Incentive Promotion: Crossing the Chasm – Part 2

In the past we’ve written, probably more than any other publication, about various forms of incentivized marketing. It’s an amazing business that has had more comebacks than John Elway, and despite the lickin’, keeps on tickin’. incentivized marketing really gained its stride during the last time media inventory experienced a weakness in demand, and while many might not remember the predecessor to today’s incentive promotion, they have a pretty good familiarity with an area that instead of being called incentive promotion is simply referred to as free iPod offers. The challenge with the free iPod space is what we chronicled in Part 1, namely that it relies on setting expectations that rarely get filled, leverages breakage in order to make money, and companies must spend money continuously to make money. Perhaps most importantly, the overall growth in this type of incentivized marketing has ceased, and those still in it have a challenging road ahead. That said, as we mentioned in the conclusion of the previous article, the total dollars being generated from different forms of incentivized marketing couldn’t be greater. It’s time to bring it all together and figure out what has created this unexpected uptick, who is driving this, and more importantly if will it last.

The Trend – Alternate Payment Platforms
If we distill the incentive promotion business, you could argue that it simply presents a way for people to acquire goods using ad dollars and not their dollars. The longer discussion includes flushing out the notion of people not using their own money as so many of the offers users must complete in order to obtain the "iPod" require a monetary transaction. The shorter version says that while it is technically true, people end up getting the incentive promotion for a fraction of the retail amount. The level to which that is true doesn’t take away from the concept, and it’s the notion of allowing users to pay for things in ways they might not have expected that has taken off. The source of the scale is equally unexpected – social media traffic like Facebook and MySpace – not their site traffic but application based traffic. A former direct marketer now venture capitalist described it best. Successful applications facilitate "light touch" communication. They create ways to interact with other people in a generally non-threatening way, the perfect ice breakers, friendship builders, and rivalry creators. In other words, they are also a great time wasters.

Video games are the spiritual predecessor to the most heavily used social media applications, and you will notice many similarities, especially in the structure of the games and how some notion of points for enhanced functionality exists. While it might seem like a good idea to give people want they want, the applications have shown that you make more money by making users earn it. They’ve shown that the impulsiveness that drives people to want an iPod for free also has them willing to participate in offers in order to unlock additional functionality faster. Enter the alternative payment platforms né incentive marketing firms who have created the mechanism where users can earn points for a particular app by completing offers, splitting the ad revenue generated from the offers with the app developers. Here users want something but don’t value it enough to put down their credit card.

The Players
Three players control the vast majority of dollars – OfferPal Media, Super Rewards, and Trial Pay. OfferPal and Super Rewards generate the majority of their revenue through social traffic, although both also have products for merchant solutions, of which Trial Pay is the leader. All of them owe their existence though to the incentive promotion space, as that space educated the advertisers and made commonplace the notion of tracking user action across multiple advertisers and mapping it to a particular goal. None of the the three leaders in the space might not have hit the size of the Useful or ValueClick in 2007, but their growth is astronomical and combined, they easily handle hundreds of millions of dollars in ad revenue, and the growth is not slowing. OfferPal for example has just launched their monetization platform for iPhone developers. And TrialPay has achieved integration with some of the largest online retailers and software distributors. Some of the real players here though are the cpa networks for whom some of these companies have become very large traffic partners.

The Quality
Quality discussions always threaten the value and longevity of the incentive promotion space. Too many customer complaints and too many advertisers with negative experiences have created a stigma around that type of marketing. And while some good customers exist, there tends to be too much noise and a lack of sophistication for most to stick with it, an asterisk on an otherwise amazing industry. Alternate payment platforms, like incentive promotion, still fall under incentivized marketing. The biggest difference is breakage. Alternate payment platforms don’t rely on breakage for revenue, and they can do this by not having to play the arbitrage game for traffic. Even with respect to app-driven traffic, there is a one to one relationship between advertiser and reward, much like the example which kicked off the article – the in-person incentivized marketing on behalf of credit card companies. The platforms have more information about users in advance and can in theory do pro-active filtering to show offers more likely to stick with the users. That doesn’t guarantee good quality though. Intent is not much higher than people wanting a free iPod, but the biggest difference which has thus far helped companies like OfferPal is the reputational risk associated with fraud. If you as a user, who generally invested a good amount of time (playing MobWars for instance) abuse the system, they can get you kicked off. As a result the filtering and accountability help increase quality from low intent. TrialPay who tends to have fewer game publishers and more digital goods publishers faces similar but arguably fewer issues with intent and quality. In this example, users aren’t looking for a product to start the purchase funnel, and only after showing an interest in a premium product do they have an opportunity to avoid using cash. The benefit of this approach is from an advertiser standpoint; they tend to see less churn and probably find it easier to manage direct relationships without having to rely on networks. Those joining through this model should in theory become higher value customers than the gamers.

Regardless of their future, the rise of the alternate payment platforms has shown that incentivized marketing online is more than a passing trend or one only associated with questionable practices. They are unlikely to see the legal trouble that many incentive promotion companies faced. For better or worse, they also represent a bigger barrier to entry so that not every clever marketer can simply enter. Some serious questions still exist. For example:

• will users continue to complete offers that often require a credit card for a new feature?
• Are advertisers happier with the quality or has this segment simply not hit scale?

Easy to ask the questions. Overall, though, we’re pretty bullish. The platforms mimic longstanding offline behavior applied in new ways online, and that usually does well.