Mobile apps news roundup: NARR8 gains monetization feature, Playnomics adds behavioral targeted push messaging service and more

narr8NARR8 gains monetization and auto play features – Motion comics app NARR8 for iPad (review) added a virtual currency called NARRs tokens, which can be used to unlock new episodes from the variety of different content series that are available. Users can acquire NARRs by just using the app as well as by purchasing the currency with real money. NARR8 also added a auto play feature for its motion comic series, which lets users continuously stream content with a one tap. In the future, NARR8 plans to turn its app into a platform, allowing third-party publishers the ability to publish and sell their content through NARR8.

tapjoyTapjoy partners with Popcornflix, launches freemium movie streaming app PopcornflixGold – Mobile advertising and publishing platform Tapjoy partnered with movie streaming service Popcornflix to launch a new mobile app for Android, named PopcornflixGold, that lets users watch movies for free on their mobile devices by engaging with ads. Similarly to a monetization model seen in mobile games, the app allows users to match movies by earning a virtual currency called FlixPoints, which can be earned by interacting with ads from the Tapjoy Marketplace.

Playnomics logo roundupPlaynomics adds behavioral targeted push messaging feature to its PlayRM platform – Predictive analytics company Playnomics added a new behavioral targeted push messaging feature for mobile games to its PlayRM platform. This new feature may increase user engagement for developers by sending targeted, real-time messages to individual players based on in-game behaviors.

gameloftGameloft launches Dungeon Hunter 4 for Android – French mobile game developer Gameloft launched dungeon crawler Dungeon Hunter 4 for Android this week. Click here for our review of the iOS version of the game.

Proletariat logo roundupFormer Zynga Boston employee raises $2.25M for new game studio Proletariat – Seth Sivak, a former lead designer from the defunct Zynga Boston office, raised $2.25 million for his new game studio Proletariat. The raised amount in equity funding appeared in an SEC filing. Proletariat’s first release came back in March, with word game Letter Rush for iOS.

appolicious-logo-roundupAppolicious launches educational app discovery service appoLearning – App discovery service Appolicious launched appoLearning earlier this week, which is a new service geared toward helping parents, teachers and others find the best educational apps for children.

Digital Chocolate launches real-money gaming title Slots! Pocket UK

Slots! Pocket UK logoSocial-mobile gaming developer Digital Chocolate today launched its first real-money gaming title Slots! Pocket UK for iOS in the U.K.

Powered by real-money gaming platform Betable, Slots! Pocket UK is a slots game that allows U.K. users the option to wager either real money or virtual currency and chips on pulls of the slot machine. Betable first announced its partnership with Digital Chocolate back in November 2012. Digital Chocolate is one of 10 developers so far to partner with Betable for its real-money gaming platform, which is still a private beta program. Betable handles all the real-money aspects of the game on the backend, including compliance, fraud prevention, identity checks, wagering, and gambling results, while Digital Chocolate can focus on the development of the actual game. In order for players to gamble with real money, they must be authenticated with Betable by signing up, depositing money, and more.Slots Pocket UK screenshot

“[Betable] helped us leapfrog the whole race into real-money gaming by allowing us to partner with them on their platform, and of course, they have the license in the U.K. to do real-money gaming,” Jason Loia, chief operating officer of Digital Chocolate, told Inside Mobile Apps.

There are about three ways to enter the real-money gaming market. First, an IP-licensing deal like how Zynga partnered with real-money games operator, where bwin makes a game that’s Zynga branded. Second, a developer can acquire their own real-money gaming license, but its a very expensive and long process. It costs millions of dollars and takes years to acquire a gambling license. Lastly, a developer can acquire a company that already has a real-money gaming license, but whatever developer that acquires a company with a license would have to restructure because they have to become compliant with whatever country’s government that allows real-money gaming. After analyzing its options, Loia says Digital Chocolate realized it couldn’t enter real-money gaming alone, and it didn’t have deep enough pockets to obtain a gambling license in each country where real-money gaming is legal. With Betable, Digital Chocolate gets to make its own game, control its IP, and have Betable do all the backend real-money gaming legwork, all under a fair revenue share model.

