The revenue doesn’t always follow the large numbers.

It’s not your mother’s home shopping experience. As the world of television changes, so-called TV commerce might be the next gold rush, and a slew of new platforms are vying for dominance. One of them is Delivery Agent’s TV Wallet, a platform built on the relationship between a couch potato and his remote control. In essence, you watch, you like, you buy with the press of a button. The business model rests on the San Francisco-based company’s partnerships with cable providers. Delivery Agent launched a History Channel shopping widget with Verizon late last year and this year has been expanding its relationships as well as exploring the vast potential of second screen shoppers with Shazam, digital couponing and more. We talked to CEO Mike Fitzsimmons about what he calls contextual commerce and why he thinks advertisers should act now or be the odd men out.

Tell us a bit about Delivery Agent.

We’ve established this business of making television shoppable. We power the branded storefronts for most of the major networks in the U.S., everyone from NBC, Fox, CBS, HBO, Showtime, Discovery, etc. Which means that you as a viewer can log on to those Web stores and purchase products related to what you’re watching.

In Q4 of 2011, we announced the first nationwide deployment of contextual “T-commerce,” which allows viewers to use their remote control while they are watching TV to buy products. That’s using a technology we created called TV Wallet. TV Wallet enables you to set up an account online, which then enables you to purchase across anything you’re watching using simply your remote, your mobile number and a four-digit PIN.

But people have been shopping with their laptops in front of their televisions for years. So what inspired Delivery Agent to introduce TV Wallet?

One of the things we had to go and solve for the industry was this challenge of how do you take friction out of the purchasing process? Clearly, a remote control is not a keyboard, so we don’t have the same kind of flexibility that we have on the Web, if you will, for entering data and whatnot.

That was the key reason we deployed this TV Wallet technology, and it’s just been on fire since we launched it. Verizon was the first major operator to deploy the technology, so we’re in about 4 million households in the U.S. with FiOS. And we have a couple of others that are pretty exciting.

So we do expect substantial penetration with TV Wallet on major cable operators, satellites and telcos in 2012 with this vision of ultimately having a ubiquitous tool by which consumers can purchase products related to what they’re watching.

What kind of purchases can people make?

Our real focus is around this notion of “contextual commerce”: If I’m watching Project Runway and I want to buy the dress they’re wearing in the finale, or I’m watching Pawn Stars and I want to buy a replica bike that the person just sold to the pawn shop. We’re really agnostic about what flows through our platform, and it does vary fundamentally based on the context of whatever the user is watching.

In terms of the product placement aspect, what kinds of shows lend themselves to this sort of commerce best or least, or does it not really matter?

You know what’s interesting, engagement doesn’t follow large audiences per se. So the one big lesson we have learned is, is it’s not always just a matter of the show with the largest number of viewers lending itself to the highest returns.

We have stayed away from news, just because there are understandable concerns about compromising the editorial integrity of the news. Shows like, believe it or not, Gossip Girl or Sons of Anarchy, that maybe don’t have the highest ratings in the world, or True Blood on HBO or Pawn Stars on the History Channel—they’re high-rated cable shows but not by American Idol standards—oftentimes those shows just have superior engagement. It’s a different type of audience, it’s much more loyal, it’s much more engaged and subsequently can be more productive on the revenue basis.

That’s one lesson we have certainly learned, that the revenue doesn’t always follow the large numbers. The understanding, the engagement, the relationship between the viewer and the content is a big driver as well.

What’s your sweet spot in terms of product category for TV commerce?

Apparel, media, accessories are three obvious ones. But we’ve sold everything from Louis Vuitton handbags to dinners with the chef from Top Chef at his restaurant. There’s no limit to what can flow through the platform. So apparel, accessories, media are the low-hanging fruit and the obvious categories for phase one of the business, but we continue to be optimistic that other categories will mature over time.

Have viewers been receptive?

The engagement data we have gotten has exceeded all our expectations. We’ve had individual days where, even though Verizon FiOS is only in approximately 4 million households, the traffic we have generated through these contextual commerce apps from the remote has exceeded the traffic we’ve generated through our Web stores.

So if you think about that scale, if there’s 110 million pay TV households in the U.S., we’re really only getting to about 3.5% of the accessible audience—but they’re engaging at a rate that is 30 times more effective than the traditional Web. That’s exciting stuff for us, and that’s just the beginning.

