MARCH 10, 2011 • Lakoo, a Hong Kong-based developer of online and mobile MMOs, told Threatpost blog that four out of every 10 transactions coming in through its iOS platform games are fraudulent. The purchases are occurring from either compromised iTunes accounts, or counterfeit iTunes gift cards. Similarly, Microsoft admits that it has lost $1.2 million in redeeming fake Xbox Live MS Points. Hackers found an algorithm that generates redeemable codes in the amount of 160 points. Despite each code being worth only $2, the same code could be repeated used up to 10,000 times for a $20,000 value.

Impact: On mobile and other digital platforms like XBL or PSN, where development costs are generally one or more orders of magnitude smaller than traditional retail console games, the biggest revenues go to the platform holders and not developers. The latter on average don’t sell enough units to cover typical costs, or if costs are covered, do not deliver any significant profit.  On top of that, now the issue of piracy and fraud are becoming real threats to developer’s bottom lines.  This is in contrast to the worlds’ largest PC digital delivery platform, Steam, where the platform itself is used for user validation and as a DRM solution that consumers generally accept and has low rates of piracy.  As digital’s share of all distribution grows, piracy and fraud will only become larger issues as no platform has ever been 100% secure.