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Offerpal Media, a company that helps social-network app creators make money from offers and surveys, on Tuesday announced that it had replaced its CEO in the wake of a high-profile onstage argument at a conference and subsequent press over whether it's scamming consumers who fill out offers in order to earn virtual goods in social games.

Anu Shukla, who founded the company and had been serving as CEO since its 2007 launch, will be replaced by George Garrick, who has served as the CEO of Flycast Communications, Wine.com, Jingle Networks, and Mochi Media. Shukla "will still be involved and help guide the company," an Offerpal representative told CNET News.

A statement from Shukla makes it sound like the company's been CEO-hunting for months ("I have known George for a long time...After many months of searching, I believe that George is the best CEO to scale the company to new heights. I am looking forward to working with him closely"). But the timing is a little too good to be coincidental: a firestorm erupted over Offerpal and other companies in its niche after TechCrunch's Michael Arrington confronted Shukla while she was on a panel at the Virtual Goods Summit in San Francisco last month. Arrington accused Shukla of running a scam operation that tricks consumers into unwittingly spending money--and of course, he then blogged about it.

Shukla's response to Arrington was "sh*t, double sh*t, and bullsh*t."

But the industry has taken the controversy seriously. Social game makers like the massive Zynga have come out and said that they would ban potentially shady and misleading offers, even though those might make up a sizeable chunk of revenue, and on Tuesday social network MySpace joined the debate and said that it had modified its terms of service to outlaw "app scams."

Shukla was interviewed by VentureBeat's Dean Takahashi in a lengthy article published on Tuesday.

This post was expanded at 4:55 p.m. PT.

The heated mobile-payment wars are expanding...beyond mobile. Zong, one of the start-ups hoping to capture the market for online micropayments billed to a mobile phone, announced Thursday the debut of "Zong Plus," which lets members link credit or debit cards to their Zong accounts.

It's another move that pits Zong against Boku, a competitor that launched right around the same time with broader global reach--last month, it announced its expansion to subscription-based services in addition to on-demand micropayments.

At launch, Zong Plus is compatible with Visa, MasterCard, Discover, and American Express accounts,

"Today you've got a variety of products for different kinds of payments and services," vice president of product management Hill Ferguson told CNET News. "You've got PayPal. You've got several of us in this mobile payment arena. What Zong Plus does is just elevates us into a different mobile payment type."

On the surface, adding traditional credit card payments seems to defeat the purpose of Zong, which inherently tries to offer a simpler and more universal alternative for small payments (cell phone carriers put a cap on how much can be spent). But Ferguson said that Zong Plus, which is free for participating merchants to upgrade to, "is an optional feature for consumers who have payments cards and feel that the incentive that we offer is powerful enough for them to open up their wallet and type in the information."

What's that incentive? Part of Zong Plus is a loyalty program that will rack up points much like airline miles. In a participating game or other micropayments-linked application, this means that when enough points have been accrued, the member may be alerted that their next purchase is "on the house."

Whether it will work is still unclear. Zong has deals with social gaming and virtual-world companies like OMGPOP, IMVU, and Gaia Online, but there are still enough rivals offering similar packages as well as the off chance that a big e-commerce player like PayPal could launch a service of its own and snuff out the competition.

The announcement comes in advance of the Virtual Goods Summit in San Francisco, where pretty much any start-up involved in the latest generation of e-commerce (read: magic swords and Mafia dons) will be showing off its wares. Plenty of other companies will be making announcements, too, presumably some in the payments space.

The revamped Facebook gift shop.

(Credit: Facebook)

It's not just music as rumored: Facebook announced on Wednesday a major overhaul to its "gift shop" feature, meaning that the social network just became an even bigger player in the burgeoning virtual-goods industry.

"We now are unveiling a newly stocked and redesigned Gift Shop, with new categories of gifts and additional gifts for charity, music, and sports from developers," a post on the company blog by Facebook's Will Chen read. With so many gifts available, we also introduced a new design to make it easier for you to browse and purchase gifts with different gift categories." It'll be rolling out over the next few weeks, he added.

Needless to say, this is a huge deal for the virtual-goods industry, which some estimate is now a billion-dollar business.

It also beefs up one of Facebook's few non-advertising revenue streams (though many of the virtual goods in the "gift shop" are licensed or sponsored)--even though in a talk on Wednesday at the Web 2.0 Summit in San Francisco, Chief Operating Officer Sheryl Sandberg downplayed rumors that the company would be making big moves into bringing commerce and payment transactions to its developer platform.

