As money floods into their market, and the stakes get ever higher, app makers are getting paranoid. Paranoid that competitors are buying traffic spikes, using porn to attract users, and spamming everyone and their mom on the way to the top of the leaderboards. Above all, app makers are paranoid that the competition is playing dirty better than they are -- tricking users out of their time and investors out of their money.
“I do believe people try to manipulate their download numbers and chart position around a financing," says Matt Murphy, an investment partner at Kleiner Perkins Caufield & Byers. "It seems everybody raising money has just hit some inflection in their numbers, so either they wait until that happens or manufacture it."
If the web is dead, and the open ecosystem of the browser is being replaced by tightly controlled apps, then it's more than just venture capitalists and software creators who should take heed of such questionable practices. In the exploding app universe there are more hiding places for unscrupulous startups to violate your privacy, waste your time and toy with your reputation. And if current trends in capital and user flows continue, it’s only going to get worse.
The situation is exacerbated by the opaque nature of apps. On the web, advertising, kickbacks, and questionable content is, for the most part, right out in the open. In apps, user activity is locked inside proprietary software, and transactions occur on company-owned stores like iTunes and Google Play, and on closed ad exchanges like Tapjoy and Flurry. That creates an ideal climate both for tricks and fears of tricks.
And there are plenty of tricks to be scared of. In private, seasoned app makers will happily enumerate the levers that can be pulled to produce strong, if unsustainable, traffic surges. Here are a few:
'It’s like your coming-out party. You want to look all perfect if you’re trying to raise money.' — Peter Farago__Buying users.__ Let’s say you’re playing a game on your Android phone. You’d like some virtual currency to buy a new weapon, or farm implement, but you’d rather not whip out your credit card. No problem: An in-game ad informs you that you can earn several gold coins simply by installing a different app on your phone.
This scheme is known as “pay-per-install” and has been described by one venture capitalist as “crack for app developers.” One broker, Tapjoy, was reportedly on track to make $100 million per year on pay-per-install before Apple banned the practice from iOS last year. Now paid installs are largely confined to Google’s mobile operating system.
Advertising. This can be as simple as pumping money into Facebook or Google AdWords to promote an app. But as targeting technology grows more sophisticated, app makers are increasingly turning to ads within each other's apps. In-app advertising is expected to surpass mobile web ads this year with almost $3 billion spent.
Referrals. Networks like Tapjoy and Flurry’s AppCircle pay app publishers for sending traffic, registrations, and in some cases installations to other app publishers. It’s a booming business: Flurry VP Peter Farago says his company’s referral business has grown wildly since it launched a year and a half ago, and is now generating "tens of millions" of dollars annually.
Spam/aggressive sharing. Makers of apps with social networking tie-ins can fiddle with sharing defaults to make their software temporarily spammier, sending out more notifications than usual, to more friends than usual, with fewer requests for user authorization than usual. This tactic has the advantage of being free.
Inappropriate content. App makers that deal with user-supplied content, like videos, have some leeway in how they handle copyrighted and pornographic material. Normally, it makes sense to take that stuff down as quickly as possible; few app makers want to be associated with pirates and perverts. But when you’re desperate for a traffic spike, the better move might be to drag your heels — to wait a week or two to get around to deleting content that might normally remain on your servers for only a few hours.
With so many options at app makers’ disposal, the temptation to game traffic is strong.
“Absolutely these kinds of things are going on,” says Farago of Flurry. “Most of it’s about how do you survive in the game.... It’s like getting all dolled-up for your 16-year-old cotillion. It’s like your coming-out party. You want to look all perfect if you’re trying to raise money. And it’s not very different, frankly, from publicly held companies who have the same problem every three months when they report earnings to Wall Street."
But for all the widespread dirty tricks, catching a specific startup engaging in them, and separating real pumping from competitor paranoia, is very difficult.
Take the intrigue around Viddy, a social sharing platform that’s trying to do for video what Instagram did for photos. During April, just around the time its traffic peaked, the company raised a $30 million Series B venture capital round that reportedly valued the company at $350 million. By the time the round was announced in May, Viddy’s traffic was plummeting from a high of above 2 million unique visitors per day to somewhere below 1 million, according to estimates in Google’s traffic database for advertisers. The spike during Viddy’s fundraising is also reflected in Google Trends data and Alexa traffic stats. Meanwhile, on leaderboards maintained by analytics site AppData, Viddy dropped to around 1 million daily active users in May from 5 million in April.
“Viddy nailed this -- their highest point was within seven days of their massive funding round and they are way, way down since then,” says Michael Seibel, CEO of fierce Viddy rival SocialCam and one of several entrepreneurs who mentioned Viddy to us in connection to traffic spikes.
