Wadworth, who is currently a Tapjoy board member, will take over a company that has become a reliable tool for app developers to monetize their apps. The company provides tools that allow developers to make money by getting app users to complete certain tasks, like watching a video, signing up for a subscription or downloading another app. It also launched its own direct-to-consumer portal where users can find and download games.

Tapjoy ran afoul of Apple last year for its incentivized app downloads because it was apparently manipulating the App Store rankings. Tapjoy backed off but has resumed the practice using HTML5 windows that don’t get reviewed by Apple.

Previously, the company, known as Offerpal, was criticized in 2009 for the way it offered virtual currency in Facebook games for signing up for a service, sometimes subscribing an unaware user to paid services. The situation came to be known as Scamville.

It’s unclear what prompted the change at the top for Tapjoy. Shah assumed the CEO position in 2010 after the company changed its name to Tapjoy following the Facebook Scamville episode. He helped the company focus on mobile monetization, which has become a huge opportunity thanks to the booming app market.

Wadsworth worked at Disney for 17 years building up the company’s digital media and technology business. He spent 11 years of those years as Disney’s chief Internet and digital media executive before retiring in 2010.

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It all started with a report from last weekend, penned by a developer on the Touch Arcade forums, alleged that that some app publishers are using download bots to boost their rankings.

The services, it said, are being offered by third parties who will give your app the download bot treatment for as little as $5,000, and that many apps in the top rankings are using them already — pictured here. Some were also offering services to place favorable reviews on apps.

While Apple yesterday at first issued a “no comment” to paidContent when asked about it yesterday, overnight the company changed its tune and posted the following on its developer site, cautioning developers against manipulating rankings on its charts.

Notably, it doesn’t mention download bots specifically, but what it does do is suggest that the practice of using them, and any other services that inflate an app’s standing, will get that app the boot:

Adhering to Guidelines on Third-Party Marketing Services
Once you build a great app, you want everyone to know about it. However, when you promote your app, you should avoid using services that advertise or guarantee top placement in App Store charts. Even if you are not personally engaged in manipulating App Store chart rankings or user reviews, employing services that do so on your behalf may result in the loss of your Apple Developer Program membership. Get helpful tips and resources on marketing your apps the right way from the App Store Resource Center.

The question is, however, how hard it will be to substantiate who, exactly, uses these kinds of services, and who is ultimately culpable for how marketing is implemented.

One of the bigger app developers named in the original report, CrowdStar, spoke up in the Touch Arcade forum comments twice. With the name of the company offering the service redacted in the original report, the company never firmly denied (or confirmed) whether they used that marketing company’s services, but it did deny creating or using “farms or bots for downloads or reviews.”

Later, co-founder and CEO Peter Relan later told paidContent in an email that his company allocates “significant six- and seven-figure budgets on advertising through channels such as iAds, Flurry, Chartboost and many others, and also do direct developer cross-promotion partnerships.”

But he also admitted that some of this is slightly out of its control (the italics are mine): “Ad networks keep their ad partner information confidential, but we hope that none of the partners ever use farms or bots. If there are policy issues identified by the mobile platform, ad networks should adapt… We ask all our ad partners to uphold platform policies and stay abreast of changes.”

He also said that CrowdStar has had to resort to terminating relationships with marketers who cross the line only once before. “We found that an ad partner could not satisfy our queries about bots and we stopped using the partner,” he wrote.

It remains to be seen whether Apple will actually start to take down apps that it deems to have used these tools — and how, exactly, it will be able to track that the practice.

It’s also worth wondering how and if Apple will go after the numerous companies offering these services.

One that I contacted (as a would-be potential customer), says that his services to add reviews and ratings to apps range in price from $99 to $499; he also offers 100 iTunes accounts for $499 to be used for “data entry” and potentially other services, like downloads. He’s just one of many, a developer told me.

The discovery issue is a thorny one for the world of apps, and with the total number of apps now standing at over 1 million, that problem’s only growing. App stores like Apple’s are becoming increasingly harder to navigate and for users to discover apps, and some developers will be looking for any opportunity they can to game that situation.

