Virtual Goods, Scams, Investigative Reporting And The Media

from the all-in-one-package dept

For many years, we've been quite skeptical of any business model in virtual worlds/social networks that rely on "buying virtual goods." That's because these are all based on artificial scarcities, and as we all know (hopefully, by now), relying on artificial scarcities for a business model is incredibly risky, especially once people realize the scarcities are artificial. And yet, over the past few years, a number of businesses have been built on this very premise. In fact, Silicon Valley is crawling these days with businesses built on selling virtual goods, and if you talk to many VCs about it, you'll quickly note that they're positively giddy over the fact that people are paying for this stuff. What they don't seem to realize is that it's unlikely to last.

In the last couple weeks, Mike Arrington, over at TechCrunch, did an amazing job calling attention to the widely known, but rarely discussed in polite company, dark underbelly to most of those business models: quite a large part of their revenue is based on scammy offers that effectively trick unsophisticated purchasers (often kids) into signing up for expensive subscriptions to things they don't want. I was at an investor "roundtable" a couple months ago, which was mostly bankers in suits, and they were laughing about just how gullible people are on these things, and it's great to see TechCrunch exposing them, and pushing the worst abusers to clean up their act. Of course, even when some, like Zynga, claim to be cleaning up their act, Arrington was able to dig up a video where Zynga's CEO proudly talked about the scammy tactics he used -- and then noted that these same scammy tactics showed right back up on Zynga, after the company promised they were gone. Those who use these kinds of tactics may find that while they "bring revenue now," it may be short-lived. Companies that focus on such abusive tactics live to regret it (just ask RealNetworks).

But, the really amazing thing, as pointed out by Dan Lyons/Fake Steve Jobs, in an amazingly un-Fake-Steve-Jobs-like rant, is to compare the series of writeups by Arrington with the love letter to Zynga and other "virtual goods" companies in the NY Times, which came out after most of Arrington's posts, and makes no mention of them at all. As Lyons/FSJ notes:

So: they walked into this shit-storm and somehow, by some miracle, managed not to notice the fecal matter flying all around them. It's like covering a football game that took place in the middle of the blizzard and neglecting to mention the weather.

Now, maybe they did all the reporting before Arrington's stuff broke. In which case they should have gone back and updated their info. Or maybe, just maybe, Zynga's PR people teed up a Times story as a kind of rebuttal to what Arrington was reporting. Either way, that's what ended up happening: Zynga used the Times to deflect the bad shit flying at them from Arrington. They need good press because they're hoping to cash out by going public next year. That story in the Times will be worth millions. Many millions.

Meanwhile, Arrington, still digging, blasted again on Saturday night, reporting that sleazy ads had popped up again on Zynga, despite promises that they would be taken down.

Um, New York Times? If you guys are still wondering why people are dropping their subscriptions and getting their news from blogs instead of you -- this is why.

After which, Lyons/FSJ notes:

And to all those people who go around wringing their hands and saying what are we going to do when the "real newspapers" all die and we have to get our news from Gawker and HuffPo and TechCrunch? Friends, I think we're going to be just fine.... What really cracks me up is how often I still hear people say that bloggers are mere "aggregators" and the "real journalism" gets done at places like the Times. Because time after time, blogs are simply beating the shit out of the newspapers. They're the ones who still dare to go for the throat, while their counterparts at big newspapers just keep reaching for the shrimp cocktail.

Of course, there's just a bit of irony in noting that Dan Lyons wrote one of the quintessential blog bashing articles four years ago, when he was writing for Forbes, at one point suggesting that blogger "journalists" were no different than notorious (NY Times) maker-up-of-stories, Jayson Blair. Nice to see he's coming around to recognizing things perhaps aren't so bad in the blog world.

25 Comments | Leave a Comment..

Patent Lawsuit Silly Season: TechCrunch Sued For Patent Infringement After Critical Blog Post

from the this-will-end-badly dept

There are different levels of ridiculousness when it comes to patent lawsuits, with the lowest of the low being patent lawsuits based more on spite than on any legitimate claim. For a while, it seemed like Ray Niro's use of the infamous JPG patent, to sue a bunch companies he just didn't like, was perhaps alone in that category. But, it appears that we now have a new entrant. Apparently, some company (who we won't even name, since there's a good chance it's doing this just to get press attention) sued a more well-known competitor for patent infringement, over a location-based services patent. Looking over the patent itself it's difficult to see how it was approved. People were talking about location-based profile matching a decade ago, let alone five years ago when this patent was filed.