Why do you think the traffic through the remote is so much higher?

It feeds off a consumer’s desire to engage with the content they’re watching and get more information. It also has a really exciting discovery component to it. The other piece of it is that there’s an awful lot of friction in the current process. Think about it: I’m watching TV, and I get a notion [to buy something]. I have to power up my computer and go find the website of the network. Many consumers at this stage don’t even resonate with the network; they think more about shows than networks. But I’ve got to find the website of the network, I then have to find the show, I then have to find the store. And that takes you eight clicks on your PC to get to that same information, but on a remote it takes you one click.

Given the massive penetration of mobile devices, do you consider second screens to be the future of TV commerce?

I don’t think we know; I don’t think anybody knows. We’re powering contextual commerce for Shazam—we did Shazam for the Super Bowl where you could use Shazam on your mobile device to buy products related to what you were watching. That even included the halftime show with Madonna, which was pretty cool.

We’ve seen equal engagement between mobile and tablet, but we see much higher conversions on tablet than we do on mobile devices. We continue to be optimistic and bullish on growth in the channel. It’s been growing at about 70% for us year-over-year. But I think it’s too early for anyone to judge whether this is going to be a single-screen or a two-screen experience.

I’ll tell you this, that the television is a pretty sacred piece of real estate. A mobile device or tablet is unbound, and there’s a lot of clutter. Part of why I think the television commerce experience can be so successful is because there aren’t 17 other options you can do while you’re watching. You’re not going to get distracted with whatever else. On an unbound Web-based experience, that’s always a risk.

I anticipate engagement and conversion continuing to be healthy on the mobile side and certainly growing. But I also think there’s something pretty exciting happening on the connected-device side, and if users get trained to think of the remote control a little differently, it could be a pretty profound development for all of us.

Delivery Agent, TV Wallet’s parent company, has been doing this since the mid-2000s. Home Shopping Network has had shop-by-remote since 2005. There have been other players here and there. Why do you think TV commerce is about to see its day?

We think there’s another trend taking place here: Entertainment and media companies wanting to go direct to their fan bases and monetize their fan bases without having a middleman. If you think about the ability for a network that has historically sold their goods through brick-and-mortar channels—Walmart, Target or even Amazon, whoever else—but now can go fully vertical and can sell directly to the end consumer without having to include middlemen, it’s a profound development, and it extends into all verticals.

We have a pretty robust client list of DR TV marketers who are leveraging our platform for exactly that. They can enable a transaction directly from their media; it’s pretty exciting stuff.

And if you think about how that applies to any celebrity, it goes off the charts. At the Super Bowl, where we were selling all the Madonna merchandise from her upcoming tour, users could just Shazam the Super Bowl, buy the products directly, effectively, from Madonna, Madonna kept her retail margin, and we facilitated all that.

That’s great for Madonna. But where do advertisers and brands fit into this model?

There is this really exciting notion of, How do I bring engagement to my media investment, and how do I bring quantifiable engagement to my media investment? Part of the tool set we’ve created enables an advertiser to look at set top box viewership data, map the transactional data and have a very interesting perspective on how they’re leveraging their media investment.

We’re starting to work with major advertisers who are looking to add an interactive TV component to their media investment. We ran the largest ITV ad campaign last year for a company called Victory Motorcycles: I’m watching the advertisement on TV, and I press the button on my remote control and I get a brochure on Victory Motorcycles. And it’s not just a brochure. We’ve got the ability now to do digital couponing.

I’m watching a spot, and we can shoot that coupon directly to your mobile device. It’s base-level engagement against their media investment and a great set of analytics that enables them to better understand or align customer acquisition and that sort of thing.

Is this product placement on steroids? Will it involve negotiations about what gets placed and what gets sold?

That’s actually a lot easier than maybe it sounds. We have this massive database that maps all the content with all the relevant brands and products that are in the content. So we plug in at the production level when they’re creating a show; they upload all this data into our systems. We actually know if it’s a show that Macy’s is sponsoring. If they have products placed in the show, we know all that data and all that information.

We enable the brands that are in the content to participate either through sponsorship or from a direct participation in that whole contextual commerce experience. Some brands might want to sell products, some might want to just do this from a recall perspective. Then there are the brands that are in the show but the viewer doesn’t even know, and the brand doesn’t get any real value out of that. You think about Glee and the fashion brand Nanette Lepore, and how does the viewer know they are wearing Nanette Lepore? There might be a bit of branding in the show, but it’s not enough to really close the loop.

