Last week saw an unusual burst of acquisition activity among Web companies. Yahoo bought email add-on Xoopit for about $20 million, Nokia bought social address book provider Cellity, and overshadowing them all was Amazon’s $928 million purchase of Zappos.
But the week started off with another acquisition which quickly got lost in all the subsequent news. Advertising network Adknowledge bought KITN Media for its flagship virtual currency product, Super Rewards. The acquisition price was undisclosed, but Eric Eldon at VentureBeat noted that the rumored price was $30 million (he also noted that AdKnowledge disputed that number as “patently inaccurate.”)
I heard the same number the night before the acquisition was announced. It was being floated by one of AdKnowledge’s competitors. When I asked Adknowledge and Super Rewards about it, they gave me the same line: that it “was incorrect and it would be a material misrepresentation of the transaction.” I dug around a little more and found out that the price was actually more than $30 million. A source with direct knowledge of the deal told me that it was closer to $50 million. When I ran this new number by Adknowledge CEO Scott Lynn, he wouldn’t confirm it. But he didn’t deny it either like he did the earlier figure.
How does a company most people have never heard get a $50 million exit? Super Rewards started in the back room of KITN Media founder Jason Bailey’s house three years ago with a single computer and no funding. Within six months, it had made its first $1 million in revenues and was profitable. Today, its annual revenues are more than ten times that size.
Super Rewards helps grease the wheels of the virtual economy on social networks and gaming sites by offering app developers an easy way to convert their virtual currency into real cash or advertising subsidies. Super Rewards provides a white-label virtual currency system to more than 1,000 apps and games (such as Mob Wars) on Facebook, Hi5, Bebo, Tagged, and other social networks.
But the real action is in the ad sponsorship model, and is the reason AdKnowledge bought the service. Super Rewards connects those 1,000 app developers with 4,000 advertisers. While many players pay directly for the virtual currency to advance in games, buy better gear, or obtain virtual goods, the majority accept virtual currency from advertising sponsors in return for signing up for a product or filling out a form. For instance, Netflix might offer $$20 in virtual currency for someone to sign up to Netflix. For the consumer, it is an even swap. They still pay $20, but they get the virtual currency for free. Netflix ends up paying $25, with Super Rewards pocketing the difference and Netflix chalks it up to customer acquisition costs.
What is happening is that the advertisers are subsidizing the virtual currency and converting it to real cash for app developers (and Super Rewards). In other words, they are effectively paying lead generation fees directly to consumers in the virtual currency of their choice. Super Reward’s biggest competitor is Offerpal, and it is doing the same thing.
At a time when conventional ads on social networks still aren’t hitting the mark, virtual currency is a small, but quickly growing, bright spot. Industry estimates peg the size of the virtual currency economy coursing through social networks at $100 million last year, going to $600 million this year. Adknowledge believes the size of the overall market will be several billion dollars within a few years. And it is not just social networks. Mobile apps on the iPhone and elsewhere are going to tap into virtual currency as well. If Super Rewards can maintain a 20 percent margin and remain one of the top virtual currency platforms, that $50 million price is going to look like a bargain.
Looks like a great deal for AdKnowledge.
We build iPhone applications and feel that there is still a huge gap in the market for mobile reward systems as they have to be tailored for the small screen but if these companies can solve that problem, an even bigger market might just open up.
Hi, SR already have an offer to use on the iphone….we’re just putting it into our new iphone app after using them successfully on Facebook since they started. They’re a good crowd, you should give them a shout if you haven’t already explored this as an option
chickenhole makes good.
Our company, Kontagent, a social games/app analytics company operates with a number of SuperRewards customers. So we’ve obviously been tracking the deal and its related events quite closely.
One thing that strikes me as being interesting is the price in relation to Offerpal’s last round valuation. Which is multiple times larger than the sale price (unconfirmed, but has raised $20M already), regardless of the $30M or $50M number. Esp. given that both companies are doing the same ballpark in revenues (i.e. much less than 4x delta).
Eitherway, the space is facing a ton of competition, which is healthy for a growing space, but most in the social-game/app space suspect the margins are going to diminish over time as well (as smaller/aggressive players like Gambit come to the table) — and as first party (facebook and myspace) systems come online.
All that being said, Offerpal is a smart company — with a large market — and tons funding. Jason and Adam are crew are great guys, and IMO: they have found a great time to join forces with a larger company (just as Cubics had) to fend off the competition and scale up.
Another thing that’s missing in the above is that, no one has ever heard of OfferPal partly because its not in the valley (or in the US) — it was founded in Canada.
Go Canada! =)
Offerpal is based in Fremont, CA.
You must have meant Super Rewards.
Yep, my bad. I meant SuperRewards = Canadian.
Offerpal and SuperRewards are a house of cards. Congrats to the founders for seeing the writing on the wall and cashing out.
If you let people earn “coins” by completing insurance quotes and signing up for stuff they don’t want, do you think the quality to the advertiser is good?
One word:NO.
We were an advertiser and 100% of the customers we got from SuperRewards and OfferPal were fake. Our conversion rate was 0%.
It’s no different than paying customers to click on Google ads. Sure it will make short term money…but then Google will wake up.
The house of cards is a fairly moderate term. They are pure Ponzi scam and outright click fraud, man. You are so PC.
You guys don’t understand how this works. There is real money there. if a user completes an offer, a bounty if paid in cash. Essentially is cost per acquisition ads that are paid one step first via virtual currency. At some rate those users are not valuable, but that is discounted in the bounty.
Scott’s right — there’s plenty of CPA offers out there and plenty of consumers to hook them up with. Companies like Offerpal in particular, with their targeting technologies, are able to match the right offer to the right consumer, so lead quality is better than you might think. This is a far cry from the “free ipod” offers of years past. These guys are way too smart for that.
Something must be wrong if they sold that cheaply and your telling us they a making decent money.
I never quite understood how this was anything but a new twist on the “free ipod” “free wii” and other incentive offers that have plagued the net for the last decade or so.
They’re great out of the gate but eventually the user or the advertiser ends up seeing the value being delivered approaches zero with each passing day.
Companies like Netflix have been with SuperRewards/Offerpal for a long time. Eventually all the idiots in the world have done all the offers, but for now it must convert for some advertisers.
Wow that is a ballsy purchase. I don’t think Super Rewards be able to compete with Facebook’s Virtual Currency.
I hear there was significant earn out associated with this deal.
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I think this has legs…lead gen not as much but actual acquisition, CPA is the best form we all know. Foursquare offers social reward for visiting services, what if you replace this with a monetary reward…e.g if you go to a service and buy a good then you get virtual currency in return..for a customer acquisition price of lets say $2 the service recieves a paying customer..the only thing is that the currency has to be valuable enough for this to be an incentive…facebooks virtual currency I would say atm is in the best position to do something like this! CPA is where its at!
I read Garbaksh “G” Chahal has been working on something similar to Super Awards a new “start- up”.
Funny how people get their stories wrong. Especially TechCrunch. I was at a meeting when SuperRewards was being launched, and it was through Millnic Media. How does a story get twisted with no facts being checked. Why would Chickenhole say he started it with 1 computer in his home when I spoke with him in Vancouver and he actually was touting the whole thing as a Millnic Media program which he was part-owner of.
Just strange the valuations keep jumping, of course the adknowledge do not want to announce the amount, speculation makes them feel like they spent a lot of money and keeps the others wondering.
1pc in his home and 1 employee?
http://www.gete...k-monetization/ is all the proof you bandwagon jumpers need.
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