Contact: Jarrett Streebin
Having already seen massive consolidation within the social games development industry, a related area is beginning to be consolidated: virtual goods. A subset of the social gaming industry, virtual goods are one way that developers make money from popular games. Google recently expanded into this market by buying Jambool. Although it’s the first purchase by a major player, there are bound to be more deals.
This isn’t Google’s first play in payments processing. The search giant stayed in-house back in 2006 when it rolled out Google Checkout. The only problem was that it was already years too late to unseat PayPal’s market dominance. Now, Google knows better than to get ‘PayPal-ed’ in the virtual goods market. With Jambool, Google obtains a social payments processor for social media games known as Social Gold. Although a relatively small player within the market, it has one of the most secure back ends in the business, with a Level 1 PCI security rating. This, along with the fact that it has support for a number of international currencies, makes it a very scalable service. Since Slide Inc, the social games developer recently acquired by Google, isn’t large enough on its own to warrant the purchase, it’s likely that Google will continue to expand the Social Gold offerings to meet outside demand. Additionally, Google may have more social gaming offerings coming that could use the product.
The virtual goods industry has been on shaky footing lately. Ever since Facebook announced Facebook Credits, which threatens to make all virtual goods companies obsolete on that platform, many of the companies have been scrambling to diversify away from the social media giant. As of yet, Facebook hasn’t made its Credits mandatory, so there’s still room for other players. But with RockYou, Playdom and Zynga all having signed exclusivity deals, it’s likely that we’ll soon see Facebook Credits used across the board.
One company that has diversified beyond Facebook is PlaySpan, which has a broad range of products that cover many areas of virtual goods monetization. The Santa Clara, California-based startup just received another $18m in funding, on top of approximately $20m. The firm could very well become the PayPal for virtual goods. If it does succeed in that, we wouldn’t at all be surprised to see PlaySpan also get picked up by eBay, which acquired PayPal in 2002. (We’ll have more in an upcoming Sector IQ on virtual goods.)
-Contact Thomas Rasmussen
Rumors of the sale of Super Rewards (also known as SR Points) have been swirling for quite some time. On Wednesday, acquisitive Adknowledge announced that it is indeed the winning bidder in a competitive sales process for Vancouver-based Super Rewards, a bootstrapped, 40-person incentives-based online advertising startup. (We understand that Super Rewards is profitable and generating approximately $60m in gross revenue – a number the firm says could hit as much as $100m this year. Of course, the company’s net revenue is much lower, likely in the neighborhood of one-fourth the gross amount after revenue share.) The purchase of Super Rewards marks the sixth acquisition for Adknowledge in less than two years, and we estimate this transaction is by far its largest yet. The deal also marks a shift in the M&A strategy of the Kansas City, Missouri-based online advertising giant, which has typically been more inclined to pick up heavily discounted distressed assets.
Nonetheless, Adknowledge, which we estimate was running profitably on close to $200m in revenue prior to the acquisition, has made a smart purchase in reaching for Super Rewards. Incentives-based advertising companies like Super Rewards have received quite a bit of attention recently because they seem to have found a way to actually make money off of social networks. (The fundamental business principle of profitability has largely eluded the social networks themselves.) Much like other online advertising niches, it is a sector that stands as a small, faster-growing piece of a much larger overall market. But in order to reach their full potential, incentives-based advertising vendors need the scale brought by established and wealthy companies like Adknowledge, which boasts more than 50,0000 advertisers. Because of that, we weren’t surprised to see Super Rewards gobbled up – and we wonder if the same thing might not end up happening to the firm’s two main rivals.
We’re thinking specifically about Fremont, California-based Offerpal Media and San Francisco-based Peanut Labs, which have taken approximately $20m and $4m in venture capital, respectively. The largest independent startup remaining in the niche sector, Offerpal Media recently said it was doing around $40m in revenue. Potential acquirers include dominant online advertising players such as Microsoft, Google, Time Warner’s AOL and ValueClick. In particular, we suspect ValueClick could be ready to shop as a way to stand out from its larger competitors. The Westlake Village, California-based company certainly has the means to do a deal, since it has no debt and some $100m in cash. Other potential suitors for incentives-based advertising startups include large-scale application platforms such as Facebook and NewsCorp’s MySpace that would benefit greatly from bringing the ad service in-house.
|July 22, 2009
||KITN Media [dba Super Rewards]
|March 12, 2009
|November 6, 2008
||Lookery (Advertising business assets)
|November 3, 2008
||Adonomics [fka Appaholic]
|December 6, 2007
||Cubics Social Network Advertising
|November 8, 2007
||Mediarun (UK and Australia divisions)
Source: The 451 M&A KnowledgeBase