Music files, as rumored, will be sold through a partnership with Lala. Right now, they are only available to Facebook users in the U.S.--less than a quarter of its total membership. For one Facebook "credit" (10 cents U.S., and currently available for purchase in 15 currencies from around the world), members can buy one another songs that can be played online. For 10 credits (a dollar), they can gift downloadable MP3 files. "Other people who are able to see the music gift (in that member's profile) will only be able to play the song in full once, after which they will be able to play a 30-second clip," Chen's post added.

This is a big move on Facebook's part for another reason: iLike, which powers the extremely popular "Music" app on the social network, and which allowed members to gift songs to one another through the third-party application, was acquired by Facebook rival MySpace this summer.

Instead, it's partnered with Lala--which is also one of the partners in the music initiative that Google is slated to launch next week.

But music isn't all that's new in Facebook's revamped Gift Shop. There are also sports gifts officially licensed by teams--branded virtual goods from a number of college sports teams as well as the National Basketball Association and U.S. Major League Soccer. Also rolled in have been the non-profit gifts that Facebook first debuted this summer. In addition to existing partners like Kiva and Project Red, virtual charity gifts will also be sold by popular third-party Facebook app Causes.

And images posted to the Facebook blog show additional categories--e-cards, which are pretty self-explanatory, and "real gifts," which bundle a physical gift sent in the mail along with the virtual gift. These have all been tested in a limited scope by Facebook over the past few months.

Leaked screenshots of a document that Facebook distributed to advertisers earlier this month revealed that an upcoming design modification to Facebook's home page will make birthday alerts--which also encourage members to buy gifts for one another--more prominent.

Facebook hasn't disclosed any financials related to how much advertisers pay for sponsored gifts, or how any revenue-sharing logistics pan out.

Other social-networking services are trying to get in on the action, too. Social-site creator Ning, for one, launched a gifts platform earlier this week.

More to come...last updated at 4:01 p.m. PT.

Facebook COO Sheryl Sandberg speaks with John Battelle at the Web 2.0 Summit about features we can expect from the social-networking site.

(Credit: James Martin/CNET)

SAN FRANCISCO--Two of the biggest rumors about big, upcoming Facebook products--an ad network and a payment transaction platform--won't be making a big splash anytime soon, chief operating officer Sheryl Sandberg said in a talk on Wednesday afternoon at the Web 2.0 Summit.

"We're asked it all the time," Sandberg said on the question of whether Facebook would be launching an ad network for external Web sites using the Facebook Connect universal-login product. "We focus on building products for users and we think about the monetization later. And I'm not saying that in a cute way, because we are very focused on monetization."

Then there are the reports that Facebook will be launching a PayPal-like transaction system or large-scale virtual currency, a rumor that's been floating around literally for years. "There's a lot of speculation on payments, and (we) don't want to fuel the speculation," Sandberg said in her talk on Wednesday. She did say that Facebook processes payments internally for advertisers buying up inventory ("We needed people to be able to buy ads internationally," she explained) and that it's playing around with the "credits" system that it uses in its "gift shop" feature.

"We are doing some testing with a couple of developers to see if they can use credits in apps they have," Sandberg said. "That's all we're talking about right now. We're in a learning phase."

Some potential customers have hinted that Facebook may have already gotten too big to deploy such a product. When asked about the idea of a Facebook payment system, John Cahill, the CEO of teen virtual-world Meez, told CNET News earlier this week that he's skeptical about its potential.

"The bigger the social network, the harder it is for a currency," Cahill said. "I've spent some time in the payments space and the real-world currency space, and rolling out a payment system that can be used by millions of people is very, very difficult. If you get it wrong, you can destroy your community."

But Facebook is dipping one toe after another into the virtual-goods pool. Earlier on Wednesday, the New York Times broke the story that Facebook would be letting members gift songs to one another through a partnership with music service Lala. This would be the first concrete result of yet another longstanding rumor of a "Facebook music service."

Additionally, Facebook has partnered with a number of nonprofits for charity-focused virtual gifts.

Are Web users going to get tired of paying for kitschy virtual items to pimp out each others' profiles? Social-site creator Ning sure doesn't think so. On Tuesday, it announced the debut of its virtual goods platform, so that network owners can offer virtual profile items for sale (much like Facebook does) and pull in half the revenue generated.

"From giving each other bloody chainsaws to shock troop dog tags, our members are having a blast recognizing each other for their contributions to the Lost Zombies Ning Network," said Scot Leach, founder of the "Lost Zombies" network on Ning, in a release provided by the company. "Creating custom gifts around our shared love of everything zombie adds a new level of fun and excitement for our members."

Some analysts have estimated that the virtual goods market will hit $1 billion this year.

