Maynard Webb

Startup Idols one year later: Badgeville gets funded

July 13, 2011: 7:30 AM ET

The "gamification" startup just closed a $12 million round of funding and added talent from Zynga and American Express. Here's why it thinks it's struck gold.

FORTUNE -- This is one in a series of articles leading up to the Fortune Brainstorm Tech conference, which will be held from July 19-21 in Aspen, Colorado. Fortune Brainstorm Tech will round up many of the best and brightest thinkers in technology. Our coverage in this series will examine the progress of companies that presented last year and give an idea of what to expect this year.

BadgevilleTwelve months is a long time in the startup world. Some newbie tech companies quickly gain traction, and others -- your Colors of the world --  hit a wall, despite a talented team and coffers of money. Badgeville, a Menlo Park-based gamification startup that debuted during last year's Startup Idol competition at Fortune's Brainstorm Tech conference, falls into the former category. With 75 clients including Interscope Recods, Bluefly (BFLY), and Samsung already in tow, Badgeville just raised $12 million during its Series B round of funding led by Norwest Venture Partners. The company also added Norwest Partner Tim Chang to its board and new staff hires, including former Zynga and Playdom game designer, Tony Ventrice, who worked on Zynga poker and former American Express (AXP) senior manager Havy Nguyen.

"We're in a [potential] billion-dollar market," says CEO Kris Duggan. "The maturing of the category and interest in this category -- and our position in it -- is evidenced by the investment round, and there's a really strong business at play here." To illustrate, Duggan says the company experienced 40% sales growth from first quarter to second quarter 2011, and he expects between $5 million and $10 million in revenues for 2011.

It's a solid start considering that just a year ago, the company had no clients and no firm business model. (The company officially launched last September.) Kris Duggan was Vice President of Sales at an enterprise software company called SocialText, his co-founder Wedge Martin was an IBM software programmer. Their initial $250,000 in funding came from former eBay (EBAY) COO Maynard Webb and friends and family.

Badgeville's business plan soon emerged: A white-label rewards platform using game mechanics like badges, leaderboards, and real-time user activity feeds, that companies can use to increase Web site user engagement. They also serve up back-end analytics tools to pinpoint how users are engaging with features and just how well their sites are improving (if at all). To that end, Badgeville's services start at $2,000, and depending on the kinds of features and amount of customization required by a company, integrating their tools into a site can take a weekend or several months.

allkpop.com's badges, created by Badgeville. Photo: Badgeville

One example the company brings up of how its services bolster user engagement is the Korean pop culture online community allkpop.com. It took two weeks to generate and integrate a system including badges that reward tasks like reading a certain number of stories, sharing links, or leaving comments. Afterwards, the site saw 104% spike in users sharing links, a 36% increase in commenting, and 24% jump in the amount of Web pages consumer by each reader daily.

That's just the tip of the iceberg for Duggan and crew. As it grows its business further, he expects to boost staff from 30 to possibly 40 by the end of the year.

"I think everyone else on the planet wants what Zynga has with how they engage and drive user behavior," he says. "They're looking for a platform for these abilities, and we're one of the few platforms to deliver them."

To see how the latest round of startups fare -- and which one comes out on top -- look for coverage of this year's "Startup Idol" competition, hosted by Senior Editor at Large Adam Lashinsky on July 19. Follow the conference here and on Twitter #fortunetech.

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