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Virtual gaming heavyweight Supercell has terminated its business relationship with online ad operator Appia for reselling online advertisements in violation of the contract between the two companies, VentureBeat has learned.

Supercell found out about the resale, known as re-brokering, after receiving an email from a third company, which alerted Supercell that the ad it had originally paid Appia to place had been re-sold to a third party — in violation of Supercell’s insertion order (IO), a contract for advertising placement.

In other words, Appia was violating contract terms and sourcing inventory from other ad networks, then re-selling the ad placement.

“They went to Appia and said, ‘what’s going on?'” said a person familiar with the situation. “And they were like, ‘Oh yeah, we’re sorry, we’ll give you a refund for the portion we re-sold.'”


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That answer wasn’t good enough for Supercell, which showed Appia the door.

Appia’s chief revenue officer, Ken Hayes, denied the assertion.

“It’s not true. We didn’t re-broker anything. In the case of Supercell, a publisher got an ad from us and re-brokered it. We found out and terminated our relationship with them,” Hayes said, without naming the other company.

“This is not news. It’s happening a lot in this industry. Appia did no wrong. We have hundreds of advertisers that we work with. I’m telling you what the facts are,” he said.

The mobile ad and gaming space is a bit of a “Wild West” situation at the moment. There are over 300 mobile gaming outfits, app developers, ad companies, ad re-brokers, and mobile analytic startups vying for a piece of the nascent industry, which amounted to $18 billion last year and is expected to top $34 billion by the end of 2014, according to eMarketer.

Indeed, there is little, if any, oversight. While the Federal Trade Commission has authority over online advertising, it has shown little interest in aggressively regulating such a complicated and emerging industry — apart from recently announcing intentions to begin enforcing the COPPA law, which protects children, as VentureBeat first reported last month.

Meanwhile, interviews with numerous legitimate gaming and online ad executives paint a portrait of an arena that is teeming with shady operators running fly-by-night ad companies from dimly lit offices in the U.S., Israel, Russia, and Ukraine. Hundreds of millions in ad dollars and app download fees have simply vanished, these executives say, and there is virtually no recourse for recouping the lost money.

The issue stems from companies paying mobile brokers for ad placements with websites that drive traffic to their own. That’s a lucrative business and an essential one, given the aggressive competition for customers on the web and for mobile apps.

But while many ad brokers and advertising firms are legitimate and transparent with their clients, others are not.

“The real problem here isn’t the re-selling, despite the monetary effect it has on the end publisher, doing all the work by producing content and displaying the ad. The problem is the loss of control over the ad placement by the originating network, in this case Appia. Who knows where that ad ends up being displayed?” the source said.

Appia, based in North Carolina, describes itself thus on its website:

Appia is the leading mobile user acquisition network delivering mobile app downloads to over 1 billion users across 200 countries. … Brands like ngmoco, AppBrain, Fiksu, Playtika, Cupid and Zedge trust Appia with mobile app discovery. Whether you’re focused on driving incremental revenue with high value content or capturing quality installs through a pay-for-performance model, Appia provides an app install network that drives 10x the performance over other networks.

Clients of firms placing mobile ads that appear on Facebook, Google, Twitter and King can most certainly know their product is placed on these sites simply by clicking on them. But others often cannot tell where the ads they purchased are actually appearing. Sometimes ads are not placed at all, or sometimes they are placed on porn sites or other unsavory websites.

London-based Fetch, an online advertising agency, has also worked with Appia. But after the recent dustup between Supercell and Appia, they have rethought their business arrangements with Appia until they are guaranteed the re-brokering has ceased. For the record, Fetch, which is closing in on its first $100 million year since launching in 2010, has made clear that transparency with its clients is a main priority.

Supercell declined to publicly comment for this story.

Fetch executive Guillaume Lelait put it this way:

A Supercell campaign was being run by one of Appia’s direct partners who then, without authorization, re-brokered the campaign to an affiliate marketing company, which breached the terms of both the insertion order and Appia’s publisher terms.

While not illegal, re-brokering is often frowned upon. Making the equation more difficult is the fact that the Interactive Advertising Bureau, a trade group, oversees the space, but lacks the ability to impose fines and shutter rule breakers. It is left to the ad and gaming companies to police their own deals, and re-brokering scams are only usually brought to light by third parties who notice the schemes, often by accident.

As a result, many legitimate firms have taken matters into their own hands, privately sharing so-called ‘blacklists” of ad networks they claim have re-brokered deals without their knowledge. Indeed, VentureBeat has obtained one such blacklist, and it listed 70 companies. VentureBeat has chosen not to publish the list pending further confirmation.

However, few firms are willing to publish these lists widely, and many sources VentureBeat talked with insisted on remaining off the record. Instead, it appears that ad agencies and advertisers are preferring to work quietly, behind the scenes, to identify bad players.

In an email, Fetch’s Lelait continued:

Fetch has identified over 200+ vendors who claim to either be mobile “network”, “exchange” or some combination thereof. After testing these partners across multiple campaigns, we have found that in actuality only a very small minority actually make up the majority of available advertising impression volume.  With an increasing number of new mobile media companies popping up left and right, Fetch has found that it is imperative to implement a rigorous vetting process that includes requiring from the vendor a detailed breakdown of traffic sources (ex. direct pub vs. indirect), how they acquire new traffic sources, as well as a whitelist of sites/apps prior to spending a single ad dollar. This process usually quickly weeds out media vendors who have no real traffic of their own.

Appia’s Ken Hayes said his company, based in North Carolina, for their part is rigorous in who they do business with. When re-brokering is brought to their attention, they take action.

“We have a very good record and go to great lengths to police ourselves. We have 80 people working every day. We are in the very early days of the mobile tech industry,” he said.

“We love Supercell,” Hayes added.

But for Supercell, that explanation was simply not good enough.

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