As you know, gWallet recently entered the virtual currency space, and I’m extremely bullish about our entry in this industry. Just yesterday, one of our users bought $1200 worth of digital goods. Five years ago, no one would have ever predicted that someone would buy $5 worth of in-game currency.
That said, last week was a trying one for the virtual goods industry. First, Anu Shukla of Offerpal and Michael Arrington in this video mixed it up at the Virtual Goods Summit, and then Arrington published several articles exposing the sleazier side of the offer industry.
To us, this disruption is exciting. We entered this space because of its phenomenal growth potential, but we were also attracted by the relative lack of sophistication of our competition. Like all businesses, the offer marketplace revolves around supply and demand. (Supply is applications and virtual worlds that support virtual currency, and demand equals advertisers.) We excel at working with advertisers; we proved this at both ClickAgents (acquired by ValueClick in 2000 for $40 milion) and BlueLithium (acquired by Yahoo in 2007 for $300 million).
When we took a look at the offer business, however, we immediately realized that the demand side of this business is broken. No one is working directly with advertisers to help them understand and appreciate the value of this marketplace. Michael Arrington did a great thing by exposing the weaknesses associated with this model, and his words are starting to wake people up.
Last week I was on a panel at the 80/20 conference with some of my competitors, and I outlined what I think is broken in the industry and how we plan on fixing it.
Here are some of the points I made:
· In order for a marketplace to work, supply and demand need to operate in synch. In the offer business, all of my competitors are sourcing advertisers through affiliate networks. Most of these affiliate networks don’t offer any transparency to the advertiser: the advertiser often doesn’t know where its inventory is appearing, since it’s blended with traffic from other sites. It’s like adding water to soup; it may be palatable, but it’s not as nutritious as the real thing. To be successful, a company like ours needs to work directly with advertisers and agencies and implement tracking that can deliver the best ROI possible. You can’t do this by just rotating affiliate links.
· Over the last ten years, we’ve developed long-lasting relationships with major brands like GM and Anheuser-Busch. That’s why we’ve walked away from many of the shady offers our competitors are working. Over the long-term, you can’t make money by deceiving both consumers and advertisers. It’s just bad karma, and sooner or later, it will bite you in the ass. We’re introducing large advertisers and agencies into this vertical, and to our surprise, none of our competitors have even approached them. It just reminds me how unsophisticated this industry is and why we’re so excited to fix it.
· This system is not good for publishers, either. Sooner or later, when our competitors shun shady offers, there will be a huge price correction in this space. Some developers who are making upwards of $10,000 a day in revenue are in for a rude shock. The funny thing is, many of them already know this. The big players realize that they can’t go public with this kind of suspect revenue, and they are taking aggressive steps to remedy the problem. We applaud companies like Zynga that are saying no to offer scams. It will take longer for smaller players to realize that the high eCPMS to which they have become addicted are ultimately bad for business, but they will realize it soon enough.
· Bringing large brands and agencies into this space requires an extensive amount of education. You have to teach these players how to create value; you have to create specific social media offers that are different from traditional advertising or affiliate network buys. For example, for subscription-based advertisers, we’re designing offers right now in which advertisers pay $X for a new user, and if that user subscribes to their product for Month 2 or Month 3, they receive a residual bounty.
· Technology is not just talk; it is the underlying asset that enables both supply and demand to work in synch. Right now, our competitors are almost openly dismissive about the importance of technology. At the 80/20 conference, for example, the largest competitor in our space declared that “they don’t optimize; they just outperform.” Translation: “Meaning, we have no technology but we’re doing something cosmetic.” If you’re a company like Zynga, is this really the answer you want to hear? This kind of approach provides no scale, long-term sustainability, or value; it’s just a bunch of hand-waving. We’ve learned how important technology is based on my prior two ventures in the ad network space, where technology was the cornerstone to our success.
· We love developers in this space. It’s amazing how social gaming has changed the fundamental business model of a gaming company. And it’s only going to get bigger when the right monetization engine is in place for this marketplace.