There have been some examples of other practices that result in boosting downloads — namely Tapjoy offering users free credits in a game in exchange for downloading another, which Apple also forbade — although this was a much more open system, never hiding what it was doing, and was arguably was also good for app discovery and advertising revenues.

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Tapjoy has shifted over to Android  (which has no ban on incentivized download campaigns) while it continues to offer a marketplace in iOS apps that exchanges virtual currency for watching video ads or signing up for services. But now, Tapjoy is getting back into the business of helping drive downloads of iOS software with a new web app called Tapjoy Games that allows it reach out directly to consumers. There’s also a new native app for Android.

A Tapjoy representative said Tapjoy Games wasn’t created in response to Apple’s ban, but was designed by Tapjoy to be more of a direct channel to consumers to help them earn currency and discover apps in exchange for doing certain actions. IOS users who visit Tapjoygames.com on their mobile web browser sign-up once and link the web app to their phone, which allows any actions they take in the web app to be reflected in any games on their phone that use the Tapjoy SDK.

The web app, or the Android app, will be able to sense what apps are loaded on the phone and can offer virtual currency or credits in those games if they complete a task. That includes downloading another app, watching a video ad or signing up for a subscription service. If users want to find new apps or Tapjoy Games doesn’t see any games on the phone that it can offer virtual goods for, users will see a list of some suggested apps to download.

Some have wondered if this is just an end run around Apple’s ban, because users can still get virtual currency in exchange for downloading an app using the web interface. That’s a valid question, though I don’t think it will have the same effect as the old incentivized download campaigns had. Those ads were placed inside apps, and so it was easy to download an app on impulse just to get more virtual cash when playing a game. Tapjoy Games will have no links to the mobile ads, so users will have to go out of their way to visit the portal.

The bigger picture here is that Tapjoy is making a direct pitch to users. It’s betting that if it can become a go-to destination, then users won’t necessarily wait to see a Tapjoy ad in an app. They’ll go directly to Tapjoy and find ways to interact with their advertisers. If Tapjoy can build up a reputation for offering good rewards for popular games and helping people discover new ones, it can grow its footprint and live outside of mobile ads.

I still have to hear more about this model, and it looks like Tapjoy won’t be unveiling it formally until next week. But as it stands right now, I don’t know if it will trigger a response from Apple. As as a web app, it may have trouble getting noticed by users, so its effects could be limited on iOS. And since it may not drive as much traffic to certain apps, it might not be accused of gaming the system. Also, its unclear what Apple could do even if Tapjoy was successful with this portal.

Apple might also be miffed by the fact that instead of paying for virtual goods in a game, of which Apple gets 30 percent, users can go straight to Tapjoy and get it for free. Again, I’m not sure what Apple can do if Tapjoy Games exists as a web app, but I’ve always thought that another reason why Apple isn’t in love with the incentivized download model is because it loses money on lost virtual goods purchases.

We’ll see if Tapjoy can succeed with this Tapjoy Games. It really has to drive awareness about its destination portal. I’m told that Tapjoy.com will soon become the Tapjoy Games portal, instead of the B2B site it is now. But for consumers to turn to Tapjoy, the company will have to spend some money to get the word out. Still, it’s another sign of a company moving to the web to succeed on iOS outside of Apple’s rules. The Financial Times, for example, removed its native iPad app in favor of tablet and smartphone optimized web apps.

This might be not turn into the easy tool Tapjoy’s previous incentive system was for download-hungry developers, who were often able to pay their way into the top 25 rankings with Tapjoy campaigns. But that’s a good thing. Those ads inflated the value of downloads, and made a lot of download numbers suspect. Now, Tapjoy is getting more into the straight app discovery game, while dangling virtual goods as a reward. App discovery is a crowded market, but the added appeal of in-game currency might be a way for Tapjoy to set its system apart.

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If mobile advertising is only a small (but growing) part of the overall market, then rich-media formats like mobile video advertising is even smaller: Tapjoy’s spin is that it will be integrating its video ads into its larger pay-for-performance advertising model.

The idea goes something like this: the ad units will be embedded into apps, and they will be required viewing to unlock further content in the app, be it a stage of a game or extended reading in a text-based app. In this way, Tapjoy says, the advertisers “sponsor content” in exchange for “virtual currency” in the app, which gets used for more content. Developers can integrate the videos using the Tapjoy Publisher SDK.

