Gurbaksh Chahal launched gWallet, a virtual currency platform for social media developers, in 2009. Chahal, who had earlier founded two internet advertising companies — Click Agents and BlueLithium –, says that the idea behind gWallet was to leverage his long relationship with advertising agencies and bring big brands into the fast-changing social gaming space. With gWallet, he says, the advertisers are able to reach the growing gaming community, the users receive game currency for free and the gaming companies get to monetize a larger user base. In an interview with India Knowledge at Wharton, Chahal says that success in the gaming industry is no longer accomplished simply by spending a lot of money — it is all about having a great idea and executing on it.

An edited version of the interview follows.

India Knowledge at Wharton: Could you tell us how you got into the social gaming space and where it is headed?

Gurbaksh Chahal: I’m not the type of entrepreneur who builds something brand-new. I look at an opportunity and I just try to make it better. I sold BlueLithium [an internet advertising company Chahal founded in 2004 and then sold to Yahoo!] in October 2007 and then took a two-year hiatus before starting gWallet. One of the big mega trends that I saw [at that time] was that social media had transformed and was transforming the way we behave on the Internet. There was also a growing ecosystem of companies [that were launching around the concept of] monetization.

One of the areas that we picked was social gaming. I leveraged 10 years of my relationships with agencies, advertisers and brands and in September 2009 we launched with the idea of bringing brands into social gaming. Typically people look at gamers and think of them as a bunch of nerds who lock themselves in a room — in a dark room — playing 3-D games and all that. But the fact is that [the games] entice people into interacting with others.

India Knowledge at Wharton: Let’s talk about casual gaming on mobile and digital platforms. What’s going on there?

Chahal: It’s a similar ecosystem that was formed at the time Facebook opened up its platform. Facebook launched a platform to allow applications to be built and a few years later, the segment that grew the most was gaming. [Users were attracted by] the ability to … play casual games or types of games that are simple and which you can play with a close circle of friends, or with other people that have an affinity towards that game.

There was a bit of competitiveness that [Facebook] intertwined to make gaming thrive in that category, and the [number of users] kept doubling and doubling over a short period of time. The next thing you knew, you had 200 million-plus people playing these games online on the Facebook platform. Then the introduction of the iPhone allowed people to [download and] start playing games for 99 cents and made that ecosystem into very big business.

That’s really where the business model evolved from. [With] console games, you spend a lot of money on building a game, but you don’t know whether it would be a success. The introduction of the iPhone platform and the Facebook platform said, “Hey, you probably don’t need to spend US$50 million to build a game. You can build it for US$100,000 to US$200,000 and put it out there and either buy virality or get organic virality. Then you can incorporate the freemium model, which is to let people play for free, but if they want to do extra cool stuff they have to pay for it.” And that kind of flipped the entire ecosystem of gaming because [success in the gaming industry] was no longer about having a lot of money. It was about having a great idea and executing it.

India Knowledge at Wharton: Now that Facebook has built a platform, what can game developers do to monetize that besides selling the actual game itself?

Chahal: … The Facebook model was free games. You first get enough people sucked in and they get addicted to the game. They then get other people involved in the game. And then you get that hardcore fan … to actually spend a lot of money. It’s like, “If someone wants to spend an infinite amount of money on a game, give them that chance.” That’s what a console doesn’t do. A console is the game where everybody pays US$29.99 or US$49.99. Right? And whether they play it once or every day for the rest of their life, all customers are [spending an equal amount for the console]. In the Facebook model, probably 90% [of customers] will never pay. But the 5% to 10% that do pay will make a lot of money for you.

India Knowledge at Wharton: So the fanatics subsidize the entire user base?

Chahal: Yes. And the whole model of gWallet is outside of people paying cash for virtual gifts or virtual items or transactions within the game. [It is about] how we can connect brands. Let’s say you want to just watch the Coca-Cola commercial for [the movie] Avatar…. You watch it within the game and you’ll get a dollar worth of [virtual] currency or fifty cents worth of currency.

We are trying to bring in brands to create a frictionless environment where people can get [virtual] currency and the game can make money and tap into that additional user base that probably would never pay cash for these games.

India Knowledge at Wharton: So you asked yourself where is the intersection of the mega trend, which you identified as social, and where you could leverage your existing brand relationships, right?

Chahal: Yes.

India Knowledge at Wharton: Tell us about that intersection and how it created the idea of gWallet.

