Inside Social Games

Most companies in the social advertising offers business are… how do we say… going through a big transition. Facebook and MySpace have lately been taking a harder line against offer company and application developers that runs scammy offers, in some cases banning developers and offer companies. Meanwhile, top developer Zynga has temporarily banned all offers. And now, this emerging industry has a potentially big new competitor in the form of gWallet.

Having only launched this past August, the San Francisco company has just announced a $12.5 million first round of funding from venture firms Adam Street Partners, Trinity Ventures and other investors, to take advantage of what may be a newly strong market position.

Offers, for those not familiar, let people playing apps — especially social games — earn points to use within the app by taking special advertisements. And gWallet is focusing on doing a few things differently from what offer companies have historically done on social platforms, as founder Gurbaksh Chahal explained in an interview earlier today.

It is working directly with advertising agencies and others to figure out what sort of ads can work best in offers. As you can see from the screenshot, offers includes some consumer packaged goods like the Rolling Razor. A look at its offer wall on FooPets shows a typical-looking cross-section of high-quality offers: Netflix rental subscriptions, game purchases, etc.

Which is where the second part of the company’s strategy comes in, according to Chahal. He says they are focusing on improving targeting methods. gWallet tracks the offers that each user takes, serves up relevant types of offers, hides any offer they’ve taken already, and more. The data comes from what users do within its i-frame window inside of other applications; the company doesn’t pull Facebook user data or anything about what users do within games.

And, gWallet is also showing advertisers their direct return on investment from users and games. The company’s overall goal is to show developers that it can make them more money through fully ethical means, and at the same time bring in more and more mainstream advertisers — and, of course, provide offers that users find valuable.

All this is in contrast to what many offer companies have historically done. Until more recently, most developers and offer companies focused on revenue: Developers demanding the highest CPMs possible and offer companies ran some outright scammy ads as a result. Most offer companies relied on dumping generic offers from affiliate advertising networks into offer walls on apps, and most of these companies lacked effective ways to weed out the thousands of scammy ads that course through these networks.

Meanwhile, many of the scammy offers were the most lucrative; if a tricky mobile quiz ad gets just a few people to sign up for a lifetime mobile subscription of $10 per month, that generates a big ROI, and leads to more scammy advertising.

Now, however, these offers are out of the system. All the offer companies say they have been and are increasingly 1) working directly with advertisers and 2) providing filters to prevent scammy ads from getting in to the system.

Going Forward

So now the real test will be how well all of these companies can please both legitimate advertisers and developers. On the one hand, gWallet doesn’t have the presence that many of its competitors have already established on Facebook and other social sites. It may, however, have a leg up in executing on its overall strategy. Company founder Chahal is a serial ad entrepreneur, who most recently sold ad network BlueLithium to Yahoo for $300 million in cash. That company used behavioral targeting and other methods of data analysis to optimize what ads people saw on sites across the web. Lots of rivals to that company claimed to do much of the same thing, but BlueLithium is one of the bigger ones to end up with an exit. Clearly, the company had some idea what it was doing.

He also mentioned today the company is planning to move beyond games on social networks to work with other web sites.

Many of the larger offer companies took hits to their revenues when the scammy offers disappeared, and now a small but experienced competitor has more funding to go after 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.