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Think Big. Move Fast.

Inside Facebook reports 35% quarter on quarter growth for social media payment provider platforms. Incentives social network offer platforms such as Offerpal, $uperRewards, Gambit and the like have enabled the phenomonal revenue growth in social games. Payments has always been the friction point for free to play games in the US, and these platforms significantly increase players ability to pay for virtual goods.

The future is bright for these platforms, but there are some clouds on the horixon. Andrew Chen’s blog has a terrific guest post from Jay Weintraub on the likely future of the incentivized social payment platforms. If you’re building games or otherwise monetizing virtual goods and using one of these platforms, go read this post and come back.

Jay points out that incentive marketing has been around a long time, and follows boom and bust cycles where initial advertiser enthusiasm for a new source of leads is dampened when lead quality ends up being poor. I agree with his prognosis that revenue through this channel will come under some pressure in the future but will not go away. Some points worth noting:

1. Because many of the leads are being filtered through at least one intermediary and mixed in with other lead sources, it will take a while before the advertisers figure out what these leads are really worth, so pricing should hold up for a couple of quarters yet.

2. Unlike the free ipod model, the value of the payoff has been reduced by 1-2 orders of magnitude, so far less actions need to be completed (usually only one) before a user gets a payoff. As a result there will be vastly less breakage and vastly fewer unhappy users, [so long as the offers are adequately explained] so the risk of state and federal investigation is much lower this time around.

3. There is a roughly 50:50 split for the payments platforms today between direct payments and offers. Even if the value of offers were to fall in half, this would still mean that revenues would hold up at the 75% level

4. Offers are the gateway drug towards virtual goods purchase. Typical new players split 30:70 direct payments to offers, but hard core players split 70:30. As a result, game publishers will have an incentive to support offers even if margins drop as it teaches players to pay for goods.

What do you think?

  • http://flarb.com Ralph Barbagallo

    I don’t see why app developers should rely on only one monetization method anyway. You have to be flexible in how you allow users to consume your content. If your entire business model is based on one revenue source / payment method you’re asking for trouble.

    Perhaps they have a strategic reason for not doing so, but I’m wondering when Facebook will drop the bomb in the form of a micropayment API that will banish all these social payment platforms to 2nd stringer status.

  • http://www.offerpalmedia.com Anu Shukla

    Jeremy,

    Great post. Thanks for your analysis. You and Jay are right in that offer platforms like ours face some challenges in managing lead quality. And Jay hit the nail on the head by saying a continued emphasis on the one-to-one nature of our targeting optimization, along with added accountability, are both key to improving lead quality. We already have several mechanisms in place that greatly help, such as data validation, fraud prevention, and strict end-user terms that allow us to ban (and revoke the currency from) users who are simply trying to game the system. We’re currently working with a large number of advertisers directly, and the feedback we get from them is that these mechanisms are working. But we’re not done yet. We’ll soon be making major product announcements on more ways we’re helping manage lead quality. In the long run, we believe that the technology and infrastructure we’re building, along with the high engagement of consumers on these social apps and web sites, will ultimately prove the value of the channel.

  • http://lsvp.wordpress.com jeremyliew

    Anu,

    There is no doubt in my mind in the value of the channel. It sounds like we both agree that lead quality is a challenge which is being addressed but that there may be long term pressure on pricing if leads turn out not to be as high quality as from some other channels.

  • http://www.simplelifeforms.com Alan O’Dea

    Great post and follow on analysis. I have been looking a lot at the offer based ad systems as a revenue contributor for social games.
    There is no doubt it’s presently a valuable channel and I agree with Jeremy’s assessment that it will remain viable and profitable for a while yet. The other side of the argument we’ve been having ourselves as a social game publisher and to our minds the more important question is the whole area of customer perception and product quality that is implied by using offer based advertising within a game product.

    The major games companies on the large social networks have for the most part lacked any way near the levels of quality and involved gameplay that exist in any other game platforms (even casual and flash games). There is presently little consumer effect in terms of perceived quality between the low quality game such as the many x-wars style games (Mob Wars, Mafia Wars etc) and using offers in those games.

    As you start to see new market entrants and I’d use Playfish as an example here bring a substantially higher quality portfolio of products into the market the need and more importantly the desire by game publishers to monetise using offer based advertising diminishes or entirely disappears. In short Playfish don’t use offers because they don’t’ need to. They also don’t want to let their brands get saturated by third party offers.

    Now this doesn’t means that all games publishers won’t still use offers, Zynga and Playdom and others won’t be dropping these lucrative forms of revenue from their product portfolios anytime soon. You might, however see a move for some game publishers to create games that will purposefully not use these offers as part of their business models or revenue streams.

    So I would argue that whilst social game publishers are using these formats now and seeing value and returns there is a time when some game publishers will choose not to use or see any value in using these formats.

    Maybe a good question then is will this group be the majority of game publishers or the minority.

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  • http://www.ellowcn.com/ Elcoj

    Super post, Need to mark it on Digg
    Thank you

  • http://blog.shpyo.net shpyo

    Bad link to “35% quarter on quarter growth for social media payment provider platforms.” ;)

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