Lootcakes has raised $2 million in venture funding to reward VIP gamers who share their data about their playing habits in a privacy-safe way. It’s like a new kind of frequent flyer rewards program.

The New York-based Lootcakes requires players to trust it with their private data, something many people are reluctant to do. But the company says it has enough players opting-in to its reward program (taking the form of gift cards to buy things in games) to create a lucrative target market for advertisers who have new games to show — without sacrificing user privacy by giving it to third parties.

Spenders in Lootcakes’ community spend over $170 per month on free-to-play games, with the top 1% spending over $2,000 per month. This is a lucrative community to target, and with changes that Apple is making to protect privacy, it may be one of the few ways going forward to advertise to gamers. (Apple is about to retire the Identifier for Advertisers, or IDFA, and force users to opt-in on ads).

The Leisure Economy

With its opt-in players, Lootcakes has created a network that’s shown their willingness to spend money in free-to-play games. It rewards them with “lootcakes,” a virtual currency that is redeemable for gift cards on major gaming platforms. That enables gamers to buy more virtual goods in their favorite games, effectively allowing them to be paid to play games. That’s part of what I call the Leisure Economy, where someday we’ll all get paid to play.

Lootcakes CEO Matt Littin said in an interview with GamesBeat that the company calls this “rewarded data-sharing,” where consumers harness their data to get more of what they want, rather than passively giving it away.

“Our fundamental mission is to empower consumers — in this case gamers — to harness their data to get more of what they love, instead of giving their data away for little or no value,” Littin said. “Consumer empowerment is at the heart of what we’re doing.”

Konvoy Ventures led the round, with participation from SOSV and GAN Ventures. Lootcakes has noted that only 1% of players in each free-to-play game generally account for 80% of in-app purchase revenue. Advertisers would of course love to target the spenders — often called whales — to new games. And last year, advertisers spent $10 million targeting Lootcakes’ audiences, and this year it is expected to be $25 million. But as we’ll explain, the advertisers aren’t targeting Lootcakes’ users.

“Our rewards allow gamers to stretch their dollars even further,” Littin said. “And on the user acquisition side, our data is helping advertisers to more effectively find the gamers who are still spending.”

Above: Lootcakes senior team: Dan Laughlin (president and COO); Matt Littin (cofounder and CEO); and David Schleupner (cofounder and CTO).

Image Credit: Lootcakes

Members of Lootcakes have to be trusting. They give Lootcakes permission to search through their email accounts for in-app purchase receipts so that it can build a profile of their buying behavior. In return, for every dollar they spend on any free-to-play game distributed via the App Store, Google Play, or Steam, members receive “lootcakes,” the company’s virtual currency. Right now, players sign up via a website, but a mobile app is in the works.

This currency is redeemable for gift cards to major gaming platforms, giving members more virtual goods in their favorite games. Members can also multiply their rewards by making purchases in promoted games and by participating in game-specific social groups.

Konvoy Ventures managing partner Jason Chapman has joined the company’s board of directors. The money will be used to develop and release a Lootcakes consumer mobile app to sit alongside its current web-based service. In addition, the company plans to open its private beta to more gamers, expand beyond the U.S. market, offer limited edition merch and virtual goods, and forge affiliate partnerships with YouTubers, streamers, and game communities.

Slow cooking

Lootcakes

Above: Lootcakes

Image Credit: Lootcakes

The company’s senior team includes Littin, a former cofounding member of entertainment consultancy Cinetic Media; president Dan Laughlin; and chief technology officer David Schleupner. The company started in 2012, but it took its time. Littin and Schleupner funded the effort on a low budget.

“That allowed us to build a sustainable business ahead of funding,” Littin said. “As a result, we are now profitable. We have a bunch of momentum. And we can responsibly grow the business with our new funding.”

It was cheaper for Lootcakes to start out on the web and grow its audience over multiple platforms. Rather than require players to take pictures of their receipts or manually send them after every purchase, Lootcakes got permission to search through their inboxes to find the receipts. One of the byproducts of that approach was better security, as it became harder for someone to fake a purchase.

“We want to make it as convenient as possible for users to share this data. But in addition to that, you know, we need to be able to validate the authenticity of the receipts,” Littin said. “There is potential for fraud with people taking pictures.”

Lootcakes knows how to search through the emails to find the automated receipt that comes from one of the platforms. So players can set and forget it once they link their email accounts. They get rewarded in the background with no extra effort.

“These players are driving the ecosystem, the economic health of gaming companies,” Littin said. “We are helping these valuable consumers to fully realize their value in the ecosystem and get benefit of their data instead of passively giving it away.”

Littin said Lootcakes gets paid as a percentage of the advertising spent. The company has also aggregated audiences of non-spenders and low-spenders. Those audiences can be useful under some circumstances. Lootcakes will launch a sweepstakes event that will give some members a chance to win meaningful amounts of currency.

Protecting privacy

Privacy is the lifeblood of the business, Littin said. The system uses multiple levels of encryption to secure user credentials. It limits the search scope to focus only on senders from the game platforms. Those with two-factor authentication can use an app-specific password.

Apple and Google are both expected to double down on privacy as well. As noted, Apple is about to retire the Identifier for Advertisers, or IDFA. It will require users to opt-in to ads and will no longer share user-level data with third-party measurement firms and advertisers.

“We’re trying to essentially be on the leading edge of this new paradigm in which users are proactively harnessing their data,” Littin said. “That is our core mission. And so we support the user having full ownership and control over their data.”

But one thing has to be clear to both users and Lootcakes’ customers. Lootcakes doesn’t sell or even share its underlying user data with advertisers. It only shares look-alike audiences, modeled from its user data, that advertisers can target with ads.

As an example, if an advertiser wants to reach role-playing game spenders, Lootcakes reviews its member database and builds a seed audience of RPG spenders. It then uploads this seed audience to its own ad account on major advertising platforms. From there, Lootcakes creates a much larger look-alike audience that shares the dominant behavioral characteristics of the seed audience (but excludes the actual seed audience by default). Advertisers can then target the look-alike audience with ads. They can’t export the look-alike audience, nor do they have any access to the underlying seed audience data.

“This is a very privacy compliant process in which the data of our users is used to create these larger audiences which exclude our users,” Littin said. “We get paid by game advertisers who target those look-alike audiences.”

Lootcakes has stayed small in part because it incurs costs when it gives rewards away to gamers. It doesn’t want to grow too fast until it knows everything in its business model works. But with the funding and the pending mobile app, growth will be coming. And at that point, Lootcakes will be sharing in the rewards of its valuable gamers.

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