http://online.wsj.com/article/SB10001424052702304231204576403403508609600.html
By JENNIFER VALENTINO-DEVRIES
As the number of people playing videogames on smartphones surges, two new companies are touting a way for advertisers to reach the potential customers—without annoying them.
The start-ups, Kiip Inc. and Tap.Me Inc., are moving beyond the familiar mobile banner ads, letting marketers sponsor rewards or extra tools within the game. The idea is that users will then associate the brand with a positive experience.
As the number of people playing videogames on smartphones surges, two new companies are touting a way for advertisers to reach the potential customers-without annoying them. Jen Valentino reports on digits.
When a player on a game that uses Kiip (pronounced "keep") hits a certain milestone, a message pops up saying that the person can also get a real-world reward—like a six-pack of soda free or a coupon for flowers on Mother's Day. The person can redeem the reward then or later, or email it to someone else.
"It's the moment where you feel like you've accomplished something. We match it with something that's branded," said Kiip's 20-year-old founder, Brian Wong.
Kiip uses algorithms to decide when to offer the deals, so weaker players can still get rewards and people won't be conditioned to expect prizes at certain times.
Chicago-based Tap.Me, on the other hand, lets brands sponsor in-game tools and rewards, but only if players choose them. With Tap.Me, advertisers can enter keywords and be matched to suggested tools and games they should sponsor.
For example, a restaurant chain that wants to tout its value menu might sponsor a tool that helps players get coins in the game. Once players choose that tool, the brand can send other rewards, like coupons, to the player's inbox.
Tap.Me signed its first official customer in May with Coinstar Inc.'s Redbox DVD kiosk service. Other brands, including the Wm. Wrigley Jr. Co., are in discussions with the start-up, which is on games with 5.7 million players now, including the popular "Charmed." It expects to reach more than 40 million players by the end of the year. The companies said they were still working out details of what the brands would offer in the games.
Founded about a year ago, Kiip began testing ads on games in April and has handled campaigns from Dr Pepper Snapple Group Inc., beauty product store Sephora USA Inc. and 1-800-Flowers.com Inc., among others. The company, which is based in San Francisco, says it has more than 12 million active players on 15 games.
Kiip is still testing the response to its ads and hasn't yet disclosed the games it is using. Eventually games using the start-up's system will say "Kiip enabled" as a selling point, Mr. Wong said.
Both start-ups are in talks with game makers to get on more games and share a percentage of revenues.
The effort to capture gamers' attention comes as mobile games become a popular pastime. According to measurement firm Nielsen, 74% of people who have Apple Inc.'s iPhone played games on the phone in the past month, and 66% of those with phones running Google Inc.'s Android system had played.
Advertising has long been present in regular videogames, but mostly as "product placement" such as messages that appear on billboards in a driving game. Traditional gamers have balked at seeing any ads at all in expensive console games, but that isn't the case in cheaper mobile apps, said Noah Elkin, a principal analyst at research firm eMarketer.
Also, unlike traditional videogames, mobile games appeal to women as well as men—thus drawing interest from brands that wouldn't have ordinarily advertised in a game. "Casual games are perennially popular especially with women, and you can reach an older audience as well," said Mr. Elkin.
But mobile advertising is still a nascent field. EMarketer estimates that in the U.S., spending on mobile ads will be about $1.1 billion this year, a small number compared with the more than $150 billion expected to be spent on advertising in general.
Mr. Elkin said that the trend on mobile devices is to move beyond banner ads, in an effort to get people to engage more with the advertising. "Most advertisers are still spending the bulk of their display dollars on traditional banners, but if you look at where the steeper growth is, it's at the richer end of the media: video, interactive," he said.
The start-up founders all believe that many people either ignore banner ads or are bothered by them—particularly in games, if they hit an ad by mistake and it takes them to a new screen.
"Something that we discovered very early on was that ads needed to take advantage of the natural game design" and not interrupt the game, said Tap.Me Chief Executive Joshua Hernandez.
"Mobile advertising is growing by leaps and bounds, but the manner in which brands connect to consumers is the real key" when it comes to making mobile advertising successful, said Bob Rupczynski, global director of interactive marketing at Wrigley, which has been in discussions with Tap.Me.
The advertisers evaluating the in-game advertising technology said they hope associating themselves with pleasant parts of the game and offering rewards will provide that connection.
It's still too early to tell whether the strategy will work. Kiip says its tests show that 30% to 50% of people take advantage of the rewards. Likewise, Tap.Me says it's too early to have hard numbers on its effectiveness, although its tests show that users engage with sponsors about 15% of the time.