Ty Ahmad-Taylor is the founder and CEO of FanFeedr, a real-time personalized sports feed. Previously, he was SVP of Strategy and Product Development at Viacom (NYSE: VIA) and, before that, Comcast (NSDQ: CMCSA). He tweets at @tyahma
If you are a consumer-facing startup pitching to VCs, the conversation is very short if your monetization strategy leads with advertising. It may, in fact, actually be a longer conversation if you simply say you don’t know how you are going to make money (as that argument has worked just fine for some businesses).
But the monetization model of choice these days is neither of those two – it’s based on prestige or achievement. It boils down to creating a venue for users to move upward through some game or exercise and then be able to tout that progress to their social graph. One additional dimension is users being able to see how they stack up against the general public, a concept known as the leaderboard. The achievements can be chips amassed playing online poker, or the number of followers gained on Twitter, or the volume of clicks on a bit.ly link that are shared.
The rise of prestige as a new form of currency has ramifications for businesses facing decline like print or broadcast. (More below on what companies in those spaces can learn from this trend.)
Look no further than the social-gaming industry for proof of what prestige can help deliver. Most sites, unless they have their own ad-sales force or outsource to a high-CPM network, are looking at $1 CPMs – at best. That is $1 for every 1,000 page views, which for a small-to-medium-size site with 1 million page views a month translates into $1,000 of revenue. That probably isn’t enough to keep the lights on.
Then consider Gambit, a small company that provides payment platforms for gaming companies that deal in with virtual currency. In its marketing materials, Gambit promises CPMs up to $400 – which means $400,000 of monthly revenue. While CPMs listed in marketing materials are often somewhat inflated version of reality, Gambit competitors such as Offerpal have publicly guaranteed eCPMs in the range of $100 to $150. That’s enough to cover the cost of lights and probably some other things, too. How can they do this? The prestige factor.
Prestige as it applies to social gaming is pretty simple: You play a game, advance levels in that game or accumulate goods, and then broadcast the advancement your social network (Facebook, Twitter, Hi5). Prestige turns into real money in any one of several ways. Game players are granted some amount of free virtual currency at the start of play. That currency is used to purchase virtual goods or services that allow the player to advance levels. When the user runs out of currency, he/she can replenish it by paying for more currency with a credit card or PayPal account; by taking a survey; by taking a lead-generation offer like a Netflix (NSDQ: NFLX) trial subscription; or by watching videos (gWallet offers this).
Other prestige approaches allow the person at the top of a leaderboard (“mayors” in FourSquare, for example) to get discounts at certain real-world establishments. Others don’t monetize prestige, but use it to drive other business goals like time spent on site, which leads to advertising dollars.
The idea of prestige as a monetization model is new, and it means that a lot of companies (some in social gaming, some in other spaces) are going to become successful without ever needing traditional funding or advertising. (Sure, Zynga may spend 50 percent of its gross on Facebook advertising, but it doesn’t need to do that to make money.) Remember that Internet-based social games, which basically didn’t exist three years ago, will generate $500 million in revenue this year. While few startups have entered the social-gaming space, it doesn’t require a large volume of visitors for such sites to be successful. The reason: Revenue per visitor can be 300 to 500 times larger than the revenue generated by web sites that rely upon advertising.
The power of prestige hit me most recently when someone I follow on Twitter let his followers know that we should be jealous because he had a particular follower of high repute. “Always cool when Mr @DMiliband follows you :)” he wrote. Forget that I didn’t know who Mr. @DMiliband is. The message was clear: I should know him.
You can see many more representations of this phenomenon here.
There are, of course, dangers to relying on prestige as a way to pay the bills. It can, of course, be ephemeral. If the “game” goes out of style, or if your social network gets irritated with the badges, the achievement value is diminished.
But prestige is potentially a big enough driver of revenue that entire traditional media sectors now grasping for some answers might consider making it the center of their reformation. What would that look like?
Take the cable industry. It doesn’t do much to incent viewers to watch shows, but simply badging someone on Facebook for watching all of the episodes of Lost, for example, would not only create a competition among Lost aficionados, but also drive the casual fan to engage with the show on a deeper level. Given that the economics of television (like the economics of any media product) are driven by getting more people to watch/visit more frequently, deeper engagement would drive subscriptions and ad revenue.
News and journalism are a touchier issue, as it’s unclear that a game dynamic around, say, North Korea in a traditional channel like the Wall St. Journal makes much sense. But associated verticals such as finance and sports are, by their nature, inclined to offer game dynamics around outcomes. The finance section of any newspaper could “badge” folks on their ability to predict stock closes, quarterly results, or the next product in the Apple (NSDQ: AAPL) line. The ability to weigh in on these outcomes would be paid for via virtual currency, and when or if that currency runs out, there would be an opportunity for visitors to re-up using real currency.
Entertainment also has a set of subjects (movies released on Friday, music on Tuesday) and a set of outcomes (who topped whom in the box office and sales charts) that lend themselves to this model. For the companies that cover these industries, there is a cottage industry of casually interested people who would be more interested if they could wager on outcomes using virtual currency. For publications like TMZ, or a Variety or US Weekly, the use of virtual-currency payment systems, such as Trial Pay, can help buttress/offset/replace traditional CPM-based advertising in both the publications’ online and offline channels
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