I’m a strong believer that the right player with the right platform can create substantial value inside this ecosystem. I remember when I started ClickAgents. We were probably the 30th ad network to enter the market, but just two years later, we had carved out a leadership role in the marketplace. When I started BlueLithium, we may have been the 300th ad network, but three and a half years later, we proved that through data and analytics, a startup can create tremendous value.
In conclusion I want to apologize to Michael Arrington for Anu Shukla’s response to his question during her panel discussion at Virtual Goods Summit. When someone challenges you about a legitimate industry issue, you shouldn’t need to resort to verbal abuse or profanity; you should address them in a way that proves your model through logic and reason. Anytime someone uses vulgarity, it shows that you’d rather use noise to make your statement speak louder than your reason. So for that, I’m sorry, Michael, but thank you for waking this industry up.
Tags: advertiser, anu shukla, demand, gwallet, michael arrington, offerpal, platform, state of the industry, supply, techcrunch, virtual currency, virtual goods
November 3rd, 2009 at 6:54 pm
I agree, I’ve been preaching the same idea for the last year on putting some type of better tracking/quality assessment for the advertisers on the affiliate network. Looking forward to this.
November 3rd, 2009 at 6:58 pm
Great post Gurbaksh! I agree with your point on the fact that advertisers will need to be able to see transparency, in order to attract tier 1 brands into the space. As of now, most users are being taken advantage of with the shady offers and they are quickly becoming more publicized. The goal with offers is to create a mutual “win-win” situation for the user, where they would receive a virtual product for completing an offer that would also be beneficial to them.
I also believe that as you mentioned, a strong technological value proposition is key to entering the market and then beating out the competition. As of now, the different networks that offer virtual goods platforms are really the same technology with a different label. The virtual goods industry seems to have a shaky and indecisive road ahead. Good luck!
November 3rd, 2009 at 10:09 pm
Mr GC looks like you got your work cut out for you.
Social media is incredibly difficult to
monetize as the way to making coin online is to bring targeted traffic. That simple principle is one small reason why blue lithium was a hit, ads targeted to what users want, the same way with adsense, targeted ads. But virtual goods for social media? Establishing quality and tracking that also converts (emphasis on convert)?
You will find out as I have that social media simply does not convert..which is why some developers have to “trick” people to signing up. 1/2 million people playing an aquarium app are not looking to buy anything.
I look foward to seeing what your team comes up with, there is definetly an opportunity.
November 3rd, 2009 at 10:47 pm
I really look forward to what you come up with as well because its an industry I’ve yet to research at all.
I’ve seen virtual goods on facebook for holidays, etc.. but would never have thought it could become an industry in and of itself.
Good luck moving forward
November 4th, 2009 at 5:15 pm
Social comments and analytics for this post…
This post was mentioned on Twitter by gwalletcorp: gWallet: The State of the Industry. http://blog.chahal.com/?p=81…
November 4th, 2009 at 7:31 pm
Connecting Automotive Manufacturer’s and their Dealers with players driving their “virtual” cars will be on the horizon. Take a new “virtual” car out for a spin with information on current offers in their local market to purchase the car and coupon or offer tied to the ad? Amazing. Getting the Lexus ISF into your virtual Game Garage by filling out a survey tied the brand? What enthusiast wouldn’t? Buy in at the dealer level will be tough but a progressive manufacturer like Ford who has embraced Social Media will likely be an early adopter. The impressions alone are reasons for major advertisers or brand to consider the vertical.
November 6th, 2009 at 9:46 pm
Hi would it be possible to change the dark background of your website to white? Its extremely difficult to read.
