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FTC settles with mobile ad company Tapjoy over deceptive practices

Mobile advertising company Tapjoy has settled with the U.S. Federal Trade Commission over allegations that it was misleading consumers about the in-app rewards they could earn in mobile games. According to the FTC, Tapjoy deceived consumers who participated in various activities — like purchasing a product, signing up for a free trial, providing their personal information like an email address, or completing a survey — in exchange for in-game virtual currency. But when it was time to pay up, Tapjoy’s partners didn’t deliver.

As a result of the ruling, Tapjoy will have to clean up its business by monitoring the offers from advertisers presented to consumers and conspicuously display the terms that explain how rewards are earned. It will also be required to follow through to ensure the offers are delivered and investigate consumer complaints if they are not. Failure to follow the terms of the settlement will result in further fines of up to $43,280 per each violation, the FTC says.

Tapjoy’s business model has been to serve as an intermediary between advertisers, gamers and game developers. The mobile game developers integrate its technology to display the ads — aka “offers” — to their own customers, in order to earn payments for their users’ activity. When the consumer completes the offer by taking whatever action was required, they’re supposed to earn in-game coins or other virtual currency. The app developers then earn a percentage of that ad revenue.

But that often wasn’t happening, the FTC said. Players would jump through hoops, even sometimes spending money and turning over their sensitive data, only to get nothing in return.

What’s more, it said Tapjoy was aware its partners were cheating these consumers and did take action, even when “hundreds of thousands” of consumers filed complaints. This also harmed the game developers, who were cheated out of the promised ad revenues they would have otherwise earned.

“Tapjoy promised gamers in-app rewards for completing advertising offers made by its partners, but then often didn’t deliver,” said Frank Gorman, Acting Deputy Director of the FTC’s Bureau of Consumer Protection, in a statement. “When companies like Tapjoy make promises that depend on their partners’ performance, they’re on the hook to make sure those promises are kept.”

The FTC said Tapjoy’s conduct violated both the FTC Act’s prohibition on unfair business practices as well as the prohibition on deceptive practices. It will now have to actively work to weed out the fraud in its industry, otherwise Tapjoy itself will be held accountable.

App platforms like Apple and Google have struggled with shady ad businesses for years, which target their own customers.

More recently, Apple implemented a policy that requires developers to disclose on its app store listing what sort of information the app collects from customers and how that data is used to track users. This policy also wraps in whatever third-party ad technology may be integrated into the app.

The move is a not-so-subtle push to get developers to stop working with bad actors (like Tapjoy, allegedly) in order monetize their apps and games, and instead turn to a business model where Apple profits: subscriptions. Apple, brilliantly, has positioned this as a fight for consumer privacy and not for consumer dollars.

What’s interesting about this FTC ruling is that it lays the fault for Tapjoy and others like it directly at the platforms’ feet.

Commissioners Rohit Chopra and Rebecca Kelly Slaughter, in a joint statement, described Tapjoy as “a minnow next to the gatekeeping giants of the mobile gaming industry, Apple and Google.”

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

The Commissioners noted, too, that “larger gaming companies” are pursuing legal action against these practices — a reference to Epic Games’ Fortnite lawsuit against Apple over the App Store commissions. But it said smaller developers fear retaliation for speaking up, as it could end up destroying their business if they were to be banned from the app stores.

In other words, the FTC blames the app store business model itself for leading developers to turn to companies like Tapjoy to sustain themselves.

“This market structure also has cascading effects on gamers 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,” the statement reads.

This is not the first FTC action that has resulted from the fallout of the modern app store business model. Last year, the FTC went after kids’ app developer HyperBeard for its use of third-party ad trackers that were used to serve behavioral advertising, in violation of the Children’s Online Privacy Protection Act (COPPA).

Apple is being given a lot of credit in recent weeks for its privacy push, with the launch of its so-called app store “nutrition labels” that help to better highlight the bad actors in the mobile app market. But some of the recent reporting has lacked balance.

Many reports neglect to explain why these alternative business models rose in the first place. The also often don’t detail how Apple will financially benefit from the shift to subscriptions that will result from this mobile ad clampdown. Plus, it’s rarely noted that Apple itself serves behavioral advertising within its own apps which is based on the user data it collects from across its catalog of first-party apps and services. That’s not to say that Apple isn’t doing a service with its privacy push, but it’s a complex matter — this isn’t sports. You don’t have to pick one side or the other.

The Commissioners in their joint statement also hinted that regulation will soon come to the app platform providers, Apple and Google as well, not just mobile ad middlemen like Tapjoy.

“…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,” they said.

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