The Future of Offer Monetization in Social Games

zynga-yoville-superrewardsAs the virtual goods market continues to grow in the US – nearly doubling this year to just over $1 billion, according to our recently released Inside Virtual Goods research report – more attention is being paid to one of the more intriguing sectors of the virtual goods payment ecosystem: offers. Offers, a form of incentivized lead generation for performance marketers, are a popular alternative payment method for a variety of free-to-play online games, and currently play a role in the monetization of many social games through virtual currency microtransactions. How does it work? Basically, players are incentivized by developers to take advertiser offers with in-game virtual currency that they can then use to progress through the game.

One of the main issues that many people are still trying to wrap their head around is the sustainability of the offers space. Given concerns over quality of both the offers themselves and the leads they generate, are offers really going to be a meaningful method of social game monetization in the long term?

Quality has been and always will be an issue in any performance-based marketplace. Why? Because actors on both sides – advertisers and users – are trying to optimize for their own goals. And as you may expect, based on the history of the world, some people are always willing to be tricky to make an extra buck. That’s why the companies that operate performance marketing platforms have to keep both sides in check. If either side of the system – users or advertisers – act fraudulently, the system stops working. This is why Google has large efforts and teams devoted to managing both click fraud and landing page quality.

One example often cited by skeptics of the sustainability of offers in social games is the story of the “free iPod” incentivized marketing companies of a few years ago. Basically, these companies got people to sign up for a lot of offers by promising them a valuable reward, like a free iPod or plasma TV. But two significant problems arose. 1) Eventually, the advertisers paying for those leads realized that most people who took their offers weren’t really interested in their products at all, but were just trying to get the prize, and so they stopped investing in this area. 2) In addition, because the “free iPod” companies were paid for generating the leads, but had to actually pay out of their own pocket to deliver the prizes, they often made it difficult for users who took the offers to actually get the prize. User complaints led the FTC to get involved.

At the end of the day, the sustainability of offers in social games (or any other area for that matter) first depends on whether there is real value being delivered to both advertisers and users. I agree with Jay Weintraub that there are a couple of fundamental reasons why the space is creating sustainable value.

1. Payment choice in social games. When users decide to purchase virtual currency, they are most often choosing from a variety of payment methods inside the context of the game – and, within the offer wall itself, a variety of offers. These days, most payment aggregators offer five, ten, or more different payment options for users wanting to purchase virtual currency. These include PayPal, credit cards, mobile/SMS, offers, prepaid cards, and many more. In addition, once a user chooses to browse the offer wall, there are almost always many offers shown by default that are targeted to the user. While this is by no means perfect, it does mean that all users aren’t being forced to pick from a few offers they’re not interested in as the only way to get the virtual currency. Overall, offers make up a minority of virtual goods revenues in social games. The majority of revenues come from some form of direct payment, according to the many industry sources we’ve spoken with about the matter.

2. More accountability through identity. Within Facebook especially, users are operating in the context of their “real” identity. While no one claims Facebook identity is never faked, Facebook’s identity is designed to be very generic and socially verified – as people use Facebook, their whole history of application activity and personal content (photos, notes, links) are tied to their identity, as vetted by their friends. This means it’s generally a little easier to track down fraudulent users.

Andrew Chen also explains well how offers in social games can be examples of good product bundling that generate value.

All of that being said, quality is an important issue facing the industry. Last Tuesday, I had the opportunity to moderate the panel on managed offer platforms at the 80/20 Conference, which is focused on the latest in the performance marketing industry. On my panel were Mitch Liu (Co-founder, Offerpal Media), Adam Caplan (President, Super Rewards), Matt Handel (Co-founder, DoubleDing), Noah Kagan (Founder, Gambit), and Gurbaksh Chahal (Founder, gWallet). During our discussion, Adam Caplan answered a question about how much leads generated through incentivized offers on social networks were discounted by advertisers, and he said that right now he sees a 30-40% discount. Also during the discussion, Mitch Liu answered a question about fraud by saying that Offerpal has outright banned nearly 10% of users from taking any more offers, and that Offerpal has 40 support staff who spend a lot of time calling users to verify their identity.

When it comes to offer quality, much of the concern is focused on offers that don’t clearly disclose their terms to users – for example, mobile content subscriptions that end up billing users monthly without clearly explaining that up front. Every offer network says they eradicate low-quality offers, and new companies entering the space say they’re doing the same. But there are still some deceptive offers out there, and an important question is how widespread they really are. Many developers are self-selecting away from these offers in order to provide a good user experience and protect their brand, in turn driving demand for higher quality offers, but, as we’re seeing, other developers aren’t. (And some developers are choosing not to integrate offers at all.) Clearly disclosing offer terms is important both for users and for the long term health and growth of the social gaming ecosystem overall. Each developer, offer network, and social network (i.e. Facebook and MySpace) should set and enforce clear policies along these lines – if they don’t, regulators will eventually get involved.

Finally, it’s important to note that many of the most sophisticated performance advertisers – who have been around the block a few times – are investing in this space, and have been for some time. The Netflixes and Equifaxes of the world have well-developed methods of evaluating lead quality and adjusting bid prices accordingly, and if you look on your favorite offer wall today (in the US), they’re still there near the top of the list. It’s unlikely that Netflix doesn’t understand how its ads are showing up in social games.