“There’s some bigger companies that are going after the licenses themselves, but for us and the majority of the gaming sector, it makes more sense to partner with experts in that field,” Loia says. “We’re not experts in real-money gaming law — Betable is. We’re experts in making great social games for mobile and web. The partnership makes total sense.”Slots Pocket UK screenshot

Slots! Pocket U.K. launches with seven thematically different slot machines, with more to come in the future. Themes in this release include a safari-themed slot machine, an underwater machine, a Wild West machine, and more, all with its own sound, characters and storyline. Each slot machine also features its own mini-game, which can be unlocked depending on the spin of the wheel. When completing mini games, users earn the chance to level up (users have to level up to unlock more slot machines) and win more. Lastly, the combination of potential winning spins increases based on the number of friends a player has.

The game also features an advanced power up system, which rewards users with virtual currency. For example, a player can take a chance and apply a multiplier to their spin, or they can throw an anchor to hold on to a specific reel within the machine, altering the outcome, or make a quake and shake the reel for a winning combination. No matter which power up a player utilizes, they earn bonus points. The real-money slot machines don’t have any of these power ups from the virtual-currency machines as the real-money machines look and feel like a slots machine a user would see in a casino.

Loia says the future for real-money gaming is when regulations open up even further so real-money gaming mechanics could be added to social gaming in general, not just casino games. Digital Chocolate’s portfolio mainly consists of free-to-play social games like social racer Race Track Rivals (review), medieval fighting game Kings and Warlords, city building game Millionaire City and more.

“The more exciting thing about real-money gaming is when you can couple the broad reach of those social games with the massive monetization that real-money gaming brings to the table,” he says. “That’s when it truly explodes and changes gaming forever.”

Glu Mobile launches first real-money gambling game

Glu Mobile logoGlu Mobile today announced the launch of the company’s first real-money gambling game in the U.K. The game was made possible through the company’s partnership with mobile gambling service Probability PLC.

The title is a slots game featuring intellectual property from the mobile game developer and publisher Glu’s Samurai vs. Zombies Defense game. The game, titled Samurai vs. Zombies Slots, is browser-based, and only available on Probability’s network in the U.K. Probability will also distribute the game through its U.K. betting firm partners like Paddy Power, William Hill and Probability’s white label partners.

“We are pleased to expand our mobile portfolio to include real-money gambling,” says Niccolo de Masi, Chief Executive Officer of Glu Mobile, in a statement. “We anticipate that real-money gambling will continue to gain momentum globally and believe that with this offering, Glu is well positioned to capitalize to the extent that additional markets adjust regulations. We plan to leverage Probability’s extensive partner network to further extend Glu’s successful original IP to new demographics.”

The partnership between Glu Mobile and Probability is structured in such a way that Probability provides a comprehensive operational role, accepting all real-money gambling regulatory responsibilities.

Glu’s stock closed today up 16.94 percent to $2.83 a share, following the announcement for the real-money gambling title’s release. Glu’s Q4 2012 earnings showed that the company’s revenues were up 1 percent quarter-over-quarter to $18.5 million, and up 24 percent year-over-year.Glu Mobile stock March 12 2013

Amazon Coins virtual currency coming in May

Amazon is launching Amazon Coins, a virtual currency to purchase apps and buy in-app goods on the Kindle Fire. Announced this morning, Amazon says they will be available in May.


According to the Amazon Coins FAQ, an Amazon Coin has a one-to-one relationship to an American penny, so developers will receive the same royalty payments as credit card purchases. Users will be able to purchase everything but subscription-based services.

At May’s launch, Amazon promises to give away “tens of millions of dollars worth of Coins” to customers. Amazon is investing significant money in the giveaways, but users will need to purchase a Kindle Fire to redeem their gift or, at the very least, visit the Amazon App Store and risk purchasing more than just what the Amazon Coins are worth.

Furthermore, we can imagine future Amazon gift cards not being redeemable in the entire Amazon marketplace, but tailored, via the Amazon Coin, to be redeemed just within the Amazon App Store.  The Amazon Coin is another serious run to lock users into the Amazon ecosystem, specifically the Kindle Fire one.

Amazon has certainly been looking at Facebook’s issue with its own Credits system. As Inside Facebook reported in 2011, Facebook eventually let developers use their own in-app currency systems because the translation between currencies was too confusing.

To be involved in the launch, app developers must sign up for Amazon Coins by April 25. Amazon Coins will only be available in America at launch.

Tapjoy sees the gap between iOS and Android revenues closing in 2012

Mobile publisher Tapjoy has spent the last seven months porting iOS games to Android while also reaching out to Android developers to help them improve their monetization. In that time, Tapjoy’s director of developer partnerships Brian Sapp has seen Android revenues increase substantially, narrowing the earnings gap between the two platforms.

