Games have always rewarded players with virtual points and other rewards that become a source of pride and cred. But in an attention-based economy, some companies are willing to give real, physical rewards for gamers who hit the highest achievements in games.

Through target marketing and in-game analytics, you can deliver such rewards instantly and get them to the right person. Wired Game Life editor Chris Kohler (pictured above right) interviewed Brian Wong (left), the chief executive of Kiip, and gamer social network Raptr CEO Dennis Fong (center) about rewards at our GamesBeat 2012 conference this week. Here’s an edited transcript of their talk.

Chris Kohler: Playing video games is supposed to be, in and of itself, a rewarding activity. But some people have found that rewarding players for playing can be its own reward. Or money is the reward. Either way. Here to speak about rewards in video games are Dennis Fong from Raptr and Brian Wong from Kiip. Gentlemen, let’s begin by defining terms. What does “reward” in video games mean to you?

Dennis Fong, Raptr CEO: I think the type of rewards that we do at Raptr consist of two different things. One is rewarding our most loyal customers. So it’s more akin to an airline loyalty program. The people that play your game a lot, you want to reward them for being very enthusiastic fans of your game.

The other type of reward that we do is actually more in the form of a targeted advertisement. At Raptr, we have over 13 million people, core gamers, in our community, where we know literally everything that they play, how long they’ve played it, and who they play with. And so as a partner of ours, you could actually offer a reward. Let’s say you’re EA launching Star Wars: The Old Republic. You could say, I want to reach the top 10 percent most hardcore World of Warcraft players. That’s another type of reward that we offer.

Kohler: So there’s an element of customer loyalty, a video game publisher saying, “We want to find our consumers who are the most active in our games and keep them around by rewarding them.” Then there’s also, on the flip side of it, this element of “We want to find people who are the best customers of our competitor’s game and target them, to try to bring them over to our game as well.” Brian, tell me about what you do as far as rewards over at Kiip.

Brian Wong, Kiip chief exec: We have one major mission, and we use this line internally at the company: It’s “every achievement deserves a reward.” At the bottom line, we realized that the user is ultimately the one who’s going to vote with their play choices and what they’re going to end up engaging in. We want to make sure the user feels rewarded and fundamentally has a great experience. We also happened to build a business model around when people are in these moments of happiness. We like to find existing patterns of behavior, whether it be in the part of a game where you’re hitting an achievement, like leveling up or getting a top score, and in that existing pattern of behavior, bring big brands in to reward you with real-life goods. So imagine if you could level up and get a free latte from Starbucks, let’s say. Or a $10 gift card from American Apparel. Or a free bottle of Dr. Pepper. These types of reinforcements, we wanted to use this natural, existing, organic behavior pattern.

Our rewards are about taking moments of happiness, where a user feels like they’ve done something meaningful, and bringing brands that help make that even better. The way we do it is incredibly important to our model, which is the fact that they’re serendipitous. We don’t do things that coerce or make people do something. You don’t actually know when you’re going to get it; you’re not playing for the reward. You want to play the game because you want to play the game, and you get a reward as part of an existing pattern.

Kohler: So now that we have an understanding of what you both are doing, Dennis, give us a case study of a particular reward or how you might approach that for a certain popular game. What sort of reward would you think of giving to players? What would they have to do to earn those rewards, and what would be the benefit for the parties involved?

Fong: Just to get a basic understanding of what Raptr does, we track the gameplay across all different platforms, and then we rank every player against the rest of the community, based on the number of hours they’ve invested in a game, how many achievements they’ve unlocked, and how far they progressed.

Kohler: Do players have to sign up for this, or are you just tracking…?

Fong: Yes, they sign up for Raptr, which is a kind of social network for gamers. They enter their Xbox Gamertag, their PlayStation ID, their Steam ID, and then it starts tracking all of this information about them. Inherently, people care about their ranking, because the top 10 percent in any game is ranked Elite, and so they get bragging rights, basically. But as part of that, there’s a rewards program attached to it.

