Virtual goods: Duping the masses?

I attended the Virtual Goods Summit on Friday and walked away struggling to figure what topics might be interesting to write about. My net takeaway is that not much has changed in the year that I've been writing about social gaming and virtual goods, with the exception of two facts:

1. Virtual good providers are being lauded as the next big thing to replace advertising
2. There's something weird going on with the ads and offers that have taken over the more traditional banner advertising role

There is no question that virtual goods have become an integral part of social network revenue streams. And the mainstream media has finally started to catch on.

But, I didn't realize the oddities of the way users are being monetized until I attended the event and saw the heavy emphasis not just on monetizing users but on doing so in a way that was transparent and non-intrusive. Theoretically, it's a good idea, but in practice, many of the "offer" providers are purposely or inadvertently running Ponzi schemes.

TechCrunch's Michael Arrington arrived at my second point above and took the theory much further with data that shows many social gaming offers and advertising practices amount to little more than a complicated scam that gets people in the door for free only to take advantage of their lack of understanding of what they've technically agreed to in the various offers.

In short, these games try to get people to pay cash for in game currency so they can level up faster and have a better overall experience. Which is fine. But for users who won't pay cash, a wide variety of "offers" are available where they can get in-game currency in exchange for lead gen-type offers. Most of these offers are bad for consumers because it confusingly gets them to pay far more for in-game currency than if they just paid cash (there are notable exceptions, but the scammy stuff tends to crowd out the legitimate offers). And it's also bad for legitimate advertisers.

As an advocate of both virtual goods and social gaming, I think this is an important realization for the industry and one that absolutely must be changed in order for growth to continue. As with any other burgeoning ecosystem there will always be scams and questionable tactics.

Facebook publishes a very clear set of advertising guidelines, but that doesn't mean that advertisers will actually follow them.

The big question here is what will sites like Facebook do about the problem. Considering that Facebook users are the primary target of all of these practices, isn't the onus really on them to protect their users (whom I would argue are either too naïve or just plain stupid to know better) from these types of things? If you want to be the meeting place and voice of the people, you have to protect the people from ne'er-do-wells.

And while I certainly don't believe that this is a giant conspiracy, take a look at this video of Offerpal CEO Anu Shukla's aggressive defense against the comments from Arrington.

Arrington's post on the event is here, and Offerpal has posted its take on its blog.