GiftRocket Seeks to Take the Pain (and Loss) Out of Gift Cards

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French Laundry in Yountville, CA. (Somewhat bizarrely, Kale says the most frequently gifted restaurant destination is Chipotle.) “People use their imaginations so much more than they would with a regular gift card,” he says. “We do see Macy’s and other stores that have traditional gift cards, but then we see people go and use them for small boutique gift shops where my guess is they do not even have gift certificates.”

GiftRocket earns revenue by adding 5 percent to the face value of each gift, mostly to cover its credit-card processing costs, Kale says—so my $25 gift for Lyndell’s actually cost me $27.25. The startup’s credit card payments are handled by PoundPay.

The outward simplicity of the GiftRocket system—which could be a big asset as the company strives to acquire more users—actually masks a lot of behind-the-scenes programming work and some deep user-experience thinking, Kale says.

“The most technologically difficult thing we built was our mobile site, which is compatible with every major smartphone out there right now,” he says. “That was Nick’s doing. It’s not a very straightforward process to get the device location from a Web app. But on iPhone and Android, it feels very close to a native app at this point. The amount of time it saves someone to not have to go to the App Store [to download a native GiftRocket app] is a huge advantage for us, in my opinion.” (The GiftRocket location detection system doesn’t yet work on Windows Phone 7 devices, Kale confesses, but he says “we’re working on a solution.”)

Kale says the team also spent a lot of time thinking about a seemingly mundane matter—the exact wording and appearance of the e-mail that GiftRocket sends to a gift recipient (see example at left). For one thing, they didn’t want the e-mail to be mistaken for spam. “If you write in your personal message ‘Happy Birthday, enjoy some cheesecake at The Cheesecake Factory on me,’ that is what will show up in the subject line, which is a lot better than ‘You’ve got a $20 GiftRocket,’ which fires off a flag in my head,” Kale says.

After the subject line, says Kale, “The only instructions the person really needs to get are ‘One, go to this place on the map,’ and ‘Two, click on this link in your e-mail,’ which takes you to the mobile app with a picture of a gift card.” This three-step process “simplifies everything compared to what it could have been,” he says. A typical mobile-based redemption experience might have required a recipient to “download this app, log in, confirm your e-mail address, do a dance—your head wants to explode.”

While it already feels pretty frictionless, the current GiftRocket system “is a very early version of our product,” Kale says. “As you know, the philosophy in Y Combinator is ‘release, release, release, launch, launch, launch.’ But the payments world is rapidly advancing.” Within a short time, as other forms of digital cash come online, there will probably be easier ways for GiftRocket users to buy and redeem gifts, he says.

On the business side, the company doesn’t really think the 5-percent fee will be its main revenue stream in the future, Kale says. There may be much more lucrative opportunities in … Next Page »

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Wade Roush is a contributing editor at Xconomy. Follow @wroush

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