Chahal: There were [other] businesses [getting advertisers inside the social gaming infrastructure] before we [entered this space.] But they weren’t doing anything with brands. The way we looked at it was that there is an audience and people are spending [a lot of] time, but there aren’t any brands in here. We said, “Okay, that’s what we’re going to fix. We’re going to [implement] better technology, a better platform and create better ads and offers inside these games. This will allow us to tap the people that would otherwise never convert [into paying users].”

[The question was] if 90% plus of your users are never going to give you a dollar because they are going to play the game for free, how do you tap them? What we did was simple stuff like getting [the user] to watch a two-minute ad for JCPenney or Best Buy or Microsoft or Nike or Coca-Cola. You don’t have to buy anything. All you have to do is click, watch and interact, and you get [virtual] currency. So it’s a win-win situation for everyone. You monetize that tail, the advertiser gets to reach users for an extended period of time and users get currency. That’s essentially what we have proved and scaled.

India Knowledge at Wharton: And these relationships with brands are ones that you developed while you were at BlueLithium and Yahoo?

Chahal: [And at] Click Agents and ValueClick. [Chahal co-founded Internet advertising company Click Agents in 1999 and merged it with ValueClick 18 months later.] And it’s not really with brands. It’s with [advertising] agencies. These guys are always going to have the big budgets. Our goal was simple — to bring in those big agency brands and introduce this vertical to them.

India Knowledge at Wharton: How are you positioning gWallet to be different from the other companies that are in the same space — of creating currency online?

Chahal: We are integrating our offers and ads. We have a national sales force that is tied to all the relationships. In the last year we have brought in over 120 different big brands.

India Knowledge at Wharton: Could you cite an example of a well-known consumer brand that’s been interacting with gWallet or using gWallet?

Chahal: Coca-Cola. Microsoft. Nike. Best Buy.

India Knowledge at Wharton: Could you be more specific on how they wanted to leverage gWallet and how gWallet helped them get to a different audience in a different way?

Chahal: Sure. Take Coca-Cola. They had a two-minute trailer that they integrated with [a game] when the movie Avatar came out. It was a brand integration video commercial. Commercials are normally only 15 seconds on the Internet and 30 seconds on TV. This was a two-minute viral video — not a commercial — that people watched. If they liked it, they became a fan of Coca-Cola or a fan of Avatar or they tweeted about it. It was a viral mechanism that told people about the movie, but it was Coca-Cola using a cool way to go ahead and have a viral video for people to watch.

India Knowledge at Wharton: So once people watched it and they were using the gWallet platform to do that, they got virtual currency?

Chahal: They got currency within the game that they were playing.

India Knowledge at Wharton: So you can watch a number of different videos or play a number of different games, collect all the currency and use it across platforms?

Chahal: Yes. Spend it on whichever game you’re playing.

India Knowledge at Wharton: In terms of adoption, are you seeing a usage spike in any particular geographical area?

Chahal: The average revenue is the highest in the U.S. and then Europe. It’s catching on everywhere else.

India Knowledge at Wharton: What do you think about emerging markets or in the Far East where gaming is already really big?

Chahal: If you [had asked] me five years ago, I would have said there is no way this is ever going to work. People paying for virtual goods … that’s just not going to ever happen. The [key] factor was that you needed a platform that allowed it and you needed a very scalable platform. [Then] Facebook came in. They now have 500 million unique users and they have a monster of a platform where they have allowed people to interact with their friends and create a social utility. That became the precursor to changing the way that people can now spend their money in a very frictionless and easy way around gaming. I think that was a trigger point.

China already [had] a gaming-intensive environment. We didn’t have that [in the U.S.]. And if we did, it was that very narrow demographic. Facebook allowed it to become mainstream. Some of the largest games on Facebook are played by middle-aged Midwest housewives.

India Knowledge at Wharton: Looking ahead five to 10 years at the developed world or at East Asia where the gaming sector is developed, how do you see gaming evolving and how do you see gWallet fitting in there?

Chahal: I can’t comment on China’s market because it’s probably the most developed and they are ahead of us in that game. That’s a different culture. [Regarding how] it will affect everyone else — I think [there will be] more innovations inside the games. They’ll get more advanced and will [attract] more users…. Once there are 30 different FarmVille’s that are played by 75 million unique users, then I think all the rise of the tides happen.

India Knowledge at Wharton: Are there any new features coming out in the next 6 to 12 months in gWallet that you are particularly excited about?

Chahal: Yes. The biggest product that we will be launching [soon] will basically allow us to monetize the greater social media Web — the broader social media Web outside of social gaming.