Thank you,
November 8th, 2009 at 1:27 pm
Great Post … this is so inpsiring on so many levels. I have always truly believed that “risk taking” is the only way one can really test themselves and move froward in all aspects of my life — otherwise life is just a boring smootly paved road going nowhere
Warm Regards,
Sophia, Toronto
November 11th, 2009 at 9:02 am
[...] September 30, 2009 The huge furore over the hype generated by the Arrington/ Shukla saga seems to be dying down and there’s some good commentary from well respected bloggers Andrew Chen and Jay Weintraub who have decided not to jump on the Techcrunch driven bandwagon that’s been driving through town. From the dust that’s settling, Weintraub highlights “better offers” as a way of . This is backed up by Gurbash Chahal of gWallet on his blog. [...]
November 13th, 2009 at 3:10 am
All i want to say is i admire all your accomplishment… and you are a real inspiration not to only me but to my entire friends… and this may sound weird but you are damn HOT…
November 30th, 2009 at 11:31 am
i am your fans.. how do you think if you buy my company to use your self?please pm me..
December 2nd, 2009 at 6:11 am
Congratulations “G”, on your venture capital investment. I have been inspired by your internet adventures and have personally launched my start-up ViaLynx – Business Social Network and I would like to ask you if you have any advice for us on how you can best raise capital from VC’s especially when it come’s how to convincing them to invest in your company?
December 5th, 2009 at 1:22 pm
Hey Gurbaksh, I am eagerly waiting for your new book, infact I placed pre-order today on Barnes and Noble site.
Looking forward to read it.
Dhillon
Boston MA
December 16th, 2009 at 9:58 am
Wow, your accomplishment is so great. Good Luck and admire your job
January 1st, 2010 at 2:30 am
Hello, Happy New Year. I’m your audience. By reading your book, let me have a deeper understanding of you, I like your style of doing things. I have recently also trying to establish an own company, but I do not have much start-up capital. Can you give me some good advice? Thanks
January 19th, 2010 at 6:15 am
Good going Gurbaksh. Found you on almost all networking sites like, facebook, twitter, linkedin, etc. Proud of you as an Indian. Good luck for all your future endevours. Btw, this pic on blog…is really nice.
January 23rd, 2010 at 8:48 pm
loved your interview with oprah…
your a real inspiration:)
January 27th, 2010 at 7:06 am
Hey G, loved everything you’re done so far. I am proud to be an Indian knowing what you’ve achieved in your life. Watched the episode of the secret millionaire and it brought tears to my eye. As you say giving is better than receiving because when we leave earth we leave with nothing.
February 10th, 2010 at 12:06 am
G,
Great analysis. You hit the nail on its head – “its all about execution” You don’t need to be the first one but simply the best one. Friendster was the first social network not Facebook. Myspace was huge when facebook had barely begun. Where are they now ?
Here are some of my thoughts:
You mention the need for equilibrium between supply and demand. And that today’s companies are nowhere close to the level of optimization possible with existing technologies, so bring about that equilibrium. I agree.
Differentiation at a level granular enough to match an advertiser/company’s core product/service metrics is key. Currently its a “rat race” for “market share”. The incumbent players are not using technology as an optimizer. They see technology in a simplistic sense, perhaps an enabler, possibly something that could even be outsourced. Wrong! Technology needs to be designed and built from scratch to optimize the channels. To increase the efficiency of the monetization engine technology needs to be able to parse, analyze and produce results in real-time. Again the core components of building such technology exist today but none of the players are utilizing them.
The one important issue that you should consider is payments. Making an online payment is the only authentic confirmation of identity of the user. More importantly aggregating payment information intelligently can provide a goldmine of data to exponentially increase the optimization between supply and demand. Imagine if I know someone bought virtual currency for $X. In addition if I know the “physical goods” they bought e.g. a pair of shoes, a white shirt, a monthly subscription to a specific gym I could triangulate to come up with a remarkably close profile of the consumer and maximize the value for advertiser. Trouble is VISA/MC don’t do this. Their infrastructure does not permit it and they are not going to change their infrastructure because they are a monopoly and don’t need to.
That’s why having a payment system that can aggregate and supply information in real-time would be a killer addition to your play. That’s what we are building at Noca.