Earlier this week lead advertising expert Jay Weintraub turned an analytical eye toward the world of ad offers that reward users of a game or app with amounts of virtual goods or currency if they accept particular offers or simply hand over their personal information to an advertiser. Weintraub compares this type of advertising to the incentive advertising that stormed the Web about five years ago and essentially predicts that the ad offer model is destined to undergo a period of downturn and reinvention. This is interesting in light of the current period of explosive growth that ad offer networks like Offerpal Media are clearly undergoing.
The issue at hand is quality, not of the ad offers themselves but of the leads they are producing. In advertising terms, a lead is a consumer willing to focus attention on an ad and ultimately offer up either personal information or an outright purchase. A good lead develops interest in the product or brand at hand because of an ad offer they've accepted, but a recurring problem with incentive-based advertising is that leads can end up so interested in the incentive (in this case, virtual goods or currency) that they develop no real interest in the product or brand in the ad offer.
Weintraub believes the leads produced by ad offer networks are currently overvalued, based on a comparison of the payout per offer network lead generated to the conversion rate of the virtual currency awarded to a lead who accepts the offer. His main example is the Facebook app Lunch Money, where a user can simply purchase 100 million in Lunch Money dollars ($L) for $9.99 at any time. Users can also accept ad offers to get varying amounts of L$.
Most of the ad offers Weintraub looked at yielded L$ to a player at a rate that was out of sync with the usual purchase price. A Netflix offer, for example, offered a player L$15 million if they would begin a trial subscription for Netflix (and the currency isn't delivered until the user orders his or her first movie). A monthly Netflix subscription costs at least $9.95, which by itself would purchase 100 million L$ if a user paused to think about the situation.
Weintraub believes that eventually users will begin to realize this imbalance and, as a result, will grow suspicious of ad offers and less willing to engage with brands through them. So whatever Netflix is paying out for this offer (possibly around $13, to be split between Lunch Money's developers and the ad offer network), it is probably more than the lead is really going to be worth to Netflix in the long run. Eventually Netflix will probably realize this, too, and stop doing business in offer format.
On the upside, Weintraub doesn't foresee a potential downturn for ad offer networks being as severe as the incentive advertising downturn for two reason. One, the ad offer model doesn't rely on breakage and instead is predicated on making absolutely sure an interested user both finishes the offer and gets whatever reward the offer promised. As a result, ad offers are extremely unlikely to develop a reputation as negative as that developed by incentive ad offers, who made more money when they made users unhappy or dissatisfied.
Two, ad offers in apps are ultimately accountable to apps themselves regarding whether or not they have made users happy with their service. No developer is going to continue working with an ad offer service that draws complaints or seems to be more trouble than it's worth. As a result, ad offer networks tend to make what is required for a player to do in order to complete an offer extremely clear before the user begins an offer and also specify when a player will get promised currency. That sort of transparency also makes it less likely for users to ever be as dissatisfied with ad offers as they became with incentive advertising.
The one point of Weintraub's essay I have to respectfully disagree with is his conclusion, which says, "users should wise-up and realize that they can play better games for free elsewhere." Weintraub's idea of a "better game" is made clear by his statement that "converting on two higher value offers would get a person a full game on XBox 360." This opinion ignores the simple fact that the main demographic for many social games, often women in their 30's and 40's, would never have any desire to own an Xbox 360. Even if they did, there would be little content of interest to them on that platform at any price point.
As long as there are casual gamers who simply want to invest time and money in pleasant time-wasters that run on computers they would need to own anyway, there will be apps for them on the social Web-- often with a social dimension that includes virtual items to fight over and enjoy. That will preserve an environment where ad offer providers can at least grant the illusion that users can accept ad offers to keep their real world investment in the game low and economical.
Jeremy Liew of Lightspeed Venture Partners has also weighed in. One interesting point he makes is that offers also tend to lead towards virtual goods purchases. So even if the offer network doesn't stand up--and most anecdotal evidence from talking to publishers says it is for now--it can also be a gateway to directly monetizing users.
Good post, VGN! You're right to point out that there's much more value to the consumer than just what the virtual currency is worth in real dollars. If they wanted to pay for the currency directly they have plenty of options (http://tinyurl.com/cv8h4d), but we let them get v.c. for free (by taking soft offers like surveys) or in exchange for buying something or subscribing to something they were interested in anyway.
The key is in targeting the right user with the right ads, something our algorithms are getting better and better at with every transaction they see.
Still, you're also right that it is more important than ever for the industry as a whole and particular companies like ours to take the steps necessary to delivery high lead quality. Thanks, Anu
Posted by: Anu Shukla | April 17, 2009 at 06:33 PM