How is it possible for a company to build a $170 million business selling text-message games on mobile phones? As I wrote in a post on Monday, Snackable Media claims to be pulling in that much revenue selling $10 monthly subscriptions to text-message games such as Predicto and Deal or No Deal. It’s an eye-popping number, but like most things that sound too good to be true there might be a catch. In fact, some complaints about the way that Snackable Media signs up new customers through affiliate partners paint it as a Scamville for mobile phones.
As several readers mentioned in comments to the original post, the way Snackable Media signs up customers at the very least looks fishy. There are many complaints on the Web from consumers who say they never signed up for Predicto or were tricked into doing so. There is even a class action suit (embedded below) against Predicto and cell phone carrier Alltell for recycling “dirty numbers,” a practice whereby a phone number of a previous subscriber is assigned to a new customer who continues to be billed for the service that the old customer signed up for. And this isn’t the first lawsuit against Snackable Media’s founders. They have a history of similar complaints when the company operated under different names (including NextWeb Media and the Email Discount Network) and even settled one with the attorney general of Florida (also embedded below), a settlement which Washington state and others joined .
According to a former employee of the company I spoke with who requested anonymity, here is how the alleged scam works. Nearly all of Snackable Media’s customers—CEO Eyal Yechezkell told me there are one million monthly active players of Predicto alone and was open about the fact that he acquires customers mainly through online advertising—sign up through online affiliates, but often they don’t know that they are signing up for a $10/month mobile game. Consumers might take an IQ quiz, sign up to win an iPod or register on a job website, at the end of which they are asked to enter their cell phone number and then enter a PIN number. According to one complaint:
what I remember is I was in yahoo and I saw a little window on the side about IQ test they asked my phone number thats all I remember few days later I got a message asking about what I tought about some celibrities [sic], are they going to divorce or would they stay togehter something like that I erased it,
The registration all happens online or via a text message opt-in. Then they get signed up for Predicto or some other game and the cell phone carriers start billing them on behalf of their partner, Snackable Media. “All the people they got were through affiliates,” says the former employee. One of the biggest affiliates is Smiley Media. “The reason we can drive so many sales is they can do it all online,” a Smiley Media account manager confirmed to me.
I spoke again with Yechezkell and asked him whether Snackable or its affiliates sign up consumers using misleading ads. “No, we don’t do that,” he says. “We don’t have any of the IQ quizzes. Our offers are very clear. You have to wait to get the actual service, everything is audited weekly by the four major cellular services, everything is opt-in.” He adds that “you cannot opt in unless you enter a PIN we send you or you reply OK or Yes. We are continuously in compliance. We had a suit dismissed completely.”
And what about the complaints? “The complaints are a tiny fraction of our overall business,” he maintains. Snackable’s games are no different than any other subscription business, he says: “It is just like any subscription. If I don’t use my Netflix, they charge me every month. They don’t email me every week saying you did not send back your DVD because they want me to stay on. Every month, we have to send a renewal message with how to cancel. It has the price.”
Snackable might be in compliance, but that doesn’t mean consumers realize what they are signing up for. The former employee notes that Snackable does everything it can to stay “on the right side of the law, they follow carrier regulations to a ‘t,'” but “they are tiptoeing a line between the carrier and the user.” For example, according to the former employee, after sign-up Snackable will send as few messages as possible to people on their cell phones to reduce the churn rate and what they call “fast cancels.” (I’ve noticed this myself. It’s been days since I got a Predicto text message, and I’ve got a comp account). If Snackable can get someone not to cancel until they get on the second or third billing cycle, they make money, because they pay affiliates a one-time fee of $4 to $5 per sign-up, and they share the other half with the carriers. So Snackable only starts to collect its half of the $10 in the second month. If consumers complain to the carriers about the added bills, they say they have to take it up with Snackable. AT&T and Verizon are Snackable’s largest carrier partners.
While these sign-ups might be technically legal, there are enough complaints out there to suggest that some are misleading. We saw a similar problem with Scamville offers in social gaming. Misleading online offers are not the only complaint against Snackable Media. There is also the recycling “dirty numbers” ploy, where Snackable allegedly just fails to cancel accounts for numbers that are reassigned to new wireless subscribers. According to that class action lawsuit against Predicto and Alltell filed last September:
Despite its knowledge about the problem of recycled dirty numbers, Predicto ignores the protocol established by wireless carriers such as Alltel to prevent this problem.
. . . As a result, Defendants have for years systematically, repeatedly, and without authorization caused charges to be placed on the cell phone bills of thousands of consumers across the country for content that was never authorized to be purchased by the current subscribers of the affected phone numbers, but rather by the previous subscribers formerly assigned such cell phone numbers, . .
In that case, Yechezkell says Snackable Media “never received the number on the blacklist” of the primary defendant from Alltell and that it has refunded the money to the person.
What makes all of this even worse is that Yechezkell has a history of running similar scams under different company names and has settled with at least one state (Florida) who brought complaints against him. For example, he ran a service called Email Discount Networks which allegedly would charge people’s home phone number $14.95 a month for an email account which they either didn’t authorize or didn’t realize they were signing up for.
The former employee adds that when Snackable Media was known as NextWeb Media it also signed people up for voicemail service which would appear on their home phone bills through a process known as LEC billing, which only required the consumer’s phone number. “The reason they switched to mobile is a lot of people don’t have home phones anymore,” says the former employee. Yechezkell says the company has “completely stopped running that product.” However, a similar business called Voicemail Direct USA, which has an F rating by the Better Business Bureau because of the number of complaints against it, lists Snackable co-founder Itai Kathein as its manager. Kathein is also named along with Yechezkell in the Predicto lawsuit.
All of these allegations and complaints could be isolated incidents. Businesses that are total scams don’t usually approach us for coverage and brag about how much money they are raking in. Snackable Media does operate real mobile games, and if consumers willingly subscribe to pay $10 a month for a chance to answer trivia questions and win prizes, that is their problem. But it appears that at least some of them are being duped by Snackable or its affiliates into signing up for the service unknowingly. When there is so much easy money to be made, the temptation to step over the line is hard to resist, especially when all of your new customers are coming through an army of hard-to-control affiliate marketers.