“You have to remember that Google didn’t get [in app purchasing] until March of 2011,” Sapp tells Inside Mobile Apps. “Android has grown considerably for Tapjoy, on the order of 10x in the last year.”

As we get closer to the holidays, Sapp explains, the gap will close as more established developers release Android games. If many of those games are licensed intellectual property, it will reduce user acquisition costs and increase revenues, which could mean Android revenues will catch up to iOS within the year.

That said, Sapp cautions, “each title is different. There are titles that monetize well on Android and [that are] only on Android. So there could be an equivalent to CSR Racing on Android. It’s not an either or.”

Tapjoy released a case study today detailing how its services can help Android developers monetize more effectively. The study focuses on the game Lane Splitter, a motorcycle racing game that was previously launched as a paid app. After Tapjoy synced up with developer fractiv, both virtual currency and in-game items were introduced as IAP options. Far from driving away Lane Splitter’s devoted user base, Tapjoy and fractiv saw a 203 percent overall increase in revenue and a 97 percent increase in average revenue per daily user. For reference, Android revenues are typically 30 percent of what an iOS game earns — an iOS title similar to Lane Splitter could be earning between 1 to 3 cents of average revenue per daily active user (ARPDAU) depending on how broad its user base is.

While the concept of converting a paid app to a freemium one supported by IAP is hardly new, Sapp says there are still a lot of developers out there who are late to the IAP party. “You’d be surprised how often we still run into it,” he says. “It comes more from traditional game publishers unwilling to embrace a model that’s scary to them. Think about console guys – we work with these guys and it can be scary to them to move away from a model they’ve worked on for 20 years even though all the data points the other way. On the smaller side, it comes from developers who don’t read Inside Mobile Apps or TechCrunch.”

While Android has taken up a large part of Tapjoy’s attention in the last 14 months — between establishing a $5 million fund for porting over iOS titles and ramping up to 40 million monthly active users on the platform as of August 2012 — the company continues to operate its ad business on iOS as well. In 2011, Apple changed its rules on incentivized installs, which were a large part of Tapjoy’s business model. But Sapp explains that it’s a misconception to think that Apple cracked down completely on the concept of offers.

“You can still reward [users] for watching videos and for Liking brands on Facebook,” he says. “And rewarded installs are within Google’s [rules]. So, we’re getting revenue from both.”

Chinese Anti-Black Card Alliance stops more than $1.5M in iOS scams

Just how much money are virtual currency “black card” scams costing Chinese iOS developers? The Chinese Anti-Black Card Alliance has stopped more than $1.5 million USD in fraudulent transactions in just six months.

Black card scams, so named because they use fake or stolen credit card numbers, operate mainly on Taobao — China’s eBay equivalent. Sellers on the site offer virtual currency at a steep discount, often 50 percent off the actual value. The currency is bought on iTunes accounts attached to fake or stolen credit card numbers from outside China, and then transferred to the buyer’s game.

These scams are the reason it’s increasingly common to see Chinese apps with no English language support on the upper reaches of the U.S. top grossing apps charts. Once Apple filters out fraudulent payments from a developer’s earnings, as much as 50 percent of a company’s revenues can vanish. Beijing-based Hoolai lost over $300,000 in one month alone due to the scams.

This is why CocoaChina, also known as Chukong/PunchBox, created the Anti-Black Card alliance last October. Made up of some of the biggest developers in China, the group’s member 14 companies include the likes of Kongzhong, Haypi, WiStone and Gameloft’s Chinese studios. The group employs a full-time employee just to monitor Taobao for fraudulent listings connected to games from the Alliance’s member companies and any apps published by CocoaChina. Since starting the program, the Alliance has issued more than 1,000 takedown requests, which has translated into Taobao removing over 30,000 listings.

With the sheer number of fraudulent listings, it’s hard to measure the true financial impact, but according to Lei Zhang, the U.S. general manager of CocoaChina/Chukong. Most listings were for the highest tier of in-app purchase, with average costs ranging from $49.99 to $99.99 each. At 30,000 listings, one can conservatively estimate the anti-black card alliance has shut down more than $1.5 million in fraudulent transactions.

