FTC: Tapjoy’s deception settlement has implications for Apple and Google
January 8, 2021
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The Federal Trade Commission said today it settled allegations that Tapjoy misled its customers and game developers over the rewards they were promised by completing its advertising offers.

In a statement from commissioners Rohit Chopra and Rebecca Kelly Slaughter, the FTC said Tapjoy failed to properly police its mobile gaming advertising platform, cheating developers and gamers out of promised compensation and awards. They said the “explosive growth of mobile gaming has led to mounting concerns about harmful practices, including unlawful surveillance, dark patterns, and facilitation of fraud.”

In a signal that indicated its larger interests, the federal commission said it must closely scrutinize today’s gaming gatekeepers, including app stores and advertising middlemen, to prevent harm to developers and gamers. Chopra said in no uncertain terms that the FTC is scrutinizing companies such as Apple and Google for their middleman policies. Tapjoy is a small part of the mobile ecosystem in the grand scheme of things, but regulating this company is part of a larger trend in which the FTC expects to regulate all platforms for apps and games, based on the statement from Chopra, which Slaughter joined.

San Francisco-based Tapjoy has been around since 2007. It started as a mobile advertising platform that specializes in ads known as offers. If a gamer completes a task like watch a video ad or signing up for a subscription, then Tapjoy enables that gamer to earn a reward in a game that they might otherwise have to pay for. These offer-walls have been a good way to monetize players who wouldn’t otherwise make purchases in a game, and so Tapjoy is a kind of middleman between gamers, developers, and advertisers.

The proposed settlement does not remedy these past harms, but it will require Tapjoy to better police its platform to prevent abuses going forward.

Reached for comment, Tapjoy CEO Jeff Drobick said in a statement, “We are committed to facilitating a marketplace for consumers, advertising partners, and publishers to transact with each other in a fair and clear way, while ensuring timely access to customer service.”

He added, “Back in 2017, the FTC raised concerns around reward delivery. Over the past three years, we have enhanced the rewarding process and customer interaction, and worked to reach a resolution that we believe benefits consumers, Tapjoy’s partners, and our business overall. In accordance with our agreement with the FTC, we will further increase our efforts with advertisers to improve the clarity and transparency of their offers, and we will add enhancements to our offer testing and reward monitoring processes. We remain committed to improving our end-to-end consumer experience and expect the continued enhancements will benefit all of our stakeholders.”

Tapjoy’s alleged misconduct

Jeff Drobick is CEO of Tapjoy.

Above: Jeff Drobick is CEO of Tapjoy.

Image Credit: Tapjoy

Tapjoy woos developers into integrating its technology by promising payments for user activity. In a mobile gaming experience where developers use Tapjoy’s advertising platform, Tapjoy displays “offers.” When gamers complete these “offers,” such as by signing up for subscriptions or making purchases, Tapjoy credits the user’s account with coins or other currency for use in the game, and developers receive a percentage of Tapjoy’s advertising revenue.

But many players jumped through hoops – and even spent money and turned over sensitive data – to complete Tapjoy’s offers, only to receive nothing in return, the FTC said. It alleged that Tapjoy amplified false offers by its business partners, who baited players with big rewards only to cheat them when it was time to pay up. Tapjoy did little to clean up the mess, even when hundreds of thousands of gamers filed complaints, the FTC said. This also harmed developers of mobile games, who were cheated of advertising revenue they were entitled to.

Chopra said that Tapjoy’s conduct violated the FTC Act’s prohibition on unfair practices, as well as the prohibition on deceptive practices. The FTC’s proposed settlement requires the platform to implement screening and testing procedures to weed out advertisers that cheat gamers and developers. This provision will help ensure Tapjoy takes more responsibility for fraud, rather than facilitating it.

The FTC said Tapjoy is not the only platform squeezing developers. In fact, the firm is a minnow next to the gatekeeping giants of the mobile gaming industry, Apple and Google.

Chopra said, “By controlling the dominant app stores, these firms enjoy vast power to impose taxes and regulations on the mobile gaming industry, which was generating nearly $70 billion annually even before the pandemic.”

This Tapjoy matter is another example where the lack of clarity regarding the scope of immunities conferred by Section 230 of the Communications Decency Act has given legal ammunition to platforms seeking to shirk responsibility for their commercial activity, including sales and advertising practices, the FTC said. This lack of clarity undermines the ability of the FTC and other regulators to obtain adequate monetary relief for misconduct. In other instances, users can receive rewards directly through the game, Chopra said.

Beyond Tapjoy

Above: Tapjoy’s Offerwall in 2017.

Image Credit: Tapjoy

“We should all be concerned that gatekeepers can harm developers and squelch innovation,” Chopra said. “The clearest example is rent extraction: Apple and Google charge mobile app developers on their platforms up to 30 percent of sales, and even bar developers from trying to avoid this tax through offering alternative payment systems.”

While larger gaming companies such as Epic Games are pursuing legal action against these practices, “developers and small businesses risk severe retaliation for speaking up, including outright suspension from app stores — an effective death sentence,” Chopra said.

This market structure also has cascading effects on players and consumers. Under heavy taxation by Apple and Google, developers have been forced to adopt alternative monetization models that rely on surveillance, manipulation, and other harmful practices, Chopra said.

For example, many developers are turning to “loot boxes” to squeeze more revenue out of gamers. These loot boxes deploy dark patterns and other deceptions to lure gamers — often children — into purchasing in-app rewards of randomly assigned value, turning videogames into virtual casinos. As detailed in a recent FTC report, this addictive phenomenon emerged as a direct consequence of changing monetization models in the industry, as developers increasingly rely on recurring revenue, such as through in-app purchases, rather than upfront sales, Chopra said.

Mobile gaming’s market structure is also forcing developers to create revenue streams that are not subject to app store taxation, including through intrusive behavioral advertising. Last year, for example, the FTC brought an action against Hyperbeard, a developer of child-directed games charged with allowing major ad networks to surveil users — including children — in order to serve behavioral advertising, Chopra said. This type of conduct violates the Children’s Online Privacy Protection Act, but Hyperbeard’s surveillance practices are not unique. In fact, Google encourages game developers on its platform to adopt this monetization model, claiming “users expect free games,” Chopra said.

Today’s action against Tapjoy reveals another monetization model that developers are turning to in the face of fees and restrictions imposed by app stores. By offering a platform connecting advertisers, gamers, and game developers, Tapjoy enables these developers to generate advertising revenue that Apple and Google do not tax. But this monetization model also creates opportunities for fraud, and the commission’s complaint details how Tapjoy allowed this fraud to fester, Chopra said.

He said that developers of mobile games are delivering creative content that keeps Americans entertained and engaged, but face many middlemen, even beyond the dominant app stores. Game developers relied on Tapjoy to generate revenue for themselves and offer gamers a way to earn currency to enhance their play. However, Tapjoy’s failure to screen fraudulent offers left both gamers and developers holding the bag, Chopra said.

“The settlement proposed today should help reverse the lax policing practices that led hundreds of thousands of gamers to file complaints,” Chopra said. “But when it comes to addressing the deeper structural problems in this marketplace that threaten both gamers and developers, the commission will need to use all of its tools — competition, consumer protection, and data protection — to combat middlemen mischief, including by the largest gaming gatekeepers.”

Apple and Google have not responded to a request for comment.

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