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Q&A: Nir Eyal, CEO Of AdNectar, On Virtual Goods In Advertising
AdNectar is one of many digital advertising start-ups, but it’s carved out a unique position in the space: it specializes in creating branded virtual goods campaigns on social networks, primarily Facebook. The campaigns work by placing branded virtual goods into third-party apps, where they can serve as gifts users send to each other or actually become parts of gameplay in game-oriented apps. Last month AdNectar issued an interesting white paper that claimed 20% or higher increases in purchase intent as a result of branded virtual goods campaigns.
“That’s what virtual gifting on social networks is all about, it’s about communication. It’s like a rich media IM or email,” said Nir A., CEO of AdNectar. “So if I can say something to you with a picture or a brand that’s difficult to say with full text, that works. If it’s holiday-related or with a birthday theme, that does well, too. It has to be relevant to the application partner and the users.”
Q. Just to get started, let’s talk a bit about AdNectar’s beginnings. How did the company get started?
A. It started as a class project at the Stanford Business School. We were in a class where you formulate a business and our professor was a partner at Kleiner Perkins. At the end of the class he said he’d consider an investment. So we looked for some VC investment and he closed the round.
Q. Why would somebody put a branded item into a game, voluntarily, as advertisement?
A.: It seemed this form of advertising added value to the user experience, so the motto of the company is “advertising people appreciate.” We think we’re one of the few forms of advertising that users actually like.
Q. Can you talk about some campaigns you’ve done in the past?
A.: We’ve done several campaigns recently. We did a campaign for Godiva chocolates where we gave out 1.2 million virtual Godiva chocolates over Facebook primarily. We’ve done a campaign for Sunkist, we’ve done Method, we’ve done a major motion picture studio. We’ve had very good results. Some other campaigns we did were for Funny or Die and Jelly Belly.
Q. Can you give us a fuller idea of the range of brands you’ve worked with?
A.: We won’t work with every brand. We are the first filter for our publisher. We won’t send them brands that will degrade their site or reduce the value of their sites. At the end of the day users come to publishers to find interesting virtual goods to send along to their friends. If we encourage that behavior, everybody wins. If it languishes, then everybody loses. We only want to work with brands that are adding value.
What’s nice is we can do a lot with these brands. For Method cleaning products, you wouldn’t think people would send that to each other. What you can do is craft the message to be very sendable by adding humor or sexiness. So we took Method’s brand and we crafted their image into something that said, “Clean up your act!” and “Detox Facebook!” So we actually are very surprised by how much you can do.
Q. In general, what kinds of brands are interested in AdNectar’s approach?
A.: I think it’s brands who are not direct responds [sic]. Brands that are looking to build up their brand appeal. They realize there are massive audiences on Facebook and social networks, and they need to be inside the experience and part of the experience. So it’s brands that sell mostly offline.
Q. What kind of virtual gifts does AdNectar use in its campaigns?
A.: We mostly work with social networks. They’ll either be an e-card or e-gift, or they’ll be on an application like Friends For Sale. Properties with a gifting functionality where users send a message from one to the other. They’re all free, we aren’t like say Virtual Greats. We specialize in social networks so they’re free or for points.
Q. What’s the design process like for developing one of your branded virtual goods campaigns?
A.: Our specialty is to work with the application developer, and they have to get at least half a million monthly uniques. Then we’ll bundle them, few of the apps on Facebook are big enough to scale, and then sell them as a big unit to an advertiser who wants to reach 20-30 million monthlies at a time.
We work with the publisher. If they want to be in the network, they have to integrate our API which lets us track viral spread of the virtual good and then we have a system where we pop in the virtual good and then it’ll be deployed through all publishers with the API.
It’s a really automated process where, for the publishers, it’s a huge value add. Right now virtual goods for publishers are kind of a pain. What we’re doing is doing everything for the publisher and paying them. We turn a cost center into a revenue source.
Q. Have some types of branded virtual gift been more successful than others?
A.: It really varies, I can’t draw any similarities. I think it’s just a matter of AdNectar knowing how to craft a brand into a gift. I can’t tell you one type of gift is better than another kind because we’ve seen similar results from completely different industries. It’s about how you package it.
Q. So how do you go about packaging a brand into a virtual gift? What determines quality?
A. I think just putting the product out kind of sucks. If it’s just a bottle of something, it’s stupid. Why would somebody give that? But if you figure out what’s cool about the brand, you make that a message. So instead of a bottle of Method soap, I’d tell you to clean up your act. That’s a message.
Q. How do you determine which apps AdNectar branded virtual goods will appear in?
A.: They have to have some kind of virtual goods component already built in. We don’t do the virtual gifting functionality, it has to be part of their app. Our value to brands is to tell them, “We’ll put you where users already are.” I would tell publishers who were interested to create a base of generic virtual goods, integrate with AdNectar, and then we give you the branded virtual goods.
Q. Have you been able to place goods in Facebook’s own gifting app?
A.: No, we don’t actually place there. They have a very high minimum to get in there. It doesn’t have a lot of the functionality that we get when we work with apps. With apps, the joy is that the app developer can do a lot more. We think just sending a gift is kind of boring. We want to work with publishers where a virtual good is part of gameplay or a messaging system or why people come to the app.
Q. Is there a correlation between type of app and effectiveness of the branded virtual good for users?
A.: Yes, I think the ones who can get users to keep coming back. Mesmo TV, they do a great job of getting users to come back, so their gifts do really well. They’re in huge demand. So we’re looking for publishers who’ve figured out how to make virtual gifting part of their app, and if they make a great app users keep coming back to they’ll be successful with us.