Although the are time and resource intensive, the Alliance’s efforts are paying off. Members have seen their fraudulent transactions drop by 80 to 90 percent and one game even saw a 30 percent revenue increase after the alliance began. While Zhang couldn’t disclose the title of that game due to Apple’s restrictions, he did tell us the game has gone from earning about $38,500 a month to $50,000 a month.

The alliance also now has a special relationship with Taobao. Although the company’s standard policy is to remove fraudulent listings 15 days after a complaint in order to assess the claim, Taobao now removes any listings reported by the Alliance within 24 hours.

“This is a problem that involves loopholes of the entire ecosystem, beginning from the relatively easy access to fraudulent credit cards,” explains Zhang. “It’s not fair to portray Taobao as one of the main causes of this issue or even part of the scheme, they are in fact an active and important part of the solution.”

While Taobao may have the ignoble honor of being the most popular place for black card scams, it’s also not the only destination for fraudulent players. According to Zhang, Tencent’s (a Taobao competitor) also has similar listings, and there are still plenty of black card scams conducted off the easily monitored e-commerce sites.

All this means Chinese developers may still be losing millions of dollars in revenue every year, all while they’re still on the hook for the server and hosting costs of the fraudulent players. An article on the CocoaChina website states that some Chinese developers have reported more than 88 percent of their revenues turned out to be bad debts related to the scams. According to Zhang, the only way to truly stop the black card scams is an absolute crackdown — which is of course, easier said than done.

Because Apple doesn’t share detailed user payment information with developers, it’s extremely difficult to sort out legitimate users from fakes. Hoolai, which saw its game 胡莱三国 (Hoolai Three Kingdom) hit No. 10 on the U.S. top grossing app charts at the end of February, has tried to build algorithms to identify what it calls “strange payments,” but it largely comes down to guesswork.

Still, the best approach may be harsh penalties, even if developers aren’t able apply them universally. “Game operators need to clearly convey a message of zero-tolerance for fraud payment to players,” says Zhang. “This is especially important for MMOs and other high lifetime value games. [They need to decline] features or content to fraudulent players.”

Inside Virtual Goods: Spending and Usage Patterns of the Social and Mobile Gaming Audience 2012, Is Here

If 2011 is remembered as the year that games on mobile platforms grew quickly and games on social networks continued to mature, 2012 is quickly becoming the year that mobile games ecosystems are beginning to mature as well. Given massive changes in the Facebook monetization ecosystem over the last year, last year’s hit games are fighting for their lives, and new developers and games are climbing the leaderboards. At the same time, larger players are consolidating smaller studios and teams, investing heavily in a portfolio approach across mobile and social, and large media companies and traditional game developers continue to plot their social and mobile gaming strategies.

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OR Buy Single Report: $995

That’s why we’re excited to announce today a new original study in our Inside Virtual Goods series by co-authors Justin Smith and Charles Hudson that is exclusively focused on spending and usage patterns in the social and mobile gaming market, entitled Inside Virtual Goods: Spending and Usage Patterns of the Social and Mobile Gaming Audience 2012. The third annual installment of this report, and is being released for the first time today.

As a leading source of independent information on the social and mobile games industry, our third annual survey of trends in this market are more valuable than ever for those looking for an unbiased view on player behavior trends. Inside Virtual Goods: Spending and Usage Patterns of the Social and Mobile Gaming Audience 2012 is our exclusive independent look at the virtual goods spending and behavior patterns of social game players on Facebook, iOS, and Android — data you won’t find anywhere else.

About the Report

Inside Virtual Goods: Spending and Usage Patterns of the Social and Mobile Gaming Audience 2012 gives you an inside view of the market at this critical juncture in the intersection of social networking, mobile applications, and online games.

We have surveyed nearly 3,000 players of social games on Facebook, iOS, and Android from around the world and across the demographic spectrum. Inside Virtual Goods: Spending and Usage Patterns of the Social and Mobile Gaming Audience 2012 is the most in-depth independent survey of player behavior and spending patterns in the social gaming market.