At the end of the day, the most fundamental question facing the industry is whether incentivized marketing in social games is providing real value to honest advertisers and users. If you believe that is the case, then it only makes sense that as the space grows, it will attract more developers and advertisers interested in testing the performance of the market – as well as some people willing to act unacceptably until they’re discovered and forced to stop. The best thing all offer networks can do for themselves, users, and the industry overall is to keep adding more offers that provide more value to users and advertisers, while eliminating any deceptive ones.

Gallery: Offer Walls in Popular Social Games

1. FarmVille, by Zynga – Offers by Offerpal Media

zynga-farmville-offerpal

2. Pet Society, by Playfish – Offers by TrialPay

playfish-petsociety-trialpay

3. YoVille, by Zynga – Offers by Super Rewards

zynga-yoville-superrewards

4. Mobsters 2, by Playdom – Offers by Offerpal Media

playdom-mobsters2-offerpal

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15 Responses to “The Future of Offer Monetization in Social Games”

  1. The Future of Offer Monetization in Social Games says:

    [...] > Continue reading at Inside Social Games [...]

  2. tom says:

    Furthermore those companies like SR and offerpal are unable to localise probably the offers they display, and even more, they’re not able to test them to see if they work.
    No quality customer support behind, so users complain directly at developers.

    As it is a new business, those companies are clearly focusing on business development rather than fine tuning their product or optimise the user experience.

    So it sounds like things might change shortly. Hopefully…

  3. Eric von Coelln says:

    I think that there is no question there is a bubble here and that over time, the value of the leads will decline. Direct marketers will continue to ratchet down the paid amount based on the return — so as NetFlix and Blockbuster and others start reducing the payout per acquisition, you will see the return on offers decline and more pressure to fill their space with less above-board CPA schemes.

    That is why the recent forray into paid work (http://blog.getgambit.com/engage-users-grow-revenues-say-hello-to-gambit-tasks/) launched by Gambit is an interesting strategy to look ahead after the CPA bubble has burst. Clearly users are willing to trade their time for some in-game benefit, but only time will tell if marketers can be innovative enough to take advantage of this.

  4. Zynga CEO Speaks On Offers, We Provide Some Context says:

    [...] Context: Netflix and a couple of other fully legitimate companies have been using offers for a long time, and they still are. This is because offers, at their core, allow users to earn points in a game in exchange for something else they might want, like a Netflix subscription. The concept of an offer is perfectly legal and ethical, although particular offers are neither. [...]

  5. Game Tycoon»Blog Archive » The Death of Lead Gen? says:

    [...] has already inspired quite a few responses, such as these thoughtful articles by Andrew Chen and Justin Smith, and this entirely predictable response by Mark Pincus, the CEO of [...]

  6. Social Games & Lead-Gen « karma fu says:

    [...] blog post to the effect yesterday.  Today Justin Smith from Inside Social Games, has published a more balanced and constructive article on offer-based monetization models.  A lot of general drama has ensued around this topic, with [...]

  7. Don’t Facebook In Anger: Gaming Scams? | Rock, Paper, Shotgun says:

    [...] a nasty cycle. By means of balance, the annoyed David Kaye of Meteor Games directs people at another article he considers more balanced. If you’ve had your own experiences with these kind of social gaming, do share. [...]

  8. Lauren says:

    Peanut Labs is preparing a new survey for users on user experience with payment options (and offers in particular) and we invite anyone to submit questions they would like to see answered by users across our network. We’ll pick the best and put them in our next survey.

    Feel free to send questions directly to support-media@peanutlabsmedia.com or check out our post today for more details: http://bit.ly/3hlOR9

  9. Facebook Bans Two More Platform Ad and Offer Networks says:

    [...] following a week in which offer networks have come under increased scrutiny for running deceptive ads, the company has just announced that [...]

  10. Zynga Launches FishVille — How Big Will This Virtual Aquarium Game Get? says:

    [...] on Facebook — and one that has come under increasing scrutiny recently for its use of scammy advertising offers in games — has just soft-launched a new title called [...]

  11. EA Buys Playfish in Deal Worth Up To $400 Million says:

    [...] vast majority of its money through direct payments. While it does run some advertising offers, the offers are from TrialPay, a company that focuses on running high-quality offers from major brands. Many offer companies have [...]

  12. Social Media Study: Women Like Brands, Love Virtual Currency says:

    [...] Q Interactive says in its release that women are “actively engaging with brands.” The suggestion is that if women aren’t paying out of pocket for virtual currency and goods, it means they must like branded offerings. While that is increasingly the case, it doesn’t necessarily mean the players always appreciate the brands they’re looking at, or that if they sign up for a credit card or free gift online they’ll follow up by using the card or buying a product. Besides deceptive ads, increasing the number of branded ads that users truly find valuable is one of the major challenges facing offer-based virtual currency monetization. [...]

  13. Can the Advertising Offers Business Find Redemption In Social Networks? says:

    [...] not just on what companies are doing right, but what they are doing wrong. We and others have covered offer and social network advertising problems that have been long-running issues on Facebook and [...]

  14. With $12.5 Million in New Funding, gWallet Aims at Social Advertising Offers Industry says:

    [...] the market with. In other words, the market is maturing. While the leaders are not yet decided, we expect the overall offers market to continue growing in quality and size as a result. To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The [...]

  15. Facebook Adding Offers to Payment Options for Credits says:

    [...] began cracking down on low offer quality last summer and fall, especially after widespread media exposure of low offer quality. While developers and monetization providers have worked to filter out bad offers and provide more [...]

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