mNectar has raised $7 million in funding for its new ad platform dubbed Playable, which lets gamers try out a mobile game before they decide to download or buy it. The “playable ads” are a new form of advertising for games that allows potential purchasers to have a better shopping experience as they browse for new games, according to founder and chief executive Wally Nguyen.

By transforming the mobile ad from the staid banner to something much more enticing, mNectar hopes to solve the problem of getting apps discovered amid a sea of millions of rivals in the app stores.

“We created this company to solve the problems of mobile advertising,” Nguyen said in an interview with GamesBeat. “Today, everything else doesn’t tell you what you are getting. Our ads give you a chance to instantly sample games and apps. We can connect people with the right apps.”

Wally Nguyen of mNectar

Above: Wally Nguyen of mNectar

Image Credit: Dean Takahashi

New Enterprise Associates (NEA) provided money for the entire round and Rick Yang, a principal in NEA’s Menlo Park, Calif. office, will join mNectar’s board.

“mNectar has a rare combination of everything NEA looks for when partnering with a company,” said Yang, in a statement. “The team’s impressive background, innovative technology, product market fit, and huge market opportunity are all validated by the rapid growth of delighted customers and consumers. We are extremely excited to team up with mNectar to bring virtualized apps to the mass market.”

mNectar will use the investment to deepen its leadership, engineering, and business teams both in the U.S. and abroad. The company may add another $1 million to the round as it adds more strategic investors.

Nguyen said that the company is pioneering the use of cloud delivery and mobile app virtualization in mobile ads. It allows a customer to sample a working version of a game or app before downloading it. That, in turn, drives higher ad revenue for app developers and creates a more fun experience for mobile users. These interactive ads are so compelling that they are multiple times as effective as other mobile ads, Nguyen said.

The company takes technology pioneered by companies like OnLive and Gaikai and then applies it to making an ad into a playable demo.

Currently, most consumers rely on app reviews, friend recommendations, and app-ranking lists to figure out what they want to play. Ads such as banners, videos, and pop-ups are often either static or don’t show the true gameplay.

According to Nguyen, the user retention rates are four times as effective as other kinds of mobile advertisements such as interstitials, and the retention rates are twice as good as mobile video ads. He said those results have been verified by independent ad measurement companies.

Users can be disappointed if they blindly download a game, and it isn’t what they expected. That, in turn, leads to horrible retention rates and lousy yields for advertisers. The current state of mobile advertising, Nguyen said, is like a billboard. Users drive right by without engaging. Advertisers can vet users before paying to acquire them, and publishers benefit from attractive ads with high performance numbers.

With Playable, the user gets to play the real product for a short time. They can decide on the spot whether the game lives up to its billing or not. And they can proceed to download it immediately. mNectar effectively turns actual app use and gameplay into marketing. There are fewer retention problems because the users know exactly what they are getting when they download the game, Nguyen said.

Nguyen said that the added interactivity of mNectar’s platform has lots of benefits for developers. In the past, they might pay a lot of money to acquire new users, enticing them to download an app with various rewards. But once those users try it, they may never return. That might cause the developer to wrongly assume that the first stage of the game is messed up and should be redesigned. In fact, it may very well be that they have the wrong user, and that this user never wanted to play this type of game in the first place.

When you sample a real app instantly to a user, you can get rid of this problem of mistakenly downloading something you really didn’t want to play. Once the user downloads the actual game after playing the Playable ad, then you know that the user is more committed. Retention rates are better and so is the lifetime value of the user.

The technology is based on cloud gaming. The playable game snippet is actually hosted in the cloud or web-connected data centers. When a user taps on a Playable ad, the data center serves a virtualized version of the game to the user. Since the interaction between the server and the mobile device is fast, the users don’t really know or care that the app isn’t yet downloaded onto their devices.

“We live or die by the speed of delivery, so our network has to be just as fast as a native app,” Nguyen said. “We have built the infrastructure in the U.S., and we are now building out our global infrastructure.”

Rivals include Agawi’s AppGlimpse playable ads as well as Voxel’s “try before you buy” service. mNectar distinguishes itself by offering a product that works with both iOS and Android. Developers do not have to integrate a software development kit to use the mNectar service. And rather than power other ad networks, mNectar works directly with advertisers, or, in this case, the actual game developers.

Since mNectar isn’t trying to stream an entire game to a user, the demands on the network and server technology aren’t as big as other cloud gaming providers such as OnLive. Nguyen said the latency, or delays in interaction, are minimal. mNectar built its own proprietary distribution network, so the server times are short. Nothing is installed on the user’s device. The quality of the real-time game experience is where mNectar’s ad platform will live or die.

mNectar has 14 employees. The company has raised its initial round of funding from app developers who wanted to use its service. Cofounders include Artem Grigoryan, chief technology officer, and Dan Cheng, chief revenue officer.

The service is at the point where it can scale rapidly, Nguyen said. Game companies such as King Digital are already using it, but it works well with premium games and apps, where the user has to pay for the app before they play it.

mNectar’s customers include Bash Gaming: a subsidiary of GSN, Big Fish Games, Buffalo Studios, Freshplanet, GREE, King Digital, Mag Interactive, Mobile Deluxe, MobilityWare, Social Gaming Network (SGN), Storm8, Wooga, Zeptolab and Zynga. Besides Nguyen, mNectar’s founding team includes Artem Grigoryan, chief technology officer; and Daniel Cheng, chief revenue officer. Nguyen and Grigoryan previously worked together at Panther CDN, a next-generation content delivery network. Grigoryan and Cheng worked together at Greystripe, an early ad network for mobile games.

mNectar has 14 employees, and Nguyen said he hopes to double that by year end and add offices in Asia and Europe.