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With smartphone owners now downloading more than 2 billion mobile applications every month, the app store gold rush is in full swing. But precious few software developers are striking it rich. As of late last year, developers had published close to a million apps optimized for devices running Apple’s iOS and Google’s Android–but for every juggernaut, like Angry Birds, there are a multitude of mobile games that earn only a few thousand dollars over the course of their life cycle.The problem is that consumers love playing mobile games, not paying for them. App search engine Chomp reports premium applications made up just 27 percent of Apple’s App Store downloads in November 2011 and a mere 3 percent of downloads from Google’s Android Market. That’s why so many mobile developers are turning to in-game purchases–like virtual currency and weapons–to boost their fortunes. Others are relying on revenue derived via in-game banner ads.Brian Wong believes there’s a better way. Kiip, the San Francisco-based company the 20-year-old co-founded in 2010, eschews conventional mobile advertising formats in favor of offering real-world rewards for virtual achievements. For example, a gamer who successfully advances to the next level of play is rewarded with coupons and freebies from Kiip partners like Dr Pepper, Carl’s Jr., 1-800-Flowers and Sephora. The solution also allows developers and advertisers to match higher-value rewards to higher-difficulty achievements, driving gamer engagement.”Traditional advertising has always had a bad rap. If you offer users something for free, they think, What’s the catch?” says Wong, who launched Kiip after a brief stint heading business development at social news website Digg. “Our message is about retention. We’re helping developers keep their user base engaged and happy. When I ask developers, ‘How are you thanking players?’ they get stumped. The answer is that you do that through rewards.”Kiip applies a complex system of algorithms, tags and consumer data to determine not only the optimal juncture to deliver rewards but also what kinds of prizes to offer, and how often. “We extract value from the moment,” Wong says. “[Rewards] depend on the game itself, along with other environmental factors, like where are you, what kind of gamer are you and who are you.”Advertisers pay Kiip only when a consumer accepts a reward offer, with fees ranging from 25 cents to $3 per interaction. The firm splits revenue 50-50 with the game’s developer. As of late 2011, Kiip had integrated into about 60 iOS and Android titles with a combined user base of more than 35 million. According to Wong, between 30 and 40 percent of gamers engage with Kiip reward offers, with an average of 1.7 million rewards delivered each month.”We help developers build a business around user retention and engagement,” Wong says. “Rewards help guarantee that people come back to the game and play it more often.”Look for the number of developers embracing Kiip to grow significantly in the months ahead: During the waning days of 2011, the startup inked a deal with GameSalad, a mobile-game development platform provider, to integrate its rewards network into GameSalad’s Creator authoring toolset. More than 200,000 developers have leveraged GameSalad solutions to build roughly 20,000 titles.Wong is already mulling over how to expand the Kiip model beyond gaming into other mobile-app categories and digital channels. “There’s applicability across different types of mobile apps, e-commerce and entertainment,” he says. “Say you’re running with the Nike+ app and you beat your last run time, so here’s a coupon for a free vitaminwater.”Even if you’re not a mobile-game developer–heck, even if you don’t know how to send a text message–Kiip is a company worth watching. Wong plans to simplify marketer access to the Kiip network during the months ahead, enabling local and national brands to automatically set up their own rewards campaigns.”All apps are location-aware. Location is a given now,” Wong says. “My goal is to offer rewards from businesses in your immediate area that are coming to you as a result of your actions within an app. You shouldn’t have to go into a store or check in, you just have to be in a contextually relevant location. Our rewards platform can exist anywhere there is an action–that’s why we’ve never had the words play or games in our name or our slogans. ‘Kiip them happy,’ that’s our tagline.” Free Webinar | Sept. 9: The Entrepreneur’s Playbook for Going Global 4 min read Register Now » March 9, 2012 Growing a business sometimes requires thinking outside the box. This story appears in the March 2012 issue of . Subscribe » read more