TechCrunch wrote a post mocking the lawsuit as a weak attempt to get press coverage (it worked!), while noting that TechCrunch itself was partnered with the sued company to provide a "co-branded community." This apparently caused the patent holder to amend the lawsuit and include TechCrunch as a defendant. Apparently, there were no threats or notification (though, the guy claims he tried to call TechCrunch). This will likely get tossed out incredibly quickly, as any judge will recognize that TechCrunch is just licensing its brand, not supplying the technology (and also hopefully question the validity of the patent itself). Already, though, TechCrunch's Michael Arrington is planning to countersue, so this could get fun.

The patent holder claims that adding TechCrunch to the lawsuit had nothing to do with the original post, but that's rather difficult to believe. There's also this somewhat amusing quote from the patent holder:

"TechCrunch can say whatever they want, and I applaud them. But no one has the right to infringe on a patent that I worked very, very hard for many years to bring about -- not just on paper but in reality."

Yes, and thanks to a broken patent system, you now get to dump a totally frivolous lawsuit on a site that clearly did not infringe on your highly questionable patent. Just like Thomas Jefferson intended.

12 Comments | Leave a Comment..

AP Quotes Blogger In Discussing Bloggers Quoting AP; Hilarity Ensues

from the i-want-my-$12.50 dept

The ongoing ridiculous situation brewing between bloggers and the Associated Press has now taken a turn towards the enjoyably hilarious. We had already mentioned the fact that, despite the AP's complaints that bloggers quoting less than 100 words were violating fair use, the AP had a long history of quoting more than 100 words from bloggers -- and not even linking back to the original blog. Now, in a bit of ultimate irony, the AP's own article about this brouhaha quoted (without linking) twenty-two words from TechCrunch. That's 18 words more than the supposed four word "limit" the AP has suggested. With an ironic chance that wide, TechCrunch's Michael Arrington couldn't resist, and asked his lawyer to send a DMCA takedown notice to the Associated Press, along with a bill for $12.50 (directly off the AP's own pricing schedule). He admits that it's ridiculous, but that's what his actions are designed to present. By law, the AP should be required to takedown the content before filing a response -- though, since it's filing the response to itself, then perhaps it won't need to takedown the content. Either way, this helps illustrate the insanity of the entire situation.

10 Comments | Leave a Comment..

Before You Threaten To Sue Someone Over Their Website, You Might Want To Understand The Web

from the a-little-suggestion dept

We get to see ridiculous legal threats all the time. Sometimes we get such legal threats directly (my favorite was the big name analyst firm that once threatened to sue us because we linked to their own press release), but more often we hear about the ridiculous legal threats made to others. However, in all the bizarre and ridiculous legal threats, it would appear that Mike Arrington over at TechCrunch may have just won the award for both the most ridiculous and the most persistently wrong threatener. Arrington shares on his site how he received an email demanding $150,000 for a photo of the actor Ashton Kutcher that TechCrunch was using "to generate traffic and revenue." The guy sending the email claimed to represent the interests of the photographer of the photograph -- and said that if Arrington didn't pay up quickly (and quietly), he would file a suit for $1.5 million. It's hard to start on what's wrong with the lawsuit, but the obvious place is the simple fact that TechCrunch never hosted the picture in question. Instead, someone in the comments once linked to a website that hosted the picture, and if you did a search in Google for Kutcher's name, the photo showed up connected to TechCrunch because of that link.

Even ignoring the ridiculous amount being asked for and the clear confusion over how Google and the web work, what's even more bizarre about this is that when this was pointed out to the guy, rather than understanding what happened, he just became even more defensive. He somehow thought that it was TechCrunch's responsibility to get the photo taken off Google. He then started calling TechCrunch's advertisers and threatening them saying that they would be a part of the lawsuit that he was intending to file. Arrington wrote up a detailed explanation of this... and then the guy started posting a series of poorly spelled comments trying to defend his position -- insisting that the photographer was "robed" and that it was clear TechCrunch had something to do with it. Congratulations, Mike, you've won the award for the most bizarre and persistently ridiculous legal threat we've seen. And that's saying a lot.

19 Comments | Leave a Comment..