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A Rabbi’s Startup Rewards Moms for Watching Ads, Playing Games

When Tiffany Ivanovsky isn’t taking care of her seven children or working as a director of a Christian preschool in The Woodlands, Texas, she’s writing about shopping deals for parents on her blog, MyLitter.com. While unearthing bargains for her 300,000-plus monthly readers, Ivanovsky, 36, clips coupons for her own family, too, using a rewards site called Swagbucks.

Each time Ivanovsky searches the Web from the Swagbucks toolbar she installed in her browser or one of her kids plays a game on the Swagbucks website, the Torrance, Calif., company deposits virtual currency into an account Ivanovsky can redeem on Amazon.com (AMZN). “[Watching points accrue] is motivating,” says Ivanovsky, who earned the equivalent of about $800 last year. “You want to keep building up your Swag Bucks.”

Swagbucks is pioneering a new business model by paying its users to watch videos and play games sponsored by advertisers, says co-founder and Chief Executive Officer Josef Gorowitz. About 50 brands, including Target (TGT), Wal-Mart (WMT), and Gap (GPS) pay Swagbucks when users redeem coupons or click on ads to buy discounted products. Swagbucks’ goal: lure deal-hunting, stay-at-home moms with rewards for buying advertisers’ wares -- from coffee makers to hair extensions.

After becoming a rabbi, Gorowitz launched the service in 2008 with five software developers who shared his background in Talmudic scholarship. Despite his initial trajectory, Gorowitz was convinced a tech startup could be as rewarding as a career in a synagogue. The company was originally conceived to build search engines and sell links to ads on websites for National Football League teams and rapper Kanye West, but the team shifted its focus to developing the Swagbucks site when it sensed a bigger opportunity in aggregating discounts.

Many Rivals

Swagbucks faces fierce competition. Groupon (GRPN), which raised $700 million in an initial public offering this month, has prompted a crush of coupon businesses since its launch three years ago. Hundreds of sites, such as CouponCabin, Savings.com and RetailMeNot, aggregate coupons and make a commission when buyers redeem them. Others, such as MyPoints, also hand out reward points for shopping, but few give their users as many ways to earn virtual money as Swagbucks.

Ken Roberts, president of market research firm Cooper Roberts Research in San Francisco, which has tested other deal sites with a few clients, says Swagbucks’ bet is smart because shoppers accustomed to getting rewards for spending money at hotels and restaurants have a “huge sense of entitlement” and expect the same from other businesses. Swagbucks meets those expectations by rewarding them for interacting with advertisers’ material on its site. “It doesn’t become a cost of my time; it becomes an investment, which is a big difference,” says Ben Smithee, chief executive officer of Dallas-based marketing research firm Spych Market Analytics.

Roberts cautions most advertisers probably aren’t ready to commit significant amounts to the Swagbucks service. “The dollars that they put into things like this is still a pretty tiny part of their overall budgets,” he says. Online advertising is expected to make up about 17 percent of the almost $412 billion global advertising market, according to market forecaster MagnaGlobal.

Swagbucks’ 2.6 million coupon-cutting moms helped drive $12.5 million in revenue last year, according to Gorowitz. He says the 45-employee company is profitable and expects revenue to double this year and next. While the site’s video games also attract 1.4 million teenagers and college students, advertisers are drawn mostly to the moms -- moms are responsible for about 75 percent of U.S. household spending, according to Mediamark Research & Intelligence in New York.

Expansion Doubts

Sucharita Mulpuru, an analyst for Forrester Research, doubts Swagbucks can meet its revenue projections. “It’s very hard to do the math to figure out how it can be scalable,” she says, noting the service will have to show advertisers a steady return on investment to keep them coming back and spending more.

Gorowitz plans to deliver by doubling repeat users who search for bargains via Swagbucks at least once every two days. By the end of next year, Gorowitz is hoping to launch sites in Europe and Latin America. His goal over the next 12 months is to tailor the offers a visitor sees based on the videos they watch, the games they play and the deals they buy. He sees personalization as strengthening his strategy of bringing consumers to advertisers through rewards.

The 30-year-old is adamant his religious training will help him as he leads Swagbucks’ expansion. Analyzing the Torah has improved his team’s critical thinking and code-writing, Gorowitz says, and he prides himself on running the business following its teachings. His oft- repeated refrain at the Swagbucks office: “Treat your fellow man as you would treat yourself.”

To contact the reporter on this story: Antone Gonsalves at antonegonsalves@gmail.com

To contact the editor responsible for this story: Nick Leiber at nleiber@bloomberg.net

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