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Updated November 13

It’s “giving season” again and so we’re about to see a huge ramp-up in embedded giving—the practice of embedding a donation into the purchase price of something you buy (e.g. “a portion of the proceeds will go to cancer research/plant a tree/build a space hotel”). Joining Lucy Bernholz, we’ve been critical of embedded giving schemes for a variety of reasons including their ability to obscure what is really going on.

A case-in-point is a series of recent stories about Zynga, a company that makes online social games including FarmVille that have become wildly popular on sites like Facebook and MySpace. A few weeks ago Zynga announced that it had raised nearly $500,000 for children’s programs in Haiti via an embedded giving scheme in FarmVille. Essentially users had the option of purchasing (with real money) virtual seeds for their farms, and a portion of the money paid was directed to the Haiti program. Zynga was praised and a number of commentators pointed to virtual goods as a big part of the future of giving.

Then a few weeks later, Michael Arrington, an enterprising reporter from the blog TechCrunch, did some digging on how social gaming companies like Zynga were making their money. It turns out that in addition to selling game players virtual goods, a big chunk of their revenue came from being a conduit for consumer scams. In Zynga’s case about 30 percent. The scams involve offering players “free” virtual goods in return for filling out surveys or the like. What the game player doesn’t know is that filling out the survey ends up subscribing them to a monthly subscription of some sort without their knowledge. The scams are run by separate companies but they pay Zynga for access to their game players. The revelations have led MySpace and Zynga to change policies in relation to the games, and to one of the leading conduits for the scams, OfferPal, to replace their CEO.

So this story has a generally happy ending, but the point remains that embedded giving programs like Zynga’s often cover up the reality of what’s happening in the background and the general practices of the company. In this case, while feeling good about giving to children in Haiti, players were also supporting a company that earned a substantial portion of revenue by turning a blind eye to scams.

But this is just one of the more egregious examples of the problems with embedded giving. The real problem is a near complete lack of transparency (who gets the funds? when? how much?) in the industry.

Lucy Bernholz has kicked off a project to start gathering data on the embedded giving industry. When you come across examples of embedded giving that seem particularly dubious or opaque, please let her know.

Update: A video has surfaced of Zynga’s founder telling a gathering that he purposely built the company with revenue from scams.

Comments

Lucy Bernholz

Tim - nice piece and a side of embedded giving we can only hope is limited to this strange world of online games, virtual currency, and hidden motives. In the real world, embedded giving is enough of a ripoff, amazing to find out how much worse it can be online.
Lucy

November 06, 2009

Very interesting .. thank you for this piece.

December 01, 2009

I greatly appreciate the news you’ve shared on Zynga and its overall unscrupulous business practices.  I’m going to share it with our audience at causemarketingforum.com

What I disagree with is the “throw the baby out with the bath water” approach to all embedded giving.  I am totally in favor or identifying ill-intentioned and poorly executed programs.

At the same time, I’d like to see Lucy Bernholz collect and spotlight well-intentioned and well-executed programs.  Although virtually nothing is perfect in this complex world of ours, there are many programs generating significant revenue at low cost to nonprofits that prove companies can do well by doing good.

December 01, 2009

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