Blog Post

Facebook, Zynga Face Class-Action Suit Over Offer-Based Ads

Offer-based ads seemed to be the secret to monetizing social games — and social network users, in general — that standard banner ads couldn’t provide. But amid ongoing accusations that the ads actually “scammed” users into paying for things they didn’t want and giving up their personal info, comes the inevitable: a class-action lawsuit. The suit, which seeks upwards of $5 million in damages, is being handled by Sacramento-based law firm Kershaw, Cutter & Ratinoff (KCR). via Valleywag.

More notable is that the suit isn’t just aimed at high-profile social gamer Zynga — it’s also going after Facebook itself. KCR argues that the social network generates “from 10 to 20 percent” of its annual revenue from Zynga’s games, and has been “actively” promoting them, despite being “fully aware of the false and misleading” offer-based ads they contain. (The companies have never publicly revealed whether Facebook gets an ad sales rev-share). Facebook actually banned Zynga’s newest game, FishVille, because of the ads, but it hadn’t done so previously.

KCR started looking for people that had been hit with unauthorized credit, debit or mobile charges from offer-based ads, right after TechCrunch kicked off a series of scathing articles (complete with a video of Zynga CEO Mark Pincus admitting that the company “did every horrible thing in the book” to generate revenues). The law firm will ultimately use the video as part of its courtroom evidence.

Pincus said Zynga would stop using offer-based ads until it could ensure that they were scam-free; in the meantime, the company got a vote of confidence from its investors in the form of a $15.1 million third round of funding. While Zynga had likely been in the process of raising the money well before the media backlash, its backers — including KPC&B and Foundry Group — are VC firms well-versed in the process of due diligence, so chances are they’ve been aware of how Zynga makes most of its money from the start.

Facebook too, has had its own legal issues with advertising — though they’ve stemmed from a privacy angle, not actual “scams” — but it has been brokering deals with trusted names like Nielsen to bolster its image as a brand-friendly ad platform.

One Response to “Facebook, Zynga Face Class-Action Suit Over Offer-Based Ads”

  1. Zynga has lied again, ProFlowers Valentine promotion is a scam!

    I ordered flowers for my daughter for Valentines day on 10 Feb 2011 through a promotion on Zynga’s YoVille game. I was “suppose” to receieve 100 YoCash through this promotion. I DID NOT get the YoCash and after sending them the order, payment and delivery confirmation information they are telling me I will NOT get the promised YoCash because I used a promo code for a free vase while ordering. NO WHERE did it say you couldn’t use another promo code, as a matter of fact there was a slot to use a promo code when ordering. Not only that ProFlowers didn’t even deliver the card with the flowers! My daughter had to call everyone she knew to find out who even sent the flowers. If I had known I would NOT get the YoCash I would have ordered flowers locally and the cost would have been dramatically reduced!

    Below is the email I received from Zynga on 25 Feb 2011:

    “We have contacted the Advertiser of the Proflowers offer you have reported (see Offer details below) in order to manually confirm this offer has been completed. Unfortunately, we have been notified by the Advertiser an external promotion code was used at completion and therefore we are unable to credit your account for this offer at this time.

    We apologize for the inconvenience.

    The above email didn’t even have a reply address, when I clicked to reply to the email the address area was blank! I have emailed them several more times, using the address from an earlier correspondence, and have even requested someone in charge contact me but have yet to hear back from them.

    Yes, I’m mad, they definitely “know” I’m mad but the reason I’m telling you this is because if Zynga will lie to me about a promotion they will lie to you also.

    Zynga is a fraud, people are paying ‘REAL’ money for pixels they will NEVER own. Please think about this the next time you pull your wallet out to buy anything from Zynga. From now on if I have any extra money I would prefer to play the lottery, at least the money spent on a lottery ticket is doing some good and not just lining a frauds pocket.