So there’s a number of ways those brands can connect directly with that viewer using our platform and get great quantifiable data on engagement and, if they seek to, drive additional commerce transactions.

For example?

We did a recent campaign with Chevy and Men of a Certain Age on TNT, because Ray Romano drives a Chevy Camaro. Chevy’s objective was to close the loop with the viewer to make certain they know that Ray’s character drives a Chevy. We weren’t obviously selling Chevys [through the television], but in that contextual commerce experience, there was an experience where you could see different screens and click through and see information about that car that Ray drives.

And again, this is a Web-based experience as well and was accessible through the mobile device. So it’s multichannel in that regard. And they also added a commerce component, just for whatever it was worth, selling Chevy merchandise.

What about ad agencies—how do they come in?

In a perfect world for us, agencies embrace and adopt us as a platform extension for their brands, and they evangelize this and we have a great partnership. That’s in a perfect world. It’s always slippery when you’re viewed as a potentially disruptive technology. You need entrepreneurial folks with vision who are willing to take chances.

Our fundamental goal is just to facilitate engagement between a viewer and a brand or a product through the content—that’s all we want to do. We’re trying to make this easy, so if a national advertiser or an agency wants to push a nationwide campaign doing this, they have a platform they can do it. If you wanted to do any of this stuff at scale historically, it’s been really challenging. We might have one platform like TiVo who’s has had some cool interactive TV capabilities for the last few years, but they have such a small footprint that it’s difficult for a large advertiser to move the needle.

What we’re trying to do is solve that part of the equation, which is get a large enough install base where you can do this at scale. The Victory Motorcycle campaign was in 75 million households, and that did come from an agency.

That went to 75 million households. How many pamphlets were ordered?

We’ve got phenomenal engagement data on it. We unfortunately can’t disclose it, but the interesting thing is you can actually put a per-dollar against the media spend.

OK, let’s talk about some metrics you can discuss. You told The New York Times that the average order placed by viewers is $75. Is that about right?

The average order values are pretty consistently in that range. It can vary by show, but as an aggregate, that’s an accurate number.

Is there a price threshold on these kind of impulse buys? Is somebody going to buy a $400 leather jacket with their remote control?

Like anything, there’s a cadence to how consumers are going to get comfortable with this, and it’s going to take a little time and it’s going to take them having a truly wonderful consumer experience to continue to use the technology. I think that starts with lower-cost items that you’re not as intimidated buying, but over time we believe it’s going to work. If you use a comp like an HSN, we’re right on the number right now. QVC’s comp is a little bit lower than HSN; Shop NBC’s comp is higher, they’ve skewed more higher-priced items.

Do I think someone is going to buy a car from their remote control eventually? No, but I wouldn’t be surprised if you buy travel. We’re doing an Atlantis Resorts campaign right now that’s pretty interesting. It will be interesting to see how it’s adopted across the board by various verticals.

Cable providers are key here, because consumers are purchasing via remote control. But if you really want to get to scale, why not leapfrog the cable device and go straight to mobile devices?

When we look at the footprint of domestic TV households—Comcast is the biggest of the operators, and they’re in 28 million households; then of course you put Shazam on that list, and Shazam has 110 million installs—those are not equal, no matter how you cut it. We’re excited about [mobile], we’re aggressively playing in the space. But the engagement data from the set top itself is just so much better, and again, I attribute that to clutter.

Our lead investor in our last round of financing was Intel, because they are heavily investing in their chipset technology that [they hope will be] going in all the televisions that go out the door. And what gets exciting for us is you’re going to have, in the chipset for every television, the ability to push out a marketing message directly to your mobile device in your living room without you doing anything.

To take it one step further, it’s not hard to connect the dots to the Xbox, which is now in 65 million households. They’ve rolled out Kinect for the Xbox—just with voice and gesture you can control the Xbox. So the idea of being able to watch that television show and say, “Shop” and have it all activate for you—that’s becoming a reality. Or watch a television commercial and just wave your hand to get information or signal some sort of response from the device. There’s so many exciting things happening in this whole experience. Our goal is to enable these engagement opportunities through whatever device.

So we continue to be bullish and optimistic about the mobile opportunities, but I think there’s a misperception about what that scale actually means.