A healthy part of Tapjoy’s business in the past has come from app publishers advertising on other apps (the basis of the pay-per-install model), but the new video format potentially can snag in a new segment: brands that make video ad buys, primarily on TV but also online.

Tapjoy claims that its video service this will have a lower acquisition cost than that of TV advertising because one feature of the service is pay-for-completed-view pricing. However, it’s not clear whether if a user watches a fraction of the video, advertisers will have to pay for a proportionate fraction of the placement cost.

A spokesperson for Tapjoy says that while Apple is still rejecting those ads with pay-per-install ads in them, “It hasn’t impacted Tapjoy’s business all that much because [we] were able to replace PPI ads with other ad types.” This new video service will be one more format to add to the list.

Tapjoy says that its inventory currently gets seen by 50 million people every day across 10,000 apps across the iOS and Android platforms, as well as other “emerging” platforms.

EMarketer believes that mobile ad spend will be growing between 25 percent and 36 percent over the next three years, while more traditional media ad spend will stay flat.

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Dille, who left Sony in March after a 13-year career spanning two separate stints, will join Tapjoy as chief marketing officer. Tapjoy, which now reaches 250 million consumers, has become one of the top app monetization services for developers and publishers with its incentivized installs, offer wall, banner and cost per action ads. It recently claimed to have helped make 10,000 apps freemium, many of them games.

That Dille would end up at a mobile marketing start-up reflects where the momentum is in gaming. Flurry reported earlier this year that mobile gaming revenue in the U.S. hit $800 million last year, up from $500 million in 2009, taking one-third of portable gaming revenues. Those number are expected to go up, at the expense of devices like the Nintendo DS and the PlayStation Portable. Juniper Research said worldwide mobile gaming revenue will hit $11 billion by 2015. 

“The mobile space is poised for continued hyper growth, and I’m looking forward to helping the team build its core business globally as well as begin to leverage the Tapjoy network’s incredible reach with consumers,” Dille said.

Meanwhile, traditional gaming companies like Nintendo, which has shunned the smartphone gaming market, are suffering; Nintendo slashed its forecast last quarter after reporting an operating loss, which was affected by slow sales of its latest handheld console, the 3DS.

Dille’s hire also highlights the momentum behind Tapjoy, which has raised about $41 million in 2011 alone. The company also hired former Veraz Networks and PalmSource CFO Al Wood as its chief financial officer in July. And it’s rebounded nicely from Apple’s decision earlier this year to ban incentivized install campaigns, one of Tapjoy’s top tools, because of apparent concerns it was gaming the App Store rankings.

There is a booming market for mobile app development services, as developers and publishers try to capitalize on the wide prevalence of smartphones. I fully expect to see more traditional gaming executive talent flow to startups and new companies serving the mobile gaming market as the growth of smartphone gaming continues.

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Tapjoy said almost one-third of their developers’ revenues comes from the Tapjoy platform, which includes ad units such as an offer wall, incented banner ads and cost per action ads. The momentum comes despite Apple’s move in April to reject ads and updates with incentivized cost-per-install ads from Tapjoy and others that appeared to be targeted because they altered the rankings of the App Store. Incentivized installs involve a user gaining virtual currency or goods in exchange for downloading another app.

Tapjoy is lining up more publishers and announced today that it is now serving OMGPOP, Moblyng, Craneballs Studios, Game Circus and Spry Fox, who are all integrating Tapjoy into their apps. But it’s not just publishers that like Tapjoy apparently. The company said it is attracting a lot of developers and brand advertisers because it delivers more than 1 million ad completions every day and has a reach of 30 million daily active users.

Apple’s clamp down on incentivized installs helped prompt Tapjoy to accelerate its Android business, which is now growing much faster than its efforts on iOS. The company said since April 1, the number of Android apps in the Tapjoy network has grown 160 percent, while the number of iOS apps has only grown by 49 percent.

Tapjoy is showing that developers and publishers are anxious to find ways to monetize their apps and they’re going to whoever can get them there. And the company is demonstrating that its success wasn’t tied to just one ad unit, but that it’s still getting customers by offering a broader array of tools.

