The Vapid Pyramid of Valueless Advertising

Many of you have heard of Techcrunch, the definitive blog of the Silicon-Valley zeitgeist, but some of you haven’t, so by all means check it out.

Anyway, there’s a really important debate/discussion/brouhaha happening at Techcrunch right now that you need to know about, and you should start by reading this post, called Scamville.

I’ll try to use excerpts and some paraphrasing to bring you up to speed. Here Techcrunch Editor Michael Arrington lays out the basic case:

“Last weekend I wrote about how the big social gaming companies are making hundreds of millions of dollars in revenue on Facebook and MySpace through games like Farmville and Mobsters. Major media can’t stop applauding the companies long enough to understand what’s really going on with these games. The real story isn’t the business success of these startups. It’s the completely unethical way that they are going about achieving that success.

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.”

For the uninitiated, “lead-gen” offers means “lead generation” offers.  In other words, a site asks you if you’d like to be signed up for a service and in exchange, they get paid by that service every time someone signs up.  There’s absolutely nothing wrong with this in concept.

Where it goes wrong is when you’ve got not advertisers with legitimate products or services to sell (like Netflix, who does this a lot as you may have noticed), but instead when this space becomes flooded with the kinds of companies that use obfuscation and subterfuge to get you to sign up for a $10 a month subscription to text messages of your horoscope, but then use opacity and inconvenience to make it hard to stop paying for this service that you didn’t really want in the first place.

People are certainly less careful than they should be about these offers (because they should basically never do them), so it’s partly the consumer that should take the blame for this.

But it’s also a poor reflection on the companies that make money this way.  Among these are platforms like Zynga (which runs the applications on Facebook that Arrington talks about) and Facebook itself.  Arrington alleges (and this makes sense to me and explains a lot about Facebook’s recent increased revenue that didn’t make sense to me before) that a big chunk of FB’s revenue comes from what I would consider money the consumer wishes he didn’t spend.

And if you build a business on money consumers wish they hadn’t or weren’t spending, how strong can the underlying business be?

It might not be illegal, and unlike Arrington, I couldn’t care less if the successful (legal, but barely and certainly scummy) scammers are outbuying legitimate advertisers.  That’s not my area of concern here.

What I want to say is this: if you build your business on delighted customers, it will be strong.

If you build it on people who’d like their money back if given the choice, it’s weak.

Facebook as a service is great.  This revenue model ,however, speaks very poorly of the seriousness of its business and reinforces my long-held belief that their reliance on advertising makes them vulnerable to continued losses.

But the lesson for everyone else is this: don’t get clever and try to “trick” your customers into buying something they wish they could undo.

Give them something they’d buy again.  And again.

Not only is it less sleazy, but in the long run, it’s the only thing that really works.