What We Cover

  1. Spending Habits and Payment Methods in Top Games – It’s easy to compare games based on audience numbers, but which games monetize better? What payment methods do players use most often in top games? How is the shift to Credits affecting player behavior? We investigate how spending patterns compare across top social amd social games.
  2. Frequency of Play and Methods of Game Discovery - As Facebook has cut down on developer access to viral channels, and cracking iOS and Android discovery continues to increase in complexity, designing an engaging and viral game is becoming both increasingly important and challenging. We investigate which games people play most frequently, and which methods of game discovery are most effective for top games.
  3. Demographic Differences by Region, Age, and Gender – While the social and mobile gaming markets are increasingly global, the audience is also becoming increasingly diverse by age and gender. How do different segments of the audience differ in terms of spending and usage patterns inside social and mobile games? We take an in depth look.
  4. Brand Recall - How important are brands, and how well can users identify developers of top games? We investigate brand recall amongst social game players.

See the full table of contents below:

Table of Contents

I. Methodology and Respondents


1. Introduction

  • Survey Objectives

II. Social Games Player Spending and Usage Habits Survey Results


2. Research Methodology

  • Respondent Acquisition Method
  • Target Population
  • Survey Structure
  • Potential For Bias
3. Survey Respondents

4. Favorite Game

  • Distribution of Favorite Game
  • Frequency of Play
  • Discovering Favorite Game
  • With Whom Do You Play?
  • Spending on Favorite Game
5. Payments
  • Frequency of Payment Methods
  • Consumer Perception of Facebook Credits
6. Play Patterns, Spending, and Brand Recall for Top Games
  • Frequency of Play in Top Games
  • Spending in Top Games
  • Aided Brand Recall for Top Games
7. Mobile Platforms & Game Adoption by Active Social Games Players
  • Smart Device Ownership
  • Mobile Games Played by Active Social Game Players
  • In-Game Mobile Purchase Activity by Active Social Gamers
8. Regional Differences
  • Game Discovery and Spending
  • Favorite Game
  • Payment Types
9. Age and Gender Differences
  • Who are the Social Gaming “Whales”?
  • Spend Across Games

III. Mobile Games Player Spending and Usage Habits Survey Results


10. Survey Methodology on Mobile

  • How we acquired users
  • Targeting by platform

11. Demographic Information

  • Gender
  • Age distribution
  • Regional distribution

12. Device Ownership

  • Overall distribution of device ownership by platform
  • Multiple device ownership

13. Monthly Game Usage

  • Top games based on monthly usage

14. In-App Purchase Activity

  • Differences by gender
  • Differences by region
  • Differences by device platform

15. Paid Apps Activity

  • Differences by gender
  • Differences by region
  • Differences by device platform

16. Application Discovery

17. Facebook Habits of Mobile Game Respondents

Appendix – Survey Questions

Appendix – Related Companies


More Data, More Actionable Insights

In 2010 and 2011, social games began to show what kind of value can be created on top of social networks, and mobile games began to become and even bigger part of the pie. 2012 will be an even more important year as the industry continues to mature.

Mobile gaming, powered by virtual goods, is this year’s industry to watch. If you’re involved, or are considering jumping in, Inside Virtual Goods will be one of your most important tools.

One year of original data and exclusive in-depth reports delivered on a quarterly basis is $2,495 and contains:

  • A detailed overview of the current state of the industry
  • Specific estimates on market size by segment
  • Diagnosis of key opportunities and issues by segment

Get The Annual Membership

Get Annual Membership (Includes Report + 3 Additional Quarterly Issues): $2,495 

OR Buy Single Report: $995

The one year subscription includes three quarterly updates on key developments in the space, including future editions of our annual reports, Inside Virtual Goods: The US Virtual Goods Market 2011-2012 and Inside Virtual Goods: The Future of Social Gaming 2012. Or, you can download just this report.

About the Authors

charles-hudson-headshotCharles Hudson

Venture Partner, SoftTech VC, CEO and Co-Founder, Bionic Panda Games

Charles Hudson is a Venture Partner with SoftTech VC and the CEO and Co-Founder of Bionic Panda Games, a mobile games company based in San Francisco, CA.

Until February 2010, he was the VP of Business Development for Serious Business, a leading producer of social games. Zynga acquired Serious Business in February of 2010. Prior to Serious Business, Hudson worked at Gaia Interactive, Google, IronPort Systems, and In-Q-Tel. Hudson also founded Third Power LLC, a conference and events company that was acquired by WebMediaBrands. Charles holds an MBA and BA from Stanford University.

justin-smith-headshotJustin Smith

Founder, Inside Network

Justin Smith is the founder of Inside Network, the first service dedicated to providing news and market research to the Facebook platform, social gaming, and mobile app ecosystems. Inside Network was acquired by WebMediaBrands (NASDAQ:WEBM) in May 2011.

