiasco.

In the wake of a firestorm over just how much of social-gaming companies' profits can be attributed to potentially scammy offers and incentives, News Corp.'s MySpace has taken a stand (and, it could be said, taken advantage of the PR opportunity) by coming out vocally against them.

"We're adding a fifth principle (to our developer terms of use) that clarifies a specific use case that we feel is particularly damaging to the user experience: promotions that include hidden renewals without specific opt-in will not be permitted," a company blog post by CEO Owen Van Natta read. "Because it's our belief opt-out offers are misleading and do not have the best interests of the users in mind, we will be updating our Terms of Use this week to better clarify this for users and developers."

What exactly is he referring to? In many of the most popular (and profitable) games built for big social-networking platforms like Facebook and MySpace, players can progress faster in the game by either buying virtual goods with "real" money, or by completing offers and surveys from a partner company like the prominent Offerpal Media. Critics say that many of these offers aren't actually free, and unwittingly can sign users up for expensive subscriptions or programs.

After a public confrontation between TechCrunch's Michael Arrington and Offerpal CEO Anu Shukla at last week's Virtual Goods Summit event in San Francisco, game makers like Zynga and RockYou put out statements saying that they're cracking down on offers that are potentially misleading.

Could this lead to real industry changes? Yes. But keep in mind that Facebook, the biggest destination for these social games, already bans this stuff in theory. "Ads cannot be deceptive or fraudulent about any offer made," the company's advertising guidelines read, and adds "if an ad includes a price, discount, or 'free' offer...the destination URL for the ad must link to a page that clearly and accurately offers the exact deal the ad has displayed (and) the ad must clearly state what action or set of actions is required to qualify for the offer."

But judging by the amount of sketchiness that allegedly takes place on the platform, it seems like advertisers aren't necessarily following these guidelines. Whether MySpace's stance against them can lead to a legitimate crackdown has yet to be seen.

It's the M&A deal of the century: FluffFriends got bought!

The virtual-pet application built on Facebook's platform, which once permitted me to display a penguin named Bill Gates on my profile and invite friends to give him a nice hug, has officially been acquired by the Social Gaming Network. A price was not disclosed.

I named him Bill Gates.

(Credit: FluffFriends)

FluffFriends makes money through a virtual currency that translates to real cash, with which members purchase items to spruce up their pets. A release from the Social Gaming Network said that since January, the game makes an average of 192 percent more revenue per paid player, and members spend an average of 143 percent more per transaction.

Of note: FluffFriends was actually created by a Google engineer, Mike Sego.

Last month, the Social Gaming Network announced funding from Amazon.com founder Jeff Bezos' investment firm. It was already backed by $15 million in a round led by Greylock Partners.

Even though the iPhone has been dominating developer headlines recently, it looks as if there's still some air in the social-network gaming space.

The Social Gaming Network, a start-up that develops games for social platforms such as Facebook and OpenSocial, has received an undisclosed amount of funding from Amazon.com founder Jeff Bezos' personal investment firm, Bezos Expeditions.

This comes just months after the company closed a $15 million Series A round from Greylock Partners, the Founders Fund, and others.

Founded by the creators of Web 1.0 page creator Freewebs (which now calls itself Webs.com), the Social Gaming Network has assembled a portfolio of popular Facebook applications, such as Jetman, Super Snake, and Free Gifts, some of which it acquired from independent developers. It counts more than 54 million game installs.

SGN is one of the more prominent players in the casual-game space. It competes with Zynga, which was created by Tribe.net founder Mark Pincus.

The aim of the new funding, according to CEO Shervin Pishevar, is "to continue capturing new demographics in gaming by distributing the highest-quality games available on the social Web."

Bezos Expeditions also joined the most recent round of Twitter funding.

The Social Gaming Network, parent company of social-networking applications that do exactly what the name implies they would, has reason to celebrate.

The company has netted $15 million in first-round funding from Greylock Partners, the Founders Fund, Columbia Partners, and Novak Biddle Venture Partners.

Yes, that's $15 million for the people responsible for the Warbook, Jetman, and Super Snake applications clunking up your friends' Facebook profiles.

It makes sense. Gaming applications have proven to be some of the most popular apps on social-networking developer platforms like Facebook and MySpace.com, and veteran entrepreneurs have taken note. The Social Gaming Network was started by the founders of Webs.com--known in the Internet's earlier days as Freewebs--and Zynga, another well-funded gaming start-up created by Tribe.net founder Mark Pincus. Both companies have turned to independent developers too, encouraging them to work on games on their platforms-within-platforms.

The new funding will be used to "allocate even greater resources to research and development of its gaming platform, and produce more tools for social game developers who want to create a richer gaming experience on the social networks and the social Web," according to a statement. But it was also hinted that the cash will help the company add "more depth to its platform and diversity to its portfolio of games."

Considering the Social Gaming Network has made acquisitions in the past--snapping up Facebook applications such as Free Gifts--there will probably be more on the way.

Wonder if they'll make a play for Scrabulous.

The Social Gaming Network, which operates gaming applications like Warbook and Super Snake for social-networking developer platforms, announced on Thursday that it has opened a platform of its own. Developers can now access an application program interface (API) so that they can contribute; the company is set to let developers in on Thursday night and put out more information next week at the Game Developers' Conference.

The Social Gaming Network is owned by Webs.com, the Web 1.0 veteran formerly known as Freewebs, and currently works with Facebook and Bebo's platforms.

It's the second gaming start-up to put out an announcement about developers this week. Zynga, a similar site recently launched by Tribe.net founder Mark Pincus and funded by Valley luminaries like LinkedIn founder Reid Hoffman and PayPal founder Peter Thiel, announced earlier on Thursday that it would be launching a developer initiative so that game publishers and developers can get their applications on more social-networking sites. Currently, Zynga's games are compatible with Facebook, Bebo, Friendster, and Meebo, with MySpace.com on the way.

Zynga and the Social Gaming Network aren't the best of friends--Social Gaming Network founder Shervin Pishevar has been critical of Zynga's games, which he claims infringe upon existing ones (Sea Wars, for example, is a lot like Battleship), and company representatives have said that they think Zynga's popularity metrics are exaggerated. Both gaming start-ups claim to be "the biggest social gaming network." It might not be HD DVD vs. Blu-ray, but this is a rivalry that could get ugly.