I’ll give you an example for a reward we just recently ran, where we gave away 5,000 beta keys to Mists of Pandaria, the upcoming World of Warcraft expansion. I think we gave away the most keys of any partner of Blizzard’s. What they wanted to do with that particular reward was to target people who had spent hundreds of hours playing World of Warcraft in the past…but no longer played. They wanted to reengage users that used to be really engaged with the game, try and bring them back to the game. And also to target active players, the guys who are really the hardcore World of Warcraft players today, which is more like rewarding their loyal customers for being loyal customers.

Kohler: Now, how is it that they can’t find those people on their own? What is it about Raptr…. How do you find those players for them better than they could?

Fong: One of the core tenets of Raptr itself is around data. We have really deep analytics across all different platforms. Game companies know what their users do when they’re playing their games. But what happens after the player stops playing your game? What games have they moved off to? How many hours are they still spending playing games? What games did they play before they started playing your game? We track all of this information. We have a dashboard that you can log into as a partner to see all of this data. What are the top 10 games players play that are not your game? All that stuff. And so part of it is just the analytics that we have that nobody else has, because we’re also cross-platform. We can identify the same user across multiple platforms. Maybe a user used to play WOW on the PC, and now he’s playing on the Xbox instead. We can tell you that.

Kohler: Can you use publicly available data to supplement what users share with you voluntarily? Or is it all pretty much that self-selecting sample, the users going on and voluntarily sharing with you?

Fong: Well, we track all of this automatically. We have an app that tracks all of the gameplay on the PC and the games you have installed and how many hours you’ve played them. We hook into the Xbox, and we pull all the data from the Xbox profile. We also have a lot of touch points, where we can reach the user through our desktop application on the PC. We have an iPhone app we can ping the user on. We have the website. So in answer to your question, we have a lot of different ways we can reach users, and we have a lot of deep analytics on our users, which is why a lot of game companies partner with us.

Kohler: So Blizzard says we want to find X number of people who used to be hardcore World of Warcraft players, and now that they’ve lapsed, we want to give them these beta keys. What happens after that? How do you determine who these people are, and then how do you approach the gamer. “Oh, you’re being rewarded!” Well, what did I do to get that reward?

Fong: We have a notification system on Raptr that can ping you on the iPhone; it can ping you on the desktop app, or on the website when you log in, or through e-mail. It’s really first-come, first-served, so it’s not a sweepstakes or a giveaway. We kind of tease people…. We don’t actually tell people how to unlock a reward, how to be eligible for it. We just tell you that it’s coming. The day that it hits, you get a notification that says, “Hey, for being ranked hardcore and above on World of Warcraft. You’ve qualified for this reward.” All you do is click a button to claim it.

What we see, actually, that’s really interesting is that there’s a huge viral effect there, too. We’ve given away other stuff, not just beta keys. We gave away 10,000 free copies of Rift and 5,000 free copies of Minecraft. We don’t pay for any of these; our partners give them to us to reward their players or to reach new players. A lot of times, the players themselves…they’re not interested in the reward, but they still share it, because they know they have a lot of friends who are interested. A lot of these users that people are trying to reach are really influential. They put in the most hours, they have the most achievements, and they have a lot of friends who play games.

Kohler: You’re identifying the tastemakers, the people that players look to when they say, “Hey, what games are out…?”

Fong: Exactly. And so we see thousands of tweets and shares saying that they’re excited over getting a reward in the first place, one that they weren’t expecting. Or they say, “Hey, I just got this free copy of Mists of Pandaria, a beta key to it. I don’t really play anymore. Who wants it?” We see that a lot as well. There’s a lot of afereffects beyond just the reward itself.

Kohler: So essentially, for Blizzard, they say, “OK, we can give away X number of beta keys,” and instead of just giving it randomly, they get a more targeted group of people to give them to.

Fong: Yeah. They can make their hardest core users feel appreciated, which I think is really important in this world of games as a service. It’s really about the community and making sure your users are happy, that your most loyal users are happy. And then also you can really handpick the players you want to bring back. You can be targeting your competitor’s games, or you can target the guys that used to play your game and no longer do.