Participating networks' members can buy the gifts for one another and they'll be displayed on the recipient's profiles. Payments are processed with PayPal, and then revenues are split 50-50 between Ning and the site owner after PayPal's transaction fees are taken into account. But while Ning site owners can design the gifts themselves, they won't be able to price them--all will cost 75 "credits," or approximately $1.50--something that might not go over so well with site owners who want to sell really expensive bloody chainsaws.

Ning, which says that a total of 1.6 million "networks" have been created with its technology and counts 36 million active users overall, launched a third-party applications platform last month.

The company was co-founded by Netscape creator Marc Andreessen, who justified a $60 million funding round last year by saying that the company was preparing for an economic "nuclear winter." Or maybe a zombie attack.

This post was expanded at 1:07 p.m. PDT.

Meez, a start-up that expanded last year from an avatar creation service into a full-out virtual world for teens, is touting some good news: it's been profitable since April and "every month is better than the last month," CEO John Cahill told CNET News.

Right now, Meez has about 13 million registered users, 3 million unique hits per month, and only 20 full-time employees plus about 10 contractors.

Where's the money coming from? Premium subscriptions, ads on the free version of the site, and virtual goods bought and sold with its internal "Coinz" currency--which includes a mobile virtual-gift deal with Verizon.

The company is making this announcement in conjunction with the debut of its MySpace application, which should be live on the News Corp.-owned social network shortly. It's Meez's first integration with a big social network.

"The MySpace app is designed to allow people from MySpace to use the Meez virtual world, and people using the virtual world on Meez.com will be able to integrate with the MySpace users," Cahill explained.

So why is the company's first social-network platform product built on MySpace, which has had well-documented drops in traffic? The demographic and culture are a better fit, Cahill said, pointing to MySpace's younger-skewing user base as well as a culture that encourages meeting new people online.

"We are working on a Facebook app as well, but every time we surveyed our audience, our audience was very much more MySpace-based than Facebook," Cahill said. "It's about discovery. It's about finding new friends. On Facebook, your friends actually tend to be your (real-life) friends."

Getting onto social platforms will mean that Meez is starting to compete for attention (and that other buzzword, "engagement") with social gaming behemoths like Zynga and Playfish. Brushing elbows with the companies that already have come to dominate entertainment on social networks is par for the course, Cahill insisted.

"We're all competing for Internet time," he said.

Mobile payment start-up Boku, integrated into social game Puzzle Pirates.

(Credit: Boku)

Some would say our cell phone bills are high enough already. But two emerging start-ups are hoping to make mobile devices a hub for one of the hottest trends on the Web: micropayments.

Enter Boku, which launched officially on Tuesday with a whirlwind of announcements: its public launch after a year in stealth mode, its acquisitions of smaller companies Paymo and Mobillcash, and a $13 million round of venture funding led by Benchmark Capital with contributions from Index Ventures and Khosla Ventures.

A social-networking, gaming, or retail Web site can install Boku as a payment platform much like PayPal. But instead of entering a credit card number, members enter their cell phone numbers. A confirmation text message is sent to the cell phone, which the member must reply to for security purposes. No registration is required, and the charge goes to that member's phone bill. It's quite an idea, and one with invariably will raise plenty of questions about economics, social-media revenue, and the big one--security.

"We're focused on getting to as many publishers and merchants as possible," said Ron Hirson, an AT&T veteran who leads up marketing at Boku. The start-up is launching with carrier compatibility in 53 countries, integration into a number of social apps (including the ubiquitous "Mafia Wars"), and an official partnership with Hi5, an entertainment-focused social network with a big foothold in a number of Latin American countries. "We want to make this value proposition, this technology that we've built, and get to all the social games, all the casual games people play, (and) MMOs."

But Boku already has an extremely close competitor: Zong, which first launched in the U.S. in the spring of 2008, and which offers the same strategy of facilitating micropayments with a cell phone number, and which has already set up shop in virtual-goods havens like RockYou's social-net apps, teen site MyYearbook, and avatar company Meez.

With both companies now launched, now it's time for the land grab.

"I think we're on for a good boxing match in the ring," Zong CEO David Marcus said in an interview with CNET News.

It looks like it'll be quite the rivalry, since this is a situation where both companies want to achieve PayPal-like levels of ubiquity. Zong says it's more user-friendly; Boku touts a broader global reach. Boku says it's more customizable for merchants that want to install it; Zong says it has an advantage by partnering directly with carriers whenever possible and avoiding aggregation companies that effectively resell carrier relationships.

"We win in the fact that we don't use aggregators in 80 percent of our carrier connections...direct, with no intermediary whatsoever," Marcus said. "These aggregators were basically built to service ringtone companies and wallpaper companies, and have a very different infrastructure than the infrastructure that we've built for payment."

