Q&A with TrialPay CEO Alex Rampell

I first met Alex Rampell in early 2007, six months after he’d launched TrialPay, a payments and promotions platform that had already recognized the lucrative potential of getting online users to try one product in order to get another one for free.

At the time, Rampell was 25 years old and TrialPay employed just 13 people who worked out of a couple of small, windowless conference rooms in Mountain View.

Roger Lee of Battery Ventures, who was with me on my visit, had said that he’d courted Rampell aggressively, including presenting Rampell with a preemptive offer at a nearby bistro and, when that didn’t work, introducing him to potential customers. At the time, I was baffled by Lee’s obligingness; now it’s easy to understand.

Today, TrialPay claims partnerships with roughly 8,000 companies that use TrialPay to attract new customers as well as entice existing ones to spend more. More than 50 million people have used its technology, providing TrialPay with the kind of data that its newer competitors would kill for. It has 80 employees and rather than gorging on venture capital, the company has raised a relatively modest $15.9 million from its all-star lineup of investors, including Battery, Index Ventures, Atomico Ventures, and Bob Pittman.

Rampell and I talked this week about the company, his industry, and what’s next.

Am I right that as a Harvard student, you developed a software tool called Didtheyreadit.com that let you know as soon as someone read your email? I used it all the time until it crashed my computer.

Right, I started a holding company called Rampell Software that ran a bunch of consumer software tools. It was shareware — try before you buy software. I started doing this even before high school, and as I grew, the company and the products themselves grew. But in many cases, after I’d spent the time to upload them to file sites, I got some people to pay but many didn’t, and that was really the genesis behind TrialPay.

I was one of those cheapskates. Sorry.

In my experience writing shareware, most people didn’t pay. These were all trial products that you had 30 days to try out. Our way of getting you to pay was that we were going to disable features X, Y  and Z over time until you did. But even then, 100 percent of our revenue came from 1 percent of our customers. So we then said, maybe for the 99 percent of people who won’t pay, we’ll tell them that if they buy Valentine’s Day flowers [through, say, FTD.com, which would give Rampell Software a percentage of the sale], we’ll give them our product free. That was the conjecture, and it worked pretty well.

I know that companies have these sorts of cross alliances all the time, but how do you execute on them well?

You can capture a lot of consumer intent by letting people pay by trying something else. As far as knowing what to pair, conversion rates are key. Let’s say I were to present an offer, saying that if you buy a Rolls Royce, you’ll get free McAfee software. Rolls Royce would be paying us $75,000 to get them a customer, but the odds are so tiny that we could that we’re better off doing something that will pay us $5 or $10 per conversion.

We also have very good profiling tools that let us know what people like to browse. We don’t show one offer because that’s very inefficient and doesn’t allow for the discovery process to happen well. Instead, we say, here are 20 things we recommend, from accessories from the Gap to a trial subscription with Netflix to a Discover card, and if you transact with one of these vendors, you’ll get your product for free. [At the time of the sale], we know roughly their consumer type. We don’t know if they have pets. But over time, we will.

How does it work? Through cookies?

That’s part of it, but we’ve had more than 50 million people go through TrialPay and they leave a path behind. So maybe they went to McAfee, then to Papa Johns and on to Playfish. So we use that, not to drive anything subjective but to say that for people who have those properties, they clicked on PETCO quite often. So we’ll present them a PETCO offer, but we’ll also let them choose from among other offers. We also know a lot based on whether someone is using a high-speed connection or a dial-up type, whether they’re using Internet Explorer or Google Chrome. In fact, browser type is very telling. We’ve tracked millions of Google Chrome users and not one has taken an offer from Kmart. Subjectively, I might be able to explain why that is, but objectively, that information is very valuable.

So a lot of your value is in the information you’ve aggregated. Do you use it for any purpose other than to maximize the chances of a conversion going through?

No, it would be antithetical to sell the information. We’ve taken a very strong stance against that. We don’t use our data to market to people, just to ensure that in our ongoing offers, people come back to us. If you’re at Papa John’s website, and you’ve already been shown a PETCO offer five times, we’re not going to show that to you again.

You work across a lot of verticals, including social gaming online, where a lot of virtual goods are being bought and sold. Has that industry changed since TechCrunch wrote last fall about some of more duplicitous offers that were becoming prevalent? Is that a vertical you care about?

Sure, that’s a small percentage of our business but it grew by triple digits last year. A rising tide will lift all boats. But if you look at size of offline economy — real goods — it’s so much bigger. It might be growing at just 1 percent each year, but we don’t need it to grow. I don’t care if the pizza market grows or shrinks. A lot of people order pizzas. It’s much bigger than Zynga’s revenue will be for the next 10 years combined.

Companies have always used these cross-bundling concepts to extend their reach and their revenues, and virtual goods are one area where it makes a lot of sense. But it’s also rife with fraud. We’ve been complaining about this space for along time. The quality across the board was bad for users and it was bad for legitimate advertisers.

You’re using the past tense. Do you believe the offers have gotten better?

I think it’s heading in that direction, and I think social networking games can be a great way to expose advertisers, but you have to do it responsibly. Otherwise, it threatens the long-term viability of the system. If people are signing up for five recurring-billing type things then canceling them, those advertisers are going to pull out, and this won’t be a long-term market.

Where else on the Internet are the more questionable offers doing the most damage?

Well, if you look up “fountain of youth” on Google, it doesn’t exist, but Google is monetizing that. There’s a caveat emptor to everything they do. I don’t find it egregious. Google will say, “If we don’t show ads for get-rich-quick schemes, we’ll lose money to Yahoo.” I don’t think Zynga was every thinking: how do I steal from my customers? They were just trying to optimize around price. It’s the prisoner’s dilemma. What happens is that government comes in and regulates these things more. That makes everyone happy.

TrialPay works with thousands of companies, many of them well-known brands, and you claim those relationships are direct. How did you form them?

It took many years. It’s so easy to lie and get away with it. So many people claim to have direct relationships. In many cases, though, customers aren’t tasking, say, the carmakers to prove it; the customer just wants to buy from whomever has the best spec sheet.

We didn’t establish our relationships in year one. I’ve been working on this idea since 2004. To get a direct deal for an offer we host for Blockbuster took two years. There’s a lot of inertia to overcome.

What will TrialPay look like in 2015? Do you think it will be a public company?

It’s hard to tell. Last year, the response would have been that companies don’t go public anymore. It’s a possibility. We have a strong revenue base; we’re growing quickly.

Are you profitable?

We’re close to profitable. We’ve flirted with making money but we’re aggressively hiring and marketing and trying to make online transactions even more efficient. Among our other offerings, after something is bought, we can give you a gift certificate. It’s called connected commerce; it literally appears after your transaction is over. You’ve bought your pizza; now we’re giving you a gift certificate to shop at FTD.

You’re the boss of a much bigger company than when I first met you. What are some of your biggest challenges right now?

Communication is a key challenge, even though everybody but a few salespeople is out here [in Mountain View]. A lot of HR things come up that don’t come up at five-person companies.

How do you keep your older employees motivated, especially when everyone has their eyes on exits again suddenly?

Well, it’s not helpful when YouTube sells for $1.6 billion a year after it starts, but I think people realize those are aberrations and they know that hard work pays off. We could have had a lot more revenue last year if we’d done more in this sleazy [social gaming offer environment], but we weren’t aiming for revenue growth in one year but 10 years.