Prior to Inside Network, he was Head of Product at Watercooler, now Kabam, a leading social game developer on the Facebook Platform. Prior to Watercooler, Justin was an early employee at Xfire, the largest social utility for gamers, which was sold to Viacom in 2006.

Justin holds a degree in Computer Systems Engineering from Stanford University, where he was a Mayfield Fellow and a recipient of the Terman Award in Engineering.

Facebook partners with world’s largest carriers to bolster mobile web-based payments

Facebook has partnered with some of the world’s largest carriers to make the experience of paying with Credits more seamless on the mobile web.

The company has done a deal with AT&T, Deutsche Telekom, Orange, Telefónica, T-Mobile USA, Verizon, Vodafone, KDDI and Japan’s Softbank Mobile Corp to let Facebook users pay more seamlessly with Credits through carrier billing. The deal comes at a critical time for Facebook as Apple’s iOS and Google’s Android platforms threaten to cut the social network out of influencing and earning revenue from the mobile app ecosystem.

Facebook’s chief technology officer Bret Taylor said that the current system for making web-based payments has too many friction points to make it useful to consumers or developers.

“Right now, the payments experience on the web is just broken for end users,” he said in a keynote at Mobile World Congress in Barcelona. “Even with operator billing support, most require a step called SMS device verification. That means if I’m in the middle of the game and I want to pay 99 cents, I have to wait for an SMS to arrive.”

After that, the user has to verify that the device is connected to their Facebook account.

“Then I have to awkwardly memorize the code and resubmit the transactions,” he said. “If I manage to make it this far, then I can finally go back to playing the game.”

With the new solution, third-party developers will be able to integrate a single SDK that lets their players charge their monthly phone bills in a single step through Facebook.

Having a fluid payments flow could go a long way in convincing developers to spend as much time on their HTML5 apps as they do on their native ones. To make HTML5 viable for mobile developers, Taylor said Facebook needed to focus on three problems: 1) discovery 2) fragmentation and 3) payments.

Facebook is addressing discovery with new viral channels for mobile apps that it launched last fall. On the second problem, Facebook also announced an industrywide group today that will push mobile web standards forward in concert with the W3C, or World Wide Web Consortium.

The payments agreements address the third problem. The only thing that seems certain about this new arrangement is that Facebook must be paying a lot — if not nearly all — of its 30 percent revenue share to carriers in this deal. Google knows this situation well, as it had the same hurdles in negotiating revenue share for carrier billing on Android.

The other problem that Facebook is confronting is that it likely only has a tiny percentage of users that are sharing payments information with it. Apple has more than 250 million iTunes accounts with billing information attached to them. In contrast, I would bet that Facebook has payments information or credit card data on around 30 million users or less, considering that around half of its 845 million monthly actives play games, and then 2 to 6 percent of those monetize through virtual currency purchases. The platform’s biggest developer Zynga saw only 2.9 million of its 153 million monthly unique users pay for virtual currency last quarter. So Facebook is likely facing the same uphill battle Google has been dealing with in convincing more users to pay on its Android platform.

The virtual currency scam from China that’s costing iOS developers real cash

One of the many reasons iOS developers have switched from paid apps to the free-to-play model over the past year is that the service-oriented model of gaming is less vulnerable to piracy.

But it seems that in the Wild Wild East of China, even the freemium model can be circumvented with fraudulently-purchased virtual goods.

CocoaChina, which hosts the largest iOS developer community in China and raised $14 million from Sequoia China and other investors, discovered a scam that’s giving players deep discounts on virtual currency packs in games like Capcom’s Smurfs’ Village.

Basically, sellers go onto the eBay of China, or Taobao, to sell virtual currency at half-price or more. They create an Apple iTunes account attached to a fraudulent credit card number and then give the buyer the log-in and a tutorial on how to recharge their game with currency. Developers will see a discrepancy between their daily revenues with actual payments from Apple at the end of the month, once all of the fraudulent payments are skimmed out of their revenues.

These fake credit card numbers, sometimes called “black cards,” are often created for iTunes account outside of China. So developers won’t necessarily see a discrepancy in their Chinese revenues, but rather their European or North American revenues. The other key point is that this fraud works on legitimate iPhones, not just jailbroken ones.

The scam also works with paid apps too (see the image below with Disney’s Where My Water on sale for 3 yuan or $0.48, instead of $0.99). For paid apps, the seller will buy the app with a fraudulent credit card and then gift it to the buyer.