Kohler: And from the gamer’s perspective, it’s, “Oh, I’m finally being recognized for my achievements in Call of Duty….”

Fong: Yeah. I mean, look, some of the most hardcore gamers put in thousands of hours playing these games. Now they feel like, “Hey, I’m getting something back for all this time I’ve invested.” These guys…you get something back in the form of reputation in the community, which I think is what a lot of gamers care about. “People know me as one of the best players in X game.” But now we’re saying, “Hey, you’ve unlocked the 60 percent off discount at Logitech for being this guy,” or “You’ve got this free exclusive first peek at a new game that nobody else in the world gets for being this guy.” We’ve found a very positive reception to this.

Kohler: And so you’re not sending out rewards to people or packing up and shipping out headsets and whatever. You’re not doing prize fulfillment here. You’re connecting them with companies that will get them these rewards.

Fong: Correct, yeah. When we’ve given away games or we have huge discounts on hardware and so forth, our partners handle all the fufillment. Gamers just claim a coupon code, which they can use on whatever website that they use to purchase the stuff.

Kohler: Brian, now that you’ve heard all this about Raptr, compare and contrast with Kiip. What’s similar and what is different?

Wong: I think what’s really important to realize is that our business models are very different. I think Raptr is catering to a very hardcore gaming audience. It’s a utility that’s allowing people to aggregate their achievement data, and that information is incredibly important for these game companies, to be able to find their loyal customers and make them feel very appreciated.

The angle that we’ve taken, and of course it comprises the way we’ve positioned ourselves in the marketplace, is about the everyday consumer on their mobile phones playing games and using apps. I want you to close your eyes for a bit and imagine that around this building right now, in this hotel, and in a mile radius, there’s probably hundreds if not thousands of people already on their phones, already doing something. Our insight was why don’t we take that achievement moment, we call it the “E moment.” It’s this dopamine rush, like “Yeah!” Then, how do we bring brands into those moments? Of course, there’s an advertising component to it. But when you look at the overall size and scale of this stuff. For example, I was checking the numbers recently in one of our case studies. On a daily basis, right now, we’re showing about 430,000 rewards every single day across our network. We have 400 apps that are integrated directly into our network. It uses an SDK that uses a distributed presence. That’s the beauty of it. We’re not asking people to go to one app or one destination. We actually help reward you in the things that you’re naturally in already. The mechanism we use is through this reward unit that’s based on your choice. Hey, Chris, you just got something from Pepsi. If you want it, you tap on it, and then you have the opportunity to redeem it on the spot.

Kohler: And this is happening without me having to sign up for a service. I just happened to have downloaded an app and, I’m guessing, said yes when a dialog box popped up saying, “Do you want rewards?”

Wong: No need to sign up, yeah. Again, it’s part of that moment. And the beauty of the reward network as a play for the user is that people actually love this stuff. I’m specifically talking about redemption. We look at our overall network average. Right now these things are double digits. They range between 14 to 18 percent. But what’s even more interesting, and this is something that we’ve never really shared before, is we started recently looking at the cohort. During our statistical analysis, we said, “Hey, let’s look at the cohort of users that have already redeemed, or have seen, a key reward.”

These are people who are now familiar with Kiip as a consumer brand. This is really important, because rewards is all about trust and, ultimately, relevancy. Trust and relevancy are key in this whole model. What we’ve done is, because Kiip is recognizable, people know that this stuff is trusted, that we curate. We have specific brands that are large consumer brands. Those are the only brands that we work with. That’s important. So the cohort, actually, when we measured it, they were redeeming at over 50 percent. One out of two times, someone would redeem a reward. And that was very telling to us, that when you look at this distributed model.

With Foursquare and all these guys, you’ll get rewards within the app, or you’ll be in that app experience. But I like to say that we’re kind of like a thousand Foursquares. We’re a thousand of these apps, because we’re in multiple apps. We’re in all the apps that you would be using on a regular basis anyway. The vision is, if we can be there, I don’t care if you’re downloading our app. We don’t really care. So this is the type of thing that looks to: How do we deliver a consistent, trusted rewards experience to you that is relevant as well?