But Viddy says it landed its round fair and square. It didn’t spend any money on marketing or advertising, a spokesman says, but instead benefited from launching a Facebook integration feature in early March and from ensuing media coverage of the company as “the next Instagram.” “All their growth was 100 percent legit,” the spokesman said.
Although it may not have bought traffic, Viddy has drawn on a controversial source of free traffic in the past: In February the app was removed from Apple’s store for being too slow to remove porn.
Viddy has drawn on a controversial source of free traffic in the past: In February the app was removed from Apple’s store for being too slow to remove porn.SocialCam, a startup and video-sharing app, has also been accused of traffic pumping. On April 30, news broke that the company had raised a funding round from more than 30 top-shelf angel investors. On May 2, The Next Web began a series of articles about how SocialCam generated traffic and installs via a marketing service called Free App A Day and by stocking its video library with popular YouTube videos, rather than relying entirely on uploads from users. Users who encountered SocialCam-hosted YouTube videos on Facebook were prompted to register for the app before they could even watch the videos, a fairly slimy trick.
After a peak near the end of April, when its funding round was announced, SocialCam’s traffic fell sharply in May, according to stats from Google and Alexa. It has since rebounded, at least according to Alexa.
Seibel says the traffic spike did not aid in fundraising. “All our angels got in before our big increase in traffic,” he says.
Be that as it may, SocialCam's timing arched eyebrows on Sand Hill Road.
Kleiner's Murphy says both Viddy and SocialCam “got a frenzy going” by cleverly exploiting a move by Facebook to allow video apps to connect to the site’s social graph. In other words, they were able to spike traffic without paying.
“It was turning knobs," he says of how the video startups pumped up traffic, "and then immediately going to market rather than buying traffic. In the case of Viddy they took off and raised in a week, then Social Cam did a better job two weeks later and passed them.”
Murphy says he and the gang at Kleiner Perkins have their methods to spot unfair play when doing diligence on a potential investment. "We focus heavily on daily active users, sessions, and time-per-session to get a sense of what is really going on,” Murphy says.
App investors and entrepreneurs also took note of a recent traffic spike by Branchout, a professional networking and recruiting app -- think LinkedIn, but running on top of Facebook. In April, Branchout’s web traffic spiked to nearly 300,000 unique visitors per day, according to estimates in Google’s advertiser database, while its monthly active users, as tracked by AppData, reportedly surpassed 8 million. On April 19, Branchout announced a $25 million funding round. Before the end of the month, Branchout’s traffic, as tracked by Google, began a descent that eventually brought estimated daily uniques to less than one-third of what they were; AppData says monthly active users have fallen to 2.5 million.
“BranchOut is nothing but a Ponzi scheme,” recruiting consultant Marc Drees blogged in early June, after traffic plummeted. Business Insider later followed up with the company, asking whether the company’s “user acquisition push was ... an investor-luring tactic.” Branchout's CEO said it wasn’t, and that the startup didn’t need more funding to begin with.
The company says as much to us. “BranchOut did not adjust its user growth strategy before closing its Series C funding this spring,” says a spokesperson. “BranchOut's monthly user and registered user growth starting late last year was a byproduct of organic growth."
But BranchOut doesn’t dispute that it made its app less spammy after the funding round. The app had developed a reputation for sending unauthorized, or at least unanticipated, solicitations to users’ Facebook friends; as one blogger wrote in late April, collecting “data about a user’s friends without their friend’s consent ... seems to be the one thing that disturbs users the most about BranchOut.” After Branchout’s big funding round, CEO Rick Marini told Business Insider the company was shifting tactics because users were defecting: “We killed it in user acquisitions,” he said. “Now we have to move on to the next phase, which is retention.” A company statement added, “We're de-emphasizing user acquisition for the next few months while we evolve the BranchOut experience.”
Fueling the intrigue around apps like BranchOut is all the money flowing into the software subsector.
In February, Apple bought an app finder named Chomp for $50 million. The next month, games company Zynga bought OMGPOP, the maker of a mobile drawing app, for $180 million. In April, Facebook raised the stakes still higher, spending a staggering $1 billion to acquire photo-app upstart Instagram. By June, even Google had gotten into the game, spending an undisclosed sum to buy the productivity app company Quickoffice.
Everyone else, meanwhile, is jockeying to be next, and when it comes to playing traffic games, "the temptation is high," as Farago says. And so is the potential payoff. "In the long run, though, it’s really the sustainable businesses that last." But for some people, the business only needs to last until it gets bought.