That strategic decision to avoid aggregators, Marcus added, was actually what kept Zong away from purchasing Paymo, which it had been considering before Boku eventually snapped it up. "Until a few weeks ago we were looking at acquiring Paymo as well and passed for one main reason," Marcus said. "They have great coverage in developing-world countries but only work through aggregators, and that's the case with Mobillcash as well."

But its willingness to partner with carrier-relationship aggregators has given Boku the advantage in reach, something that Zong's Marcus acknowledged (though he says it's adding two or three new countries each month).

"We want to build this global standard for mobile payments, and you need the global reach for sure, and we have that immediately," Hirson said of Boku, adding that it has twice the reach of its nearest competitor.

So why is this such a big deal that two start-ups have gotten so gloves-off about wanting to seize market share? With news stories galore about the kinds of dollars that some gaming companies are raking in with the sales of virtual goods--just read any headline about Zynga--the idea of making it easier for people to pay for small in-game transactions is quite appealing. Venture funding for virtual goods-related companies reached nearly $70 million in the first quarter of this year. And both companies say they're looking forward to the extension of Facebook's internal payment system to developers, hoping that they can integrate their products into the platform for even broader reach.

There's another angle to it: social networks and gaming sites are now a global phenomenon. In many countries, and not just those in the developing world, credit cards are far less commonplace than in the U.S. From what it looks like, the anticipated "Pay with Facebook" system may require a credit or debit card. The fact that Zong and Boku don't require either registration or a credit card could make it easier for more people to spend more money online, as much as it may sound an alarm with security freaks.

They also both speculate that their rivalry will likely continue to be a two-horse race, to use another terrible competition metaphor. Dealing with the security infrastructure required, not to mention carrier partnerships, is difficult for start-ups and established companies alike.

"The barrier to entry is fairly high," David Marcus said.

Hirson was a little more vocal about the difficulty of building a company in the space. "I would not wish upon my worst enemy the idea of trying to connect to hundreds of carriers and aggregators," he said. "It is extremely challenging dealing with the numbers of Byzantine rules you have in each country."

It's too early to tell which company will win--especially since market share is dependent on game developer and social-network preferences much more than consumer choices--if there even proves to be a winner. As inconceivable as it may seem right now, the bottom could still fall out of the virtual goods craze. And as consumer habits in both online payment and cell phone use change, so could the chances for success of a start-up that will face such extensive security and expansion challenges.

"We know we're going to attract all kinds of unsavory characters trying to do bad things, and we're trying to build ahead of that," Ron Hirson said.

But either way, this is a space to watch as social networks and gaming companies jump further into the micropayments craze.

"The space is definitely growing, and it's in hyper-growth stage," Marcus said, "and you're going to have major players that are going to enable mobile payments in the very near future."

>> Senator to propose surveillance of illegal images. John McCain wants to give surveillance duty to your Internet service provider and to Web sites to crack down on child pornography. All questionable images would be flagged and sent to the authorities with your IP address. (CNET News.com)

>> Flip launches. Conde Nast's answer to MySpace and other social networks. The service, aimed at teenage girls, lets you create a scrapbook of sorts in the form of a flip book. Your flip book can then be shared on other services. (Mashable)

>> Gmail leaves beta. Lately Google products leaving beta have gotten some bad press, but Gmail seems to have weathered the storm nicely. Gmail launched in April, 2004 with a groundbreaking 1GB of storage, and now offers nearly three times that much. The service has also lifted its "by invitation only" means of joining, a policy that spurned Web sites where people could trade invites for all sorts of things with eager Gmail hopefuls. (CNET News.com)

>> Amazon Unbox video downloads coming to TiVo. First you got podcasts; now, you can watch movies on your TiVo using Amazon's Unbox movie download service. Like purchasing TV shows on Microsoft's movie service for the Xbox 360, media can be re-downloaded an unlimited number of times if you wish to clear some of that valuable hard-drive space. (Crave)

>> Real-world success with virtual goods. Sony says that selling virtual goods for actual currency is a good thing--as long as it's done through an official, regulated store. Sony set-up its own store on several Everquest II game servers to allow transactions for virtual goods. The store earned Sony over $250,000 dollars. (CNET News.com)

>> Antivirus expert: 'Ransomware' on the rise. Gone are the days of simple Trojans and viruses. The next generation of malware is called "Ransomware," and it works when crafty hackers hijack your data, encrypt it, and hold it hostage for a fee. Once aimed at large companies, normal folks like you and me will be the new targets for this attack. (CNET News.com)

>> Vodafone in deal to access MySpace via mobiles. It's been done through Cingular, Helio and probably any other phone with a mobile browser, but Vodafone is joining the fray by shipping phones with the MySpace mobile application pre-installed. (CNET News.com)