Should Advertisers Pay?

NEW YORK In a world of media clutter, TiVos and multitasking consumers, what’s an advertiser to do to get some quality time? Some are experimenting again with the idea of rewarding customers for viewing their ads, betting the lure of free cell phone minutes, music or even cash will deliver a captive audience and better metrics.

Virgin Mobile and startup Xero Mobile are both targeting young consumers with the lure of cell phone minutes. In June, Virgin launched SugarMama, a service that lets its 4 million subscribers earn one minute of talk time for each minute of Web video ads watched from advertisers like Microsoft’s xBox and Pepsi’s Mountain Dew.

In the first 10 weeks of its launch, Virgin reports 112,000 subscribers have signed up, watching and interacting with an average of 10 minutes of ads and producing a 5 percent click-through rate. Two-thirds of users are between 13 and 24, the company said. Xero is targeting this market with a service in January that will give away 1 million handsets and 40 percent of users’ talk time free in exchange for watching four ads a day.

The notion of being transparent about the attention-for-rewards tradeoff is not new on the Web: several businesses tried it during Web 1.0. It is in some ways antithetical to dominant trends in the media world, where many advertisers believe their pitches will be more effective if they feel less like, well, advertising, and more like entertainment. Instead of hard-sell spots, there are viral videos, branded entertainment and product placement, all seeking to impart brand messages subtly. “These guys are media-savvy,” said Rich Clayton, brand director at Xero, of young consumers. “By being upfront about it, we believe the message will be accepted and there’s a greater chance for persuasion.”

Another company, BrandPort, is recruiting college students to watch ads online in return for cash, about 50 cents for each 30-second spot. Coca-Cola, Maybelline and other advertisers have tested BrandPort’s service, which includes questions about each spot that users must answer. Kivin Varghese, the company’s CEO and a former brand manager for Gillette, predicts the pay-for-attention model will gain traction as advertisers realize most of their ad messages are wasted because they are either skipped or ignored. “If we want that kind of accountability,” he said, “we’ve got to give consumers something for providing the feedback we need for proving” they absorbed the ad message.

But the model has its baggage. The pantheon of dot-com failures is littered with startups that made it the basis of their business, such as rewards schemes like Beenz from AllAdvantage, a company that paid users to install a toolbar showing banners ads.

Thanks to better targeting, a booming Web ad market and digital content cheap to distribute, the pay-for-attention approach is getting a second look. Last December, even Bill Gates mused about paying Web searchers, and Microsoft has dabbled in rewards systems through its gaming business, offering extra game play for interactions with ads. MSN’s Australia outpost recently began a program that rewards customers for taking desired actions from advertisers, like entering a sweepstakes, watching a video ad or visiting a site. Each action earns rewards users can redeem for digital music, ringtones and other digital content.

“The potential for deepening the relationship with the consumer fueled by incentives and rewards is very powerful,” said Doug Knopper, a former ad agency executive who is now CEO of BitPass, the rewards platform used by MSN. “That’s something that’s missing from the equation.”

Yet there are doubts such systems, even with rising ad rates, can make it worthwhile to consumers. Virgin Mobile’s compensation, for instance, can work out to as little as 3 cents per minute; BrandPort’s about $5 per 10 minutes. “There’s a fine line between being respectful of one’s time and paying for it,” said Tim Hanlon, svp of ventures at Denuo, the Publicis Groupe new media consultancy. “Just because you’re serving ads doesn’t mean the user is interested.”