Payment Industry Perspectives: Q&A with Gambit Co-founder Noah Kagan

gambit-logoAs we continue our in depth look at leaders the Facebook Platform payments ecosystem, today we turn our attention to Gambit, a new virtual currency monetization and payment service for social apps and games that went public for the first time here on Inside Facebook back in March.

We recently spoke with Gambit co-founder Noah Kagan (formerly of Facebook) about the opportunities he sees inside Facebook apps and games, and the approach Gambit is taking to help developers monetize.

Inside Facebook: When did you realize the business opportunity in providing payment services to online gaming communities?

noah-kagan-headshotNoah Kagan: We’ve been building applications for the past year and a half. Through that process, we developed our own payment tools. We wanted more transparency, analytics, and customization. These values maximized profit for our own games, and we found that we were doing better than our competitors. To see if it was a fluke, we let other game developers experiment with our payment tools. The results were consistent, and so we closed down our games and focused on providing payment solutions to online gaming communities.

Gambit is a payment solution for online games, and our services vary based on what clients need. We help clients find the best way to implement a virtual economy, structure price points, and use analytics to maximize ARPU.

What geographic markets is Gambit in?

We focus on the U.S., U.K., Australia, and most of Western Europe. We are the leader in these countries for monetization and competitive in South American and Southeast Asia. We are powering the #1 app on MySpace, #1 app on Facebook, and many other small and large properties. The U.S. is five years behind in virtual monetization, but a lot of consumers are willing to pay for virtual goods. I don’t spend much on anything, but I care for game consoles. The market is only going to grow: the question is, how do you make it easy for people to pay?

Discuss the value chain of your business model: Who are the key players, and how is value created for each one?

From the developer’s standpoint, the tradeoff is between focusing your time and energy on game development or monetization, which includes aspects such as customer support, fraud, callbacks, tech, API, etc. Developers can spend a small percentage of their budgets on PayPal, or a little bit more on us and take advantage of more services. It’s a cost benefit analysis. Gambit provides developers with a buffet of payment options that empower them to make decisions based on statistics that show how much revenue they get from advertisers. We value transparency. Other providers give you numbers, but with no certainty.

Users get phone and email support with us – no one else does this. Then there are advertisers that are making offers, as well as payment companies. Our advertising relationships are pretty well developed.

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In terms of competition in the payment space, how would you distinguish your products?

We’ve innovated with our behavioral ad targeting, complete payments customization, fraud reduction technology, and our transparent analytics. Our business is built on what developers want and how to make more money for them: if they want certain metrics, we will make them available if possible. Because we come from a developer background, we know how our clients feel, whereas other companies are coming from a sales and marketing perspective. We emphasize results and performance, and how to build better products and code.

Across the board, all developers have problems with customer support that they are not aware of. This is a huge challenge long-term that most people discount. The common problems are that users aren’t getting their credits or didn’t complete all the requirements, and technical problems. We have a full time staff, direct phone support and provide a CRM solution for our clients to see what their users are saying.

What’s your reaction to Facebook’s virtual currency test?

Competition breeds innovation. Facebook has a lot of inherent value to bring, but how will they provide value specifically to game developers? I’m curious what additional value Facebook can produce that we can’t.

How is your company doing from a financial perspective?

Gambit has been profitable since December. We’ve raised some funding in 2007. Since we have not fund-raised large amounts like our competitors, and we do not have unrealistic growth expectations from a venture capital firm – so that’s an advantage.

What kinds of developers are most attracted to your products, and what kinds of virtual goods have been most successful for them?

We are serving over 20 million users across our hundreds of clients a month. Social networking applications, online communities, RPG and flash-based MMO games do very well with us.

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Where is the virtual goods economy headed in the future?

There will be an increase in online virtual goods spending in the Western world. Regarding online offers, they need to be more relevant and user friendly: for example, a girl who likes frozen yogurt can signup for free frozen yogurt and get credits at the same time. Right now, some users have a bad experience with offers. We will move toward using more social information – age, gender, geography, and a few other factors in improving offer relevancy. In general, the payment solution that will win is one that helps converts users to paying customers as easy as possible.

Thanks, Noah. Anything else you’d like to share with our readers?

We’d love to chat with anyone interested in optimizing or growing their online economy. Check out more on our blog.