Rewards is a massive industry, and unfortunately, there’s a lot of companies right now that are taking a giant dump on that concept. They’re abusing the word “rewards.” Rewards are supposed to be something you actually feel rewarded by. That’s fundamentally the definition. You don’t feel rewarded when you’re being rewarded with a video cue, right? That doesn’t make any sense. We realized that we have to create something that genuinely taps into what you appreciate as a regular, everyday, going-through-life consumer. That’s incredibly important.

Kohler: So let’s drill down a little bit, then, for you guys. We had the case study with World of Warcraft: Mists of Pandaria. What would be the typical… Or maybe there’s no typical reward. What would be an example you can give us, just a little bit more concrete, of what I might receive as a player? What is the benefit for me as the gamer, and then what is the benefit for the person who’s giving me this free reward?

Wong: I won’t list out too many, but I’ll start out giving you a typical reward scenario. We have gift cards, $5 or $10 gift cards to American Apparel, $5 or $10 gift cards to Best Buy, bottles of Pepsi. We’ve got Dr. Pepper, bags of Pop Chips, free songs you can download at Amazon: There’s a whole series of things that we look at, and ultimately…this is something that you actually wrote about late last year, where it’s a Guinness world record….

Kohler: Tell us a little more about this.

Wong: One of the things that we realized late last year, especially in gaming — and especially this whole phenomenon of democratized access — is being able to show off who you are as a true, top gamer. We said, “What’s the ultimate reward?” It’s to be a world-record holder, frankly. So we said, “Hey, let’s go to Guinness, and see if we can set something up.” So we have a partnership with them where the games that are integrated into Kiip have the potential to be able to feature their top players as world-record holders. We’ve found, so far in our history, four Guinness world records for users who have played games that are Kiip-enabled. If you see last year’s Gamers Edition, you’ll see us right in the back.

Kohler: And it serves as a verification method, too, because you’re watching what the player is doing. The player isn’t reporting to Guinness with their high score, you are. You’re able to verify the record.

Wong: Yeah. We’re a third party. But I think what’s really key here is, because we’re able to observe and be this trusted layer, again, that’s really important for the user to realize, that, “Hey, Kiip is running this game. I can get a Guinness world record. I can get these rewards.” Again, it’s trying to show them that you can trust this system, and that we’re doing things for you as the user in your consumer experience, and not the other way around. Because there’s a lot of easy ways to make money nowadays, right? You go ahead an put videos in the reward interstitials; you give away free virtual currency if they fill out a survey and give away their social security number and their credit card and their soul…. How do we do this without making people need to go out of their way, just because we wanted them to make some kind of action? The action in the game is playing the game. The action is not to watch a video. I think what’s important is that we’re able to take that existing pattern of behavior and bring brands genuinely to that experience. It’s incredibly important.

Kohler: The fundamental back-and-forth that I see here is that you don’t necessarily want to. If playing games is supposed to be rewarding in and of itself, you have a danger of essentially telling people, “This is something where there has to be a carrot here. There has to be a reward for doing this.” And that might decrease the intrinsic reward that you feel from playing the game. You start feeling like, “Oh, this is drudgery. I have to do it so I can get this reward here.” How do you incorporate that in the design of Raptr and try to prevent that?

Fong: Well, we’re not a game developer, so we don’t actually design any games for rewards. Nor do we tell players how to qualify for the rewards that are coming out. We just kind of tease them and say, “We’re giving away 10,000 copies of Rift next week!”

I think another way to look at the question: Is it a bad thing for companies to offer loyalty programs for their customers? Because that’s basically how we look at rewards. And again, in the games as a service kind of world, which we’re clearly in today, you really have to understand your customers. You have to know who your most loyal customers are. You have to hand-hold them into becoming more and more loyal. That’s how we view rewards.

