As anyone trying to make money off the Internet knows, keeping eyeballs on a Web site as long as possible is critical.

That concept, known in the business as "engagement" or "stickiness," is a science for Rajat Paharia (pictured) and his 11-person team at Silicon Valley startup Bunchball Inc. The three-year-old company, which quietly raised a $4 million Series B in January, is applying the principles of behavioral economics and game design to encourage Internet users to return to a Web site repeatedly and for longer periods of time. The hook for Bunchball's so-called Nitro platform: virtual money, reward points, competitions and games.

"Our system is about driving user behavior with rewards, competition and status, creating an engaging experience on your site, and making sure users are personally invested in your site," says Paharia, founder and CEO of Bunchball. "You make money when users do things on your site. Nitro helps them do more things, and make you more money."

The company's first client is NBC. The broadcasting company had developed a companion site to its television comedy series "The Office" and wanted a way to keep visitors coming back. Using Nitro, NBC lets fans of the sitcom join a virtual branch of the fictional Dunder Mifflin company that is the setting for show. Visitors can create a design logo for their branch, compete in weekly tasks and upload videos.

"Now there are hundreds of thousand of users creating content on the site, paying virtual currency to create content," Paharia says. "NBC is super-excited about it."

Other Bunchball customers include Warner Brothers (a unit of Time Warner Inc. [TWX]), the Indianapolis Colts, Facebook Inc., and Sony BMG.

Another benefit of Nitro is that it is "content agnostic," he adds, noting that service is compatible with a range of online content, whether text, images or video, essentially providing the basic infrastructure for offering online incentives. "We want to be a service business, like Salesforce.com," Paharia says. "We have a platform that you can wrap around your site."

Paharia, 37, founded the company in early 2005 and turned to Sunil Singh, CEO of business intelligence software maker Informance International, to fund the employment of two developers in India. In May 2006, more angel funding came from Payman Pouladdej of Halcyon Capital. BunchBall received its first venture round in October of that year from Granite Ventures and Adobe Ventures, to the tune of $2 million. Its second round came from the same backers in January, though it hasn't been announced.

The funding is set to last through mid-2009, Paharia says, and will be used to expand the company's marketing capabilities.

Bunchball has two ways of making money--a monthly fee, paid by clients like NBC, and a revenue-sharing arrangment the company is aiming at small startups.

"We can reach through to end-users and monetize them by offering them premium virtual items, and we have other ideas based around advertising and lead generation," Paharia says.

Regarding the exit strategy for BunchBall's investors, Paharia is refreshingly forthcoming. Most young companies will publicly repeat the old saw of building the company for the long haul, to remain independent, to go public. Paharia says he's well aware that his company is likely to be acquired at some point.

"Being completely realistic, the most likely outcome is that someone will find us very valuable," Paharia says. "Given what I see in the market, that probabilityis about 90%."

That said, because of what BunchBall does, the range of potential acquirers is wide. BunchBall's product would dovetail well with the kind of site services offered by Google Inc. [GOOG], Microsoft Corp. [MSFT] and Yahoo! Inc. [YHOO], Paharia says.

"This is the next generation of Web analytics, which we are calling Web catalytics, because it is about proactively driving user behavior," he adds. This fact could add companies like Omniture Inc. and WebTrends Inc. to the list of potential BunchBall acquirers. On top of that, the startup also fits into the customer resource managment space, so even Salesforce.com or Oracle Corp. could fit the bill, as well as some of BunchBall's larger media customer.

"The universe of acquirers is very large," Paharia says.

And that's an engaging concept to venture capitalists, no doubt. -- Olaf de Senerpont Domis

See Dunder Mifflin site from NBC

For more on Bunchball see VentureBeat