Q. Why do you think the virtual gifts result in better boosts to purchase intent than traditional methods?
A.: We’re pioneering what we call user-generated targeting. We’re finding that when you trust users enough to give them an item to share with their friends and then go hands-off, let them find which of their friends are interested, they do a great job of doing that. That’s what we do in the real world, too. If I love Method soap, I’m going to tell my friend who’s ecologically-minded.
It’s the same thing in the virtual world. If you love a particular virtual item, you’re going to pass it along to people you think are gonna like it. That’s why the targeting is so very specific, and that results in higher purchase intent. We’re targeting the right people.
Q. Are the virtual gifts more effective at boosting purchase intent with particular demographic groups?
A.: It’s interesting. Part of our API is very powerful in that it can tell us demographic spread, and what’s really making waves is that it’s not the groups you would expect. Advertisers tell us they have a specific little niche audience they want to hit, and many times the “wrong group” is more interested.
On the surface it makes us scratch our head, but at the end of the day it’s a huge revelation. We work with a movie product targeting 18-22-year-olds, and then we see a spike in 44-year-olds! That’s great, it tells us we’re finding a demographic group they couldn’t, and I think that will continue to be the case as older users come onto social networks.
Q. Do you see a lot of that—your ads hitting older groups on Facebook?
A.: It actually skews younger because younger people tend to be early adopters. But we do see more older users than we think. Even if it’s a product that skews demographically one side or another, when we had Method that tends to go for more of an older audience, even if the apps are doing that, the apps have a majority of users who are younger. The apps find the right niche for the brand and attach it to those people.
Q. So how is the design process for the virtual gift images handles? Is it In-house?
A.: Sometimes. There’s a creative agency involved. We give specifications and then the creative agency takes over.
Q. What role does the brand play in determining what the goods will be and how they fit into campaigns?
A.: It really depends on the brand. The best campaigns are the oneswhere the brand gives us some creative freedom. We generate up to a dozen or eighteen virtual goods and they’ll check off which ones they like and which ones they don’t, and when we have a list then they go into play.
Q. How long can process take?
A.: We’re a small, nimble company. The delay isn’t usually on our side. That can take awhile depending on if we’re talking to the decision maker. It can take anywhere from 30 days to 90 days.
Q. Is that typical?
A.: For us, we can do it in less than a month. If we have it created and ready to go, technologically, we can deploy immediately.That’s the value we provide to publishers and call them about a month before the campaign launches and they give us yes/no answers. There’s nothing that different about this type of campaign. It does many of the things banner ads do, except a virtual gift unlike a banner ad is virally deployed, so you reach a better audience and deploy it farther.
Q. How important is context to making a branded virtual goods campaign work?
A.: Very, very important. You don’t want to have a brand that’s clearly not part of the user experience or doesn’t make sense. That’s the kind of stuff we’ll screen out for based on looking at the publishers in our network. We want to match the right publishers with the right brands. You can create some pretty terrible brand disasters if you match the wrong publisher to the wrong brand. We’ll look for a demographic fit and contextual fit and then suggest that to the brand. If the brand is trying to reach moms, we won’t put it on a kung-fu app or something.
Q. Is it as important as the good itself, or is it a matter of trying to manage the way consumers interact with the good?
A.: I think they’re probably equally important. The campaign can become ineffective if either of those pieces are missing. If you put the right gift in the wrong context or vice versa, either way it’s going to fail.
Q. AdNectar has seemed very focused on Facebook of the big six social networks right now. Is there any particular reason for this?
A.: Yeah, the API can deploy cross-platform, but we’ve been responsive to what our clients have asked of us, and right now they do want to be on Facebook. We do have other publishers we work with, MyYearbook and mobile sites, but Facebook is the flavor of the day in the advertising world.
Q. Could you see AdNectar’s campaigns working on smaller networks like Hi5, or say on MySpace?
A.: We already do that. We’ve done some cross-platform campaigns. We’re already able to do that, it’s just a matter at the end of the day, the brands that are our clients want Facebook. We cater to what they’re looking for.
Q. Why Facebook specifically?
A.: I think there’s many benefits of working on Facebook. You get a lot of free impressions and there’s areas where the brand can expect its message for relatively cheap. That doesn’t exist for other platforms. It’s also just the one social media property that a lot of brand managers use themselves, as opposed to a game or another property that the person buying the advertising doesn’t use themselves. So they’re looking for what they understand. I think that’s going to change.
Q. How do you think that’s going to change?
A.: To keep it in perspective, it’s all very new and for people who are building apps on social networks, it looks like old news because they’ve been doing it for so long. For the advertising world this is all new and most ad managers don’t have a lot of idea of what’s going on. They’re just starting to figure it out. It’s a slow-moving industry because agencies move between brands and publishers. There’s a lag between where the users are and where the advertisers are and how they approach them. With time as these properties grow out and go to critical scale, you’ll see more advertisers there. This same story happened with cable television.
Q. What kind of time line do you envision for that change? When do you think we’ll see, say, a lot of campaigns on MySpace?
A.: We’re seeing MySpace today with the innovators. I think it’ll be awhile before we see the game aspect really take off, there’s a lot of unanswered questions there. We’ve seen them try their best with the console games, but it’ll be another year and a half, two years before we start seeing approach to that part of the business. It’ll take time and experimenting.
What you see now is that few brands have maintained their experimental budgets, but the ones continuing to innovate will figure this out first. Then when the economy rebounds and everyone else sees it, then the brands will show up. I really believe some day people will say to an ad agency, “Our competitor has a virtual gifting strategy, why don’t we?”
Q. Could you see AdNectar going into the console or PC market?
A.: We haven’t pushed into that are yet. I don’t see why we couldn’t eventually. Right now the advertisers are just asking for social networks so that’s what we built for. That said, I don’t see us getting into console games, but I can see us getting into the online world.
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