You can sometimes see the impact of “black cards” on the top grossing charts when a Chinese app — with no localization or English translation whatsoever — mysteriously climbs up the charts in the U.S. or U.K. This happened this week when an app from developer Shanghai Muhe reached No. 17 on the grossing charts in the U.S. even though the app is entirely in Mandarin. To get to that kind of ranking in the U.S., a game would need to be doing around $50,000 or so per day in revenue.

The game also only has 33 ratings compared to the other free apps around it, which have anywhere from more than 1,000 to more than 50,000 ratings. Many of the user reviews also say that the app somehow charged their iTunes account for between $30 and $100 without their consent even though the game has hundreds of positive reviews in Mandarin-speaking markets.

Ultimately, it’s hard to gauge the actual cost to developers since these consumers probably wouldn’t have paid full price for the virtual currency anyway. Still, developers have to handle the server and hosting costs of the gameplay from these false transactions.

To combat the fraud, CocoaChina has employees constantly watch Taobao for posts offering discounts on virtual currency for games from its studio Punchbox. It’s not really feasible for Taobao to preemptively stop these listings, they say.

They also started an Anti-Black Card Alliance with other top Chinese developers to watch for fraud around games from any of the alliance members. CocoaChina says since they’ve started monitoring Taobao for fraud regularly, the company has seen a 30 percent increase in revenue from purchases that would have otherwise been tied to the scam. They said alliance members have also seen an 80 to 90 percent reduction in fraudulent transactions overall.

Overall, the scam is yet another story about how difficult it is to monetize mobile apps in China. Even though the country has quickly emerged as Apple’s second largest market in terms of revenue, China poses all sorts of difficulties to mobile developers looking to build a business locally. About one-half of all iPhones are jailbroken, according to Innovation Works-backed Umeng, which is like the Flurry of China. The paid app model doesn’t really work because of this fact plus piracy, so many top developers there like EA PopCap are moving to more of a service-oriented model.

That said, Apple started offering local payment options that are denominated in yuan and are tied to debit cards from several of the country’s top banks. Before that, iPhone owners without credit cards would often turn to Taobao to buy iTunes gift cards.

Zynga shares endure a brutal day, dropping nearly 18% after first earnings report

Zynga’s shares endured a brutal day today, dropping almost 18 percent to $11.80, after the company’s first earnings report as a publicly-traded entity. That wiped out more than $1.7 billion from the company’s market capitalization.

Yesterday, Zynga did beat analysts estimates, with earnings of 5 cents a share excluding a massive, one-time $510 million charge related to the initial public offering. Analysts on average had estimated Zynga would earn 3 cents a share, according to a Bloomberg survey.

But it looks like traders — who had bid the stock up more than 35 percent since the day before Facebook filed for an initial public offering — were hoping for more.

In Facebook’s IPO filing at the beginning of the month, the company said it had a 20 percent quarter-over-quarter increase in payments revenue, suggesting that developers like Zynga might see a comparable boost. But Zynga’s bookings grew about 7 percent quarter-over-quarter to $306.5 million from the previous quarter’s bookings of $287.7 million.

It suggests that Facebook, which Zynga is dependent on for 93 percent of its revenue, is diversifying its payment revenue sources while Zynga has yet to prove that it can truly live off the social network’s platform.

At the same time, research and development costs are rising as Zynga aims to produce another CastleVille-class hit on Facebook, mobile and more. Costs popped this quarter in part because of a $510 million one-time charge related to stock-based compensation around the initial public offering plus infrastructure investment to move server and hosting expenses off Amazon. Just today, the company point to how much it had invested in its own cloud hosting services, saying that nearly 80 percent of its games are self-hosted.

Zynga is also looking to break away from Facebook this year with its own games network, titled Z-Live or Zynga Direct. Though no launch date is set for the service, Zynga confirmed during its earnings call yesterday that it was in closed beta — and we’ve heard rumors that the service may publish third-party games too.

Zynga also did not break out any new mobile statistics beyond daily active usage for its emerging iOS and Android business the way that comparable publicly traded companies like Electronic Arts do. It said only that it had 15 million daily active users on mobile, up five-fold from a year before. Zynga’s mobile gaming business is likely to be more dependent on advertising than virtual goods compared to many other mobile-social gaming companies because of the huge footprint that Words With Friends has.

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