So I’ll give you another example. For a lot of the free-to-play companies that we work with, one of the big challenges is trying to flip them enough. Ninety-five percent of [players] are free and will always be free. You’re trying to flip that 5 percent into being paying customers. Well, after a certain number of hours of playing a game, you know that they’re engaged with the game. So why not offer a reward at that time? Say, “Hey, here’s a 75 percent off discount on your first purchase.” It comes at a time when we say, “Hey, you just ranked up. You’re now experienced in this game. Congratulations.” You have this moment of “Hey, that’s cool.” It’s something you might want to share. You’re proud of it, and now you’re getting something for it. You can kind of handhold the users into becoming more loyal, which is what a lot of these loyalty programs do. It’s what we help our partners do.

Wong: When we assess the space right now, there’s this amalgamation, almost a blurring of lines, between rewards, promotion, loyalty, and incentives. Is it a promotion? Is it a reward? You’ve kind of merged it in your business model. We’ve kind of merged it here, too. I think it’s understanding the delineation between those business models and showing the user that, again, there’s a difference between the two as well, which I think is very key.

When you look at intrinsic motivation, it’s serendipity. The psychological term for it is “positive intermittent reinforcement.” You have this notion in marketer-speak of “surprise and delight” being the equivalent. We call it “serendipity.” And so I think it’s really important that, when you have a user who’s engaging…. And again, why did they do the thing that they wanted to do? When you realize that you can separate the two and show them what’s what, I think users will respect that. I think ultimately respecting their time that’s incredibly important.

Fong: When I think about rewards systems and ones that are kind of dirty, I think back to the old days of…I remember in the original dot-com boom, a company called iWon, which was like a search engine where the more you searched, they gave you credits for it. You could enter into a lottery. That’s where it’s kind of dirty, right? You’re using this crappy search engine that you wouldn’t otherwise use, and it returns crappy results, but you know that you’re building up points and getting rewards, basically, for using it. That’s not what we’re doing at all. We’re not telling you to go play some crappy game. You play the games that you already play on whatever platform you’re playing on, and you’ll get rewarded for it.

Kohler: I think what you’re hitting on here is, as games move toward games as a service, loyalty programs become so much more important. You don’t need a loyalty program when you’re a triple-A developer and all you do is sell a game on a disc every year. Having a loyalty program is good, but when it’s something where every day you can get somebody to pay a little bit more money, eventually you have the big mass of people who don’t pay. You have the small group of people who pay, and within that you have this smaller group of people who pay a lot. So if you can use a program like this to move the people who don’t pay toward paying, and the people who are paying toward paying even more, because they’re feeling like they’re part of this big community, more connected to the service, you have the potential to be really successful.

Fong: Yeah, and I think the biggest challenge that a lot of companies have is that it’s actually scary how little a lot of game companies know about their users. Who are their loyal users? What makes them loyal? What games have they come from? What do they do after they stop playing their games? I think the basis of a successful loyalty program is data analytics first and foremost.

Kohler: It’s only in the last few years that, if you were a traditional video game maker, you became aware of the fact that you had users in the first place. You didn’t sell things to users. You sold things to wholesalers. You had a little bit of interaction with them, but there were no community managers. There was no Club Nintendo or Uplay, no customer loyalty programs or anything of that nature.

Wong: There’s obviously that rule where you have 96 percent or 97 percent of users that normally don’t buy anything, especially in free-to-play games. You have the small percentage that does end up paying. I think as we’ve been talking about, it’s a very hot ecosystem. Mobile monetization is a huge hot topic right now. This is really the angle that we’ve taken, because we do work with a lot of advertisers, and Madison Avenue is a big portion of our revenues. You have to understand that thinking outside the box, looking at what people truly appreciate.

And, you know, here’s a novel idea: Why don’t you make it so people don’t hate your brand? Maybe if you represent something in an appropriate way, maybe it’s a win-win. We call it a postmodern business. We can create that win-win, where everybody sees that benefit, and then also create that other benefit with the developer being able to monetize while also retaining their users through this loyalty dynamic. I believe that’s something that’s very powerful as well.