Last week I reported on the very quiet acquistion of Vancouver' KITN Media and their virtual currency product Super Rewards for $30 Million. The deal is a huge feather in Vancouver's tech startup cap but has gone under-the-radar to date. Hopefully that will change now that it is rumored to be a $50 Million cash-out for the Vancouver founders.
So who is Kick In The Nuts Media and Super Rewards?
Any local developers that attended FaceBookCampVancouver in October of 2007 will remember KITN's Founder Jason Bailey. While everyone was getting excited about building FaceBook Apps, Bailey was the ONLY one that was monetizing them and had plenty of advice for his fellow FaceBook fans.
Here's how Super Rewards makes money and why they're worth $50 Million courtesy of TechCrunch's Erick Schonfeld:
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.