Recently, I had the chance to moderate a panel discussing the virtual goods / virtual currency ecosystem. While, an ever increasing amount of funds entering this ecosystem, a large and multi-hundred million dollar annually portion, comes from users engaging in ads to earn points. In other words, incentivized marketing. If you have ever gone to a sporting event, you have had a first hand experience with a long-standing offline version incentivized marketing. This is but one of many. The internet, though, has allowed companies to use incentives in new way, one that no longer has a geographic constraint.
The downside of using any incentive is of course that you don't really know if the user has an interest in your good or service or simply the incentive. I started thinking about the world of incentivized marketing again not only because of the panel but due to personal experience with fraud that occurred to an advertiser friend who tried the space for the first time. It was clear from this experience that the users didn't want his service, only the incentive. That's not always the case, but don't ask him to believe that.
I wouldn't call this an anniversary piece, but incentivized marketing is celebrating at least its 10th year online. This is what the landscape looks like today.
Loyalty Programs
Almost all of us have joined a loyalty program at one time or another. Those in our space are some of the biggest users and proponent of such programs - just look at all the black American Express cards floating around Affiliate Summit. Spend money, earn points, redeem for rewards. Pretty simple formula. It has worked for card companies and large stores to keep customers spending. Not surprising that someone figured out how to do it online. The big difference is that spending is agnostic. Instead of having to use a particular card or spend at a particular store, you could spend anywhere that had an affiliate program. The online versions, like ebates and mypoints, in essence split the commissions they earned back with the consumers in the form of points. Earn enough points and you get cash back. It's not all that different from Bing shopping.
The skinny: Top tier quality among incentive sites. Volume harder to scale. Minimal fraud. Rating: Accumulate.
Promotional Offer / Reg Path
While a good model, loyalty themed incentivized sites struggle to get more customers. Recognizing the power of incentives, a new breed of companies pioneered their use in a different way. Instead of a loyalty program, they went for a model more akin to the offline rebate system - it was a model of breakage. It was get this by doing this, but not everyone who starts the process will complete it successfully. Calling the online version the breakage model, while true, doesn't sound quite as favorable. These offers all start with an offer for the user to receive something, generally with the well known "Free*" tag line. And, for years they ruled the roost on run of network buying and the incentive space, creating multiple $100mm+ yearly revenue companies. Beginning with the media rebound in 2005/2006, it became a tougher landscape, and while still going strong for a select few, the overall size of the promotional incentivized landscape is a fraction of what it once was. That doesn't mean the incentivized landscape is smaller, but the Free Mac product method has seen its peak.
The skinny: Moderate to lower quality. High volume potential. Moderate fraud as a percentage of total. Rating: Market Under-perform.
Get Paid to Try (GPT)
When a veteran of the space calls the Get Paid to Try or GPT's as they are known amongst those working the daily incentivized grind, a cancer, you get a clear sense of how this person feels about the model. At one level, GPT's seem quite similar to the loyalty iteration as users receive a cash incentive for participating in offers. The biggest difference it seems is a subtle but important one. They tend to have a lower barrier to entry both from a business perspective and a user one. From a user end, the person has to do less to receive money. From a business end, they have a much less robust selection of offers - few to no name-brand merchants and a heavy emphasis on the value of making money from using the service, instead of the value of a relationship with the site. The combination is a model where you can literally buy a script for a few hundred bucks and open up your own GPT business. Often sold as part of a work-from-home lifestyle business, those starting it have less interest in policing quality or an awareness of quality. They become easy targets for those looking to perpetrate fraud and earn money by completing offers without any interest in the service itself. As one other said, we stopped working with these sites and didn't miss a beat. Not all are bad, but so many are that they've definitely hurt the overall perception.
The skinny: Low to no quality. Moderate to high volume potential. High fraud. Rating: Sell.
Micro-payments / Virtual Currency
Active users of Facebook will know these businesses well, not so much from who they are but what they do. Players of the 50mm active user strong and growing Farmville can tell you about the distinction between Farmville Coins and Farmville Cash. The former you earn while engaging with the site. The latter you get only by making the site money. And, users can make the site money in one of two ways, through actual payments via Paypay, credit card, and mobile phone or by participating on an offer. These offers are integrated into the user experience, and the process of tracking offer completion and awarding points are handled by a new breed of incentive firms, the managed offer platforms, which includes the subjects of a previous set of articles looking at the space - OfferPal, SuperRewards, Gambit, and DoubleDing to name a few. In some ways they create mini-loyalty programs as they enable users to earn points towards a social game being played. They differ slightly as the points are desired at a specific time, i.e., people convert on them when they want something from the site as opposed to they want something and want to earn points with a specific program.
What the promotional space has dropped in market share, the managed offer platforms have picked up and then some. The companies in this space include your typical self-funded opportunistic firms but also some high powered companies with serious investor backing. Separating themselves further from their high volume predecessor, users here have their identity tied to usage. Whereas in the GPT or Promotional iterations a user can relatively easily go through giving false information or with false intentions, users of social games on their social networking site can't mascaraed as someone else, not without losing the benefits of the social landscape which often attracted them in the first place. The identity feature doesn't ensure perfect quality, unfortunately, but it tends to limit the damage. Instead of them saying to an advertiser I never signed up for this, they might just say, I'm not interested and/or cancel a trial quickly.
The skinny: Moderate to A- quality for the right advertiser. High volume potential. Low fraud. Rating: Recommend.
Macro-payments / Alternative Payments
Those willing to date themselves (age wise not in an ego sense), will admit to remembering Ken Chan's YourFreeDVD's ruling the display landscape. True to its name, YourFreeDVD's, or as some jokingly called it YourFeeDVD's, offered users a straight forward proposition. Complete an offer and get a DVD of your choice. It was arguably the first of the Promotional Offers, certainly the first to hit such scale. For better and worse, though, the straight forward model evolved into more of today's registration path and requiring users to complete more than one offer ton increase breakage. These acts weren't done out of malice but to compete with other headwinds - the decreasing novelty of DVDs (lowering their perceived value), increased media costs, and the need to pay more per email submit to compete against newer entrants offering promotions of perceived higher value - such as gift cards and electronics, the stuff that created the promotional legends. At its core, though, the YFDirect model was the predecessor of today's macro-payment / alternative payment format. It offered users interested in a good or service a chance to get it through an alternate means (as opposed to the promotions business that was historically defined by its obfuscation of what users have to do)
In a strange, full-circle manner, alternative payments are back and thriving. They are lead by a new breed of companies - Trial Pay being the most notable - who have put a slight twist to the original model. Instead of starting with a promotion or product that users can receive through alternative means, they sit in the background of the existing shopping experience and help to capture users that might end up abandoning the process. Let's say you want to download a popular software title, not necessarily knowing the price. When you find out about the annual fee, say $29.99, you start to balk. That's where Trial Pay comes in. They work with the software titles to allow them to offers users a non-cash (not directly cash option), such as by signing-up for a credit card. It's almost like a modern day barter system - trading one customer for another - but executed in a scale not available offline. Trial Pay in particular has leveraged their alternate payment platform to help more traditional merchants increase the average order size of their carts. They can reward users with movie tickets as an example by hitting certain thresholds.
The skinny: Amongst the highest quality of any incentive platform. Moderate volume currently. Minimal fraud. Rating: Buy.