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That reality is pushing app distribution and monetization companies to continue to evolve around Apple’s ban. W3i, once a leader in incentivized installs, has come up with a new alternative app discovery service that it hopes will aid game developers to push downloads while staying within Apple’s rules. The new product, called Mobile App Ad Network, allows game developers to offer their apps for free for a 24-hour period in customizable banner ads that appear in other gaming apps. The new “free app of the day” ads are going into beta today.

Advertisers and publishers have a number of options as to when and where they run the ad so that it is most effective. Instead of just a persistent banner, an advertiser can have the offer run when the app is launched, when the user hits a milestone or in exchange for an achievement. This targeted use of the ad means it works more within the flow of an app and is less intrusive. And because it only advertises free games for one day in other games, it is more likely to be downloaded because it is more relevant to the target audience. W3i said this model can boost conversions to 48 percent, though we will have to see if that bears out over time.

W3i believes the new ad product won’t run afoul of Apple’s ban on incentivized installs because it is basically a banner ad for an app that is on sale. Incentivized installs, which allowed a user to download an app in exchange for virtual currency or goods, was targeted by Apple for apparently gaming the App Store rankings, boosting apps that paid for those ad campaigns.

“It’s difficult to predict Apple’s behavior but they have no problem with recommending apps and they have no issues with publishers putting their apps up for sale,” said W3i product manager Melissa Johnson.

Johnson said that incentivized installs also enticed people to download unrelated apps they may not have been interested in to gain virtual goods. By offering games that may have appealed to a gamer, they increased the chances that the user would continue to engage with the app, making the investment more worthwhile for advertisers.

W3i’s product illustrates how the mobile app distribution market is shifting in response to Apple. Tapjoy, another leader in incentivized installs, said it has had to move away from pay-per-install campaigns on iOS, and it now targets other platforms and runs more cost-per-action ads, which allow users to gain currency in exchange for watching a video. It is also doing more-traditional banner ads for apps, Tapjoy’s CEO Mihir Shah recently told me.

This new campaign by W3i shows that mobile advertising is also becoming more contextual, something I’ve noted with products like Kiip and Tap Me, which use very targeted moments in apps to offer up real rewards or sponsored in-game power-ups. There is more creativity happening now in mobile advertising, some of it by necessity in the case of W3i. With a booming market for mobile apps, the marketing of those apps is a big opportunity that can’t be ignored, and marketing will always find a way.

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Tapjoy’s investment was led by JP Morgan, which joins existing investors Rho Ventures, InterWest Partners, North Bridge Venture Partners and D. E. Shaw Ventures in this Series D round. To date, Tapjoy, formerly known as Offerpal, has raised $70 million. Mihir Shah, Tapjoy’s CEO, said the money will go toward acquisitions and building out the engineering and sales teams. The company expects to double its 70 employees in the next couple of quarters.

Shah said San Francisco-based Tapjoy is reaching up to 30 million users a day with its campaigns. That’s even after Apple closed the door this spring on so-called incentivized app installs, in which a user can gain virtual currency or goods in exchange for downloading another app. Apple didn’t say why it banned new and updated apps with incentivized installs but indicated that it was because the downloads were affecting the App Store rankings. Tapjoy was the leader in this field of pay-per-install app monetization but has now shifted its efforts on iOS to more traditional banner ads or cost per action campaigns, in which users gain currency in exchange for watching a video or completing some other task.

Shah said Tapjoy, which became profitable in the fourth quarter last year, has not missed a beat with the loss of incentivized installs on iOS. He said the growth of Android, which is doubling month over month, as well as a new opportunity on Windows Phone 7, have helped Tapjoy maintain its momentum. Tapjoy last month started a $5 million Android fund to help developers port their apps to Android, which doesn’t ban incentivized installs, and also recently started supporting Windows Phone 7.

“Regardless of what Apple did with respect to incentivized app installs, the mobile app market we power is booming,” said Shah. “It’s booming on Apple and a variety of platforms.”

Even though Tapjoy has moved on from the incentivized app install situation with Apple, it wasn’t without a fight. The company floated a couple of ideas by Apple including not having app downloads count toward the App Store rankings. But Shah said Apple has not responded at all.

