The mobile advertising firm Tapjoy has reached an agreement with the U.S. Federal Trade Commission to resolve concerns regarding potentially misleading practices concerning in-app rewards offered within mobile games. The FTC alleged that Tapjoy misrepresented the benefits consumers could obtain through participation in various activities – such as making a purchase, initiating a free trial, submitting personal details like an email address, or finishing a survey – in return for virtual in-game currency. However, the promised rewards were often not delivered by Tapjoy’s advertising partners.

Under the terms of the settlement, Tapjoy is obligated to improve its operational practices by carefully overseeing the offers presented to consumers from advertisers and clearly displaying the conditions outlining how rewards are earned. Furthermore, the company must ensure the fulfillment of these offers and address any consumer complaints regarding non-delivery. The FTC stated that any failure to adhere to the settlement’s stipulations could result in additional penalties of up to $43,280 for each instance of non-compliance.

Tapjoy operates as an intermediary connecting advertisers, gamers, and game developers. Mobile game developers integrate Tapjoy’s technology to showcase advertisements – referred to as “offers” – to their user base, generating revenue based on user engagement. When a consumer completes an offer by fulfilling the required action, they are intended to receive in-game coins or other virtual items, and the app developers then receive a portion of the resulting advertising revenue.

The FTC contended that this process frequently failed to materialize as promised. Players often completed tasks, sometimes even incurring expenses and sharing sensitive information, without receiving the expected rewards.

Moreover, the FTC stated that Tapjoy was aware of its partners’ deceptive practices and received “hundreds of thousands” of consumer complaints, yet continued to allow the issues to persist. This also negatively impacted game developers, who were deprived of the advertising revenue they were entitled to.

“Tapjoy assured gamers of in-app rewards for completing advertising offers from its partners, but frequently failed to deliver on those promises,” explained Frank Gorman, acting deputy director of the FTC’s Bureau of Consumer Protection, in an official statement. “Companies like Tapjoy are responsible for ensuring that promises dependent on partner performance are actually kept.”

The FTC determined that Tapjoy’s actions violated both the FTC Act’s prohibitions against unfair and deceptive business practices. The company is now required to actively combat fraud within its industry, with Tapjoy itself being held accountable for any failures to do so.

Major app platforms, including Apple and Google, have long faced challenges with questionable advertising practices targeting their users.

Recently, Apple introduced a policy requiring developers to disclose the types of information their apps collect from customers and how that data is used for tracking purposes on the app store listing. This policy also encompasses any integrated third-party advertising technology.

This move is widely seen as an effort to encourage developers to move away from potentially problematic partners (such as Tapjoy, as alleged) and instead adopt a subscription-based business model that benefits Apple. Apple has strategically framed this initiative as a commitment to consumer privacy, rather than a revenue-generating strategy.

A significant aspect of the FTC ruling is its implication that the responsibility for issues like those involving Tapjoy lies, at least in part, with the app platforms themselves.

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

“These firms, by controlling the dominant app stores, wield considerable power to impose taxes and regulations on the mobile gaming industry, which generated nearly $70 billion annually prior to the pandemic. It is a concern that these gatekeepers can potentially harm developers and stifle innovation,” the statement continued. “A prime example is rent extraction: Apple and Google levy charges of up to 30% on sales from mobile app developers on their platforms, and even prevent developers from circumventing these fees through alternative payment systems,” they added.

The Commissioners also pointed out that “larger gaming companies” are pursuing legal challenges against these practices – referencing Epic Games’ lawsuit against Apple concerning App Store commissions. However, they noted that smaller developers are hesitant to voice their concerns publicly, fearing potential repercussions such as removal from the app stores.

In essence, the FTC suggests that the app store business model itself contributes to developers’ reliance on companies like Tapjoy to remain viable.

“This market structure also has broader consequences for gamers and consumers. The substantial taxation imposed by Apple and Google has compelled developers to adopt alternative monetization strategies that may involve surveillance, manipulation, and other detrimental practices,” the statement explained.

This is not the first instance of FTC action stemming from the dynamics of the modern app store ecosystem. Last year, the FTC pursued legal action against HyperBeard, a developer of children’s apps, for its use of third-party ad trackers that violated the Children’s Online Privacy Protection Act (COPPA) through behavioral advertising.

Apple has recently received considerable praise for its focus on privacy, particularly with the introduction of “nutrition labels” for apps that provide greater transparency regarding data collection practices. However, some reporting on this topic has lacked a comprehensive perspective.

Many reports fail to adequately explain the origins of these alternative business models or detail how Apple stands to benefit financially from the shift towards subscriptions resulting from the crackdown on mobile advertising. Furthermore, it is often overlooked that Apple itself engages in behavioral advertising within its own apps, utilizing user data collected across its suite of first-party applications and services. While Apple’s privacy initiatives are valuable, the situation is multifaceted and requires a nuanced understanding. It is not a matter of choosing sides.

The Commissioners’ joint statement also indicated that regulatory scrutiny may soon extend to the app platform providers, Apple and Google, in addition to mobile ad intermediaries like Tapjoy.

” … when it comes to addressing the underlying structural issues in this marketplace that pose threats to both gamers and developers, the Commission will need to utilize all available tools – encompassing competition, consumer protection, and data protection – to address misconduct by middlemen, including the largest gaming gatekeepers,” they stated.

Jeff Drobick, CEO of Tapjoy, provided the following statement when contacted for comment:

“At Tapjoy, we are dedicated to providing world-class advertising and monetization solutions for our partners, while simultaneously delivering the best possible experience for consumers. This includes a global platform for consumers to engage with advertiser offers and earn rewards within their favorite apps. We are committed to fostering a marketplace where consumers, advertising partners, and publishers can transact fairly and transparently, with guaranteed access to customer support.”