Today’s digital natives are the beta testers of a new era in which the internet will touch almost all areas of social life. Digital natives are users who have come of age on the web and indulge in a wide array of digital versions of lifestyle activities. For example, the discovery and production of content, sharing thoughts and emotions, and last but not least, shopping and consuming online.
For digital natives, the internet as a medium has replaced more and more areas of traditional communication, entertainment and service. Many digital natives expect all of these great things to come for free – it’s the internet after all, right? This mindset is the core of the problem. While premium editorial content can still be published for free through advertising, an increasing number of digital services need much higher monetisation rates to remain viable business models.
In this context, the freemium model for the monetisation of digital content and services is likely to gain more and more momentum – driven by user demand, but also because it is a clever marketing strategy. Companies like Skype, Zynga and Spotify are offering state of the art services for free and often with unlimited usage. The set of free features, be it video-calls, games or music-streaming, is more than sufficient to test the product, discover its value and create loyal spokespeople. Engaged users will at some point want to discover the even more attractive premium features of their favorite products, and a certain percentage of them will even consider paying for them.
Introducing reward advertising as an alternative payment method
Of the subset of users who want a premium version, only a small percentage will ever make the jump to take out their credit card and pay in cash. In social games for example, most users can’t justify paying real money for virtual items or game progress. The solution can be simple – let’s provide these users with an incentivised offer that allows them to earn the premium features they want for free. The incentivised action can be anything, for example: watching a promotional video for a new product, completing a survey about their interests, registration for a service or an actual purchase of the advertised product.
Many users are eager adopters of reward advertising that allows them to receive in-game items, virtual currency or premium features as a reward for their engagement or purchase. The reason this works so well is because the digital natives are receptive to buying from their favorite brands, becoming a member of a hip new shopping club, downloading the latest smartphone apps or watching video-clips about trending topics.
The business model behind reward advertising is straight-forward performance advertising. Advertisers determine the value of a desired user action (e.g. sign up, buy a product, perform a series of steps), and only pay out to freemium publishers when the desired action is complete. This payment to the publisher provides the ecosystem for the alternative payment of the user’s premium features or virtual currency.
Why reward advertising is a significant new channel for advertisers
Two mega trends are shaking the advertising world. The eyeballs of users are shifting more and more towards social activities on the web (19% of time spend online in 2011, up to 22% in 20121), and apps on smartphones and tablet PCs are creating “walled gardens”, which are disrupting the traditional user journey and diminishing the impact of traditional performance advertising. Because of this, new rules apply:
- Advertisers must chase their target demographic and accurately advertise where they are spending time on the internet
- In the social sphere, conventional performance advertising channels no longer work
- Incentives have become a key ingredient that makes users accept advertising during their favorite social media activities
The following reasons further illustrate the growing need for advertisers to embrace reward advertising as a new channel in the performance marketing landscape:
Reason 1: “Walled gardens” reduce diversity
Behemoth platforms like Facebook, Google, Amazon and a handful of apps on smartphones and tablets make up the majority of time spent online for a lot of users. E-Commerce platforms are the prime example of a walled garden environment. They lock-in customers by maximising the added value of the shopping and shipping experience and minimising the need to search for products elsewhere. If other advertisers outside the circle of behemoths want to be in front of potential customers, they need to constantly increase the number of touch points and impulse purchase opportunities with users on the web, especially in the growing social media sphere.
Reason 2: Pull-focused performance advertising doesn’t create demand
Most of the performance advertising disciplines are based on existing purchase intent. Traditional voucher, cash-back, price comparison, paid search, shopping blogs and retargeting players attempt to influence consumers who already want to buy something. In marketing terms, the exposure and competition in the lower part of the marketing funnel is at its maximum. On the other side, upper funnel advertising to create awareness, impulse purchases and user engagement with brands is scarce in performance advertising, and needs more diversity than banner advertising on news portals and YouTube pre-rolls provide. Reward advertising and its interactive solutions can enrich the upper funnel deficit significantly.
Reason 3: Social media advertising needs to be push-advertising
Users spend an increasing amount of their online time immersed in social media, but conventional performance advertising simply does not work here. Users are unreceptive and the resulting response metrics are low. A simple analogy: When you’re in a shopping mall, you are likely to welcome advertising or purchase advice to guide your buying decision. When you’re in a pub with some friends, you are much less receptive to any kind of advertising, and you might even feel put-off or annoyed by it. Where traditional ads fall flat, reward advertising is actually embraced by many users because the reward enhances their social media or digital entertainment experience.
Conclusion – Reward advertising is the next frontier
Reward advertising has emerged as a unique opportunity for advertisers who want to reach and engage their potential consumers in the ever growing social media channel.
With the correct application, reward advertising can be a holistic enhancement for the entire marketing funnel. It can raise interest and awareness, engage users and lead them straight to desired actions and purchase decisions. In contrast to the fragmented user journey in conventional pull-advertising, where there is plenty of noise along the way, reward advertising is push-advertising and compresses the scattered marketing funnel into a linear brand engagement experience.
The results that advertisers have seen with reward advertising have provided measurable positive branding effects and buying impulses for the target demographic and yield better incremental revenue compared to all conventional performance advertising channels.