Shah said it’s disappointing because he believes pay-per-install can be a legitimate tool when limits are applied. Without it, developers are having to pay more for other app marketing. Incentivized installs were also a significant way for developers to monetize their apps beyond traditional advertising or in-app purchases. But ultimately, the standoff has forced Tapjoy to diversify and it seems to be doing well because of it. The reality is, in a market that’s expected to hit $37 billion by 2015, many mobile apps will increasingly need help to be noticed and downloaded and serving this market is just getting more lucrative.

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Tapjoy and other mobile advertising companies that promote incentivized installs were thrust into the spotlight in April when Apple began rejecting apps that included pay-per-install campaigns. The promotion allows an app developer to get paid when one of its app users downloads a separate app in exchange for virtual currency or some reward. The practice has drawn the attention of critics who said companies like Tapjoy were using it to game the rankings system by boosting apps in the top ranks. Apple didn’t publicly explain its actions but cited a section of the developer program license agreement that prohibits developers from manipulating user reviews or chart ranking in the App Store.

Tapjoy CEO Mihir Shah said he reached out to Apple three weeks ago and offered to include a referral URL for the App Store when a user chooses to download an app in exchange for virtual goods. That would allow Apple to identify that the download came from Tapjoy and not count it in the App Store ranking algorithm. Shah said Apple wrote back a couple days later saying it had no time to discuss the issue.

This follows another attempt Tapjoy made to limit the influence of its incentivized installs. Just days after the ban went into effect, Tapjoy also offered to limit pay-per-install campaigns to prevent any one app from leaping into the top 25 of the rankings through this form of cross promotion. Apple did not go for it. It’s left Shah confused about Apple’s stance on pay-per-install, which appeared to be about preserving the integrity of the app store rankings.

“If this is about charting, we have a very simple solution,” said Shah. “But I’m a bit confused because it seems to be about something I’m not aware of more than pure charting.”

What Shah believes is clear is that the Apple ban is hurting developers, who have relied on cost-per-install campaigns to help drive downloads and build awareness of their apps. A new survey of 496 iOS developers by Tapjoy underscores the impact of the ban with 48 percent of developers saying they’re received user complaints about the lack of incentivized installs and 54 percent of developers who say they’re making less money now because of the ban. Also, 60 percent of developers said they derived more than 20 percent of their revenues from pay-per-install campaigns.

These results show how much many of Tapjoy’s developers came to rely on the pay-per-install model. I’m not sure developers should have been putting so many of their eggs in this basket. But Shah argues that the model has been good for up and coming developers, helping them get their apps noticed in the crowded App Store. With the cost of acquiring users about three times cheaper than more traditional display network campaigns, cost-per-install was an important tool for developers, said Shah.

Larger publishers and bigger developers also used the model to help inject some predictability into their businesses. By leaning on pay-per-install, companies were able to justify their investment in mobile apps because they were able to better predict their performance. But Shah said the biggest impact is for users, often younger people and students, who were able to participate in games without access to a credit card by downloading another app.

Shah said prior to Apple’s change, Tapjoy was interacting with 30 million daily active iOS users and 175 million monthly users on all mobile platforms, generating 1.5 million conversions a day. The company, like its iOS developers, has seen its business decline on iOS though it is making up for it with big growth on Android. Shah said he’s not clear why Apple still doesn’t want to work with Tapjoy and others even if they end their influence on the rankings. But he noted that Apple and others who operate mobile ad networks are benefiting from the enforcement change as developers turn to them for app cross promotion.

“I think the facts speak for themselves; ad inventory on iAd is going up as a result of (Apple)  indicating to the market they’re not OK with developers using Tapjoy, W3I and Flurry.”

I’m not sure Apple is trying to drive developers to iAd. There could be other reasons why Apple isn’t interested in implementing Shah’s solution. But he does raise some interesting questions about whether this ad model deserves a right to exist with limitions in place. Developers are struggling to get their apps noticed and have been using cross promotions display ads in apps. Cost-per-install is attractive because it’s cheaper and if Apple limits its influence on App Store rankings, is it so different from mobile display ads?

