Overlooked Vendors Cast a Skeptical Eye on Facebook Partnership with TrialPay

[UPDATED.] Facebook announced in April that it would begin integrating offers, such as Netflix trials, as a payment option for its new, universal virtual currency called Credits.

Though Facebook initially announced plans to integrate the offers of two venture-backed monetization startups, TrialPay and PeanutLabs, Facebook has yet to make the PeanutLab’s offers available to users and competitors. Related or not, competitors in the space are beginning to cry foul over Facebook’s relationship with TrialPay.

One major bone of contention, claim two sources who asked not to be named, is that the process used to vet competitors to TrialPay was neither impartial nor clear.

“They just asked [one of TrialPay’s competitors] to give [Facebook] a presentation on the company,” says one source familiar with the matter. “It turned out that the presentation was the equivalent of a [request for proposal, at the start of most bidding processes], but [the competing company] was never notified of that and in fact, their executives were told to skip over background about the company’s fraud protection and customer service.”

TrialPay CEO Alex Rampell said he was prevented from talking publicly about many aspects of TrialPay’s relationship with Facebook. Ethan Beard, director of the Facebook Developer Network, where he oversees worldwide developer relations, is traveling this week and was unavailable for comment.

A source close to TrialPay, meanwhile, characterizes TrialPay’s meetings with Facebook as “incredibly rigorous,” athough the source declined to disclose how so. Added this person, “Facebook [also] reached out to the leading game publishers who have worked with every single monetization company in the space. This was not a narrow focus or quick decision.”

Another complaint centers on the relationship between executives at TrialPay — specifically CEO Alex Rampell and CTO Eddie Lim — and Facebook “Ninja” Jared Morgenstern, a top-level product manager who has launched several of Facebook’s biggest growth engines, including virtual gifts and its friend finder and contact importer.

Computer science geeks who were friends at Harvard, Morgenstern and Lim went on to co-found a startup called Metails.com that invited users to build out profiles of products they liked and that sold in 2004 to Buy.com for an undisclosed amount. It was later renamed Yub.com.

The source close to TrialPay acknowledges that Morgenstern was one of the Credits team members but says that Morgenstern was not part of the committee that made the final decision about using TrialPay and that he specifically recused himself due to any potential conflict.

Competitor complaints have also surfaced over TrialPay’s comparatively short history in the social gaming arena. Indeed, when I interviewed Alex Rampell for a profile in late January, he told me that the social games offer space was a “small percentage of our business” that “grew by triple digits last year.”

Said Rampell at the time, “A rising tide will lift all boats. But if you look at size of offline economy — real goods — it’s so much bigger. It might be growing at just 1 percent each year, but we don’t need it to grow. I don’t care if the pizza market grows or shrinks. A lot of people order pizzas. It’s much bigger than Zynga’s revenue will be for the next 10 years combined.”

Asked today about such complaints, the source close to TrialPay says claims of TrialPay’s relative inexperience are “simply not true” and that the company was one of the first companies to work with virtual goods companies, beginning in March 2007.

Whether or not competitors’ claims have merit, it’s unsurprising that many in the industry are unhappy with Facebook’s choice to rely heavily on TrialPay, particularly given the ballooning role that offers are expected to play in Facebook’s future.

In an exclusive interview today with InsideFacebook, Mark Zuckerberg acknowledged, for example, that games, which make up “a lot” of Facebook’s applications to date, “monetize a lot better through virtual goods than through ads.”

UPDATE: After conducting some “detailed research” about the process through which it selected its offer partners, Facebook responds:

The assertion that our process for selecting offers partners was unclear or biased is preposterous. We ran a rigorous process that gave each company a chance to make a formal pitch as well as hold other discussions. The assertion that the process was affected by any personal relationships between any Facebook employee and TrialPay is also false. We have established procedures in place to prevent situations where there could be a conflict of interest. And in this case, in an abundance of caution, Jared Morgenstern recused himself from the selection of offers partners. We hope this clarifies the circumstances in light of the uninformed and incorrect assertions made by some parties.