Is there money to be made in app loyalty programs?



Increasing app engagement is no easy task. While it's hard enough to get new users for an app, retaining that userbase is no piece of cake either.

"If you spend $3 to acquire a user and 50 percent of users leave immediately, you've actually spent $6 to acquire a user," said co-founder and CEO of Pocket Change Ari Mir, in an interview with Game Sauce.

Loyalty programs are one method that some app developers are now using to tackle this issue. Loyalty programs are nothing new, of course, nor are advertising efforts to engage users. Credit card companies already use these programs to encourage members to spend money and gain rewards, as do a variety of retailers and restaurants with their own loyalty programs.

So what makes mobile app loyalty programs--like those from Pocket Change and others--special? Answer: They're bringing this concept to the app world, and they're actually doing it successfully.

Here's how it works: Users earn points for completing a variety of tasks such as playing games, inviting friends, purchasing goods, uploading photos, etc. Unlike with specialized programs (such as Starbucks), the points can be gathered from a wide variety of places (Pocket Change last reported 500 different apps) and they can be redeemed for gift cards, books, electronics, accessories and a variety of other goods from brand partners including Best Buy, Target and Beats by Dre.

Pocket Change in particular has raised over $6.4 million to date from Google Ventures, First Round Capital, Baroda Ventures and Scott Banister. The company boasts over 50 million users rewarded and 16 million monthly active users--no small feat. The company's app is available on Android and, as of March, for iOS. Pocket Change's Mir told FierceMobileContent that the company is currently supporting just these two ecosystems for now.

There will be challenges of course. In April 2011, Apple (NASDAQ:AAPL) began cracking down on apps that offered incentives (like a virtual currency) to users who downloaded other apps. This hit companies like Tapjoy, which had to alter its business model to focus more on advertising and the Android platform. (Tapjoy subsequently unveiled its new app marketplace, a Web app, which allows users to gain Tapjoy currency in exchange for playing select partner games.)

More recently Apple pulled app discovery service AppGratis for violating 2.25 and 5.6 of its developer agreement that prohibits, among other things, promoting apps other than your own. AppGratis has since headed to the mobile Web to continue its service and is also expanding to Android.

Further, larger companies with their own in-house currency have failed. Consider Facebook Credits, which was eventually absorbed into Facebook Payments and converted into local currencies.

And there's also competition from similar endeavors already on the market. Kiip, which has been around since 2010, allows developers to reward users for completing tasks with tangible rewards rather than points. For example, achieving a high score in a game might give a user a coupon for a free bag of candy to be redeemed at a partner store. This week Kiip announced its rewards platform is enabled in over 1,000 apps. Kiip has already worked with a number of large advertisers including Walt Disney Pictures, 1-800 Flowers, Zappos and Pepsi. To date, Kiip has raised over $15.4 million in in venture capital from partners including True Ventures, Relay Ventures, Crosslink Capital and others. 

Another competitor in this space is SessionM, which rewards users with points for reaching app milestones, interacting with advertisers and spending time within an app. These points can then be redeemed for gift cards or donated to charity. SessionM's points and rewards system is more like Pocket Change, since users pick how they would like to redeem their rewards.

Although none of these loyalty program providers has reached the scale of a full-blown credit card loyalty program with millions of users, initial interest in these services speaks well for the future. For one, mobile app use is growing, and users are likely to engage with services that reward them for activities that they already do. Second, as more players enter the space, it is becoming clearer that there is money to be made here: In May, Glu Mobile (NASDAQ:GLUUrevealed that it would be working with an unnamed third-party, ad-funded loyalty program to increase user engagement. "We expect to roll out a test with one of these networks in the near future. We expect this will have a positive effect on retention while also adding incremental ad revenue," Glu said.

The real trick will be successfully integrating these types of services into iOS apps, given Apple's history of pulling apps that walk the line between app advertising and app discovery. But for now there appears to be opportunity in the space. --Sandhya