Ouriel Ohayon, co-founder of AppsFire, an app discovery service which competes with Tapjoy, however, says the goal of developers should be to drive engagement, something Tapjoy hasn’t been able to prove. But Shah said cost-per-installs are more like coupons, helping users try an app. That’s a legitimate goal for developers, he said. The question appears to be moot on iOS for the time being because Apple is showing no willingness to change its ban.

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Tapjoy said a number of developers have had their apps rejected recently, apparently because they were running incentivized app installs, a form of cross-promotion marketing for app developers, who pay to have their app installed in other apps. This jibes with another report from Pocketgamer, which also reported that a number of apps have been rejected for offering virtual currency in exchange for downloads of apps. Tapjoy said it believes that while there is no app store rule banning pay-per-install, Apple may be using section 3.10 of the developer program license agreement, which states:

Developers who attempt to manipulate or cheat the user reviews or chart ranking in the App Store with fake or paid reviews, or any other inappropriate methods will be removed from the iOS Developer Program

Tapjoy said the problem may come down to a misconception about incentivized app installs. The marketing campaigns allow a consumer to obtain virtual currency or goods in an app in exchange for downloading an app. These campaigns have helped boost the download numbers of some developers who work with Tapjoy and others such as Flurry and W3i to get their apps promoted. Tapjoy said the model is beneficial to users, who get to receive a coupon for virtual goods in exchange for trying out new apps. It also benefits advertisers and developers who only pay for installs. And it’s good, Tapjoy said, for publishers, who are able to monetize users who wouldn’t otherwise pay.

“Tapjoy has been and continues to be very supportive of the Apple app ecosystem, and we were not surprised about the Top Free & Paid rankings algorithm changes — we’re all for incremental changes that add to the user experience and keep the environment dynamic. But banning the largest and most effective channel for app installs has a significant and long-term negative impact on the user experience, developer innovation and advertiser utility,” the company said in a statement.

This comes, as I mentioned, right around the same time Apple has apparently started tweaking its app store rankings to factor in more than download numbers. It appears Apple may be using ratings and/or usage to help move apps up. But the changes could have also been aimed at blunting the effect of incentivized app installs, which some have called gaming the system. That’s something no app store owner wants because it can undermine their rankings and encourage developers to manipulate the system rather than put out quality apps.

The thing is, this has been around for a while now and is widely used by many developers. I wrote about these alternative payment systems in January and noted how many developers and brands such as Kayak, Fandango, Tapulous and Groupon are using the campaigns to distribute apps. Tapjoy, which was also part of the scamville controversy on Facebook when it was running questionable offer-based payments as Offerpal, recently reported it was serving 1.5 million app installs a day across iOS and Android , generating $35 million per month.

The money involved may also be part of the problem. With pay-per-install, Tapjoy and others don’t pay anything to Apple. Had a game developer just used in-app payments to sell virtual goods instead of incentivized app installs, they would need to fork over 30 percent of the in-app purchase to Apple. But alternative payment providers aren’t required to hand over some of their revenue to Apple from the money they receive from these campaigns. So it’s potentially lost revenue for Apple, something it’s getting more serious about. 

I’ve reached out to Apple for confirmation and clarification and will update when I hear something. But it’s not completely surprising that Apple might target these incentivized app install campaigns. They do have a way of helping apps jump into the top of the rankings through incentives rather than just relying on good reviews, word of mouth and more traditional marketing.I’m in favor of tweaks to the App Store rankings algorithm to reward more quality and engagement and lessening the power of incentivized campaigns, but I’m not sure Apple has to ban all apps that use incentivized installs. That’s a powerful move, completing removing one avenue of promotion and marketing for app developers, who have to get noticed in a sea of 350,000 apps. Developers who relied on incentivized installs will need to make big adjustments in their business model.

But it’s Apple’s store to run. It may be the company is looking to increase the quality of apps on its top rankings and remove incentives for developers and brands to buy installs. Or it could be Apple would like a cut of the revenue from this growing business. Apple might also be looking to direct more dollars to traditional display and rich-media mobile advertising, which it can benefit from through iAd. At any rate, Apple is showing it has a tight hold on the store, and it’s not afraid to assert its authority when its reputation, or perhaps potential revenue, is at stake.

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