Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Adknowledge Buys Smart Rewards: Will Virtual Cash Reinvent Online Ads?

Posted by Tom Foremski - July 22, 2009

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Adknowledge, the largest online advertising network, today acquired Super Rewards, a fast growing startup that uses virtual cash to engage people with advertisers. The value of the deal was not disclosed.

"I'm very excited about the promise of virtual cash," Brett Brewer, president of Adknowledge, told SVW. " We wanted to acquire the leader in this space because we think that growth is going to be very fast. And we can scale the Super Rewards technology across our entire business. We also have offices in many countries and can bring in country specific advertisers."

Mr Brewer said that Adknowledge annual revenues are about $250 million. But display advertising is becoming less effective. "We think virtual cash is going to be very big. Instead of bombarding consumers with more ads, Super Rewards allows people to engage with advertisers, it gives people a choice."

Virtual cash is a big business in the online gaming world and it is now also being used in social networking sites.

Super Rewards pays people in virtual currencies of their choice in return for specific tasks such as if they sign up for a Netflix account or apply for an insurance quote.

Super Rewards buys the virtual currencies and in turn is paid by companies as part of regular affiliate sales commision. It makes its money on the difference between the money it earns from the affiliate sales and the cost of the virtual cash.

Affiliate marketing was initially popularized by Amazon, which pays a percentage of sales to "associates" who bring in customers. Super Rewards has affiliate sales relationships with about 4,000 companies.

Mr Brewer sees applications for virtual cash beyond gaming and social network sites. Virtual cash could be used by newspapers. "I've spoken with some newspaper groups and they are very open to exploring this market."

Mr Brewer says Adknowledge has relationships with large advertisers such as Dell, and Expedia. And that they are interested in virtual currencies.

Mr Brewer is the co-founder of Intermix Media, which created MySpace.

[Please see: There's Real Gold In Virtual Cash - Is This A Solution For Newspapers? - SiliconValleyWatcher]

Foremski's Take:

It's interesting to see the online advertising industry seeking new ways of making money. It's an admission that traditional online advertising is becoming less and less effective.

Virtual cash is one of the potential solutions and the use of virtual cash can be extended to many new markets.

Earlier this year I interviewed Jason Bailey the CEO of Super Rewards. I pointed out that virtual cash could be used by newspapers as a surrogate micro-payments system for online content. For example, local advertisers could pay readers with virtual cash in exchange for viewing ads or filling out a survey. A local furniture store might offer virtual cash to readers of the "Home" section of a newspaper.

And newspapers could use virtual cash to pay for reader generated content. Newspapers could create a real economy around trading news services and content. This is a much more engaging business model than selling an ad - a marketing message sitting inside a box - easy to ignore and increasingly ineffective.

In terms of wider advertising opportunities, the Super Rewards technology could be used by larger brands. However, it is not clear if there is a broad demographic appeal for virtual currencies.

There is also a mismatch in the motivation of people wanting to acquire virtual cash versus wanting a Netflix subscription or an insurance quote. The quality of the leads is likely to be poor and cancellation of services is probably going to be at a higher than normal level.

However, this is a rapidly growing sector and we are in the early stages of the build out of virtual economies in different market sectors.

Adknowledge has made a savvy acquisition and pulled ahead of other ad networks in pioneering a new business model. It is well positioned to discover how this virtual currency market will develop and what are the most effective advertising strategies. And its large size will help to accelerate the educational process needed within the slow-to-change advertising business.

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