Shopkick Uses the Sound of Rewards to Bring Smartphone Owners into Bricks-and-Mortar Stores

7/11/11Follow @wroush

Shopkick is a startup on fire. Its CEO, Cyriac Roeding, is busier than the heads of companies a hundred times Shopkick’s size; it took me about eight months to get a 30-minute appointment with the German-born engineer and entrepreneur. The day I finally visited the company, which occupies a cramped office above a downtown Palo Alto dim sum restaurant, a bucket brigade on the stairs was refueling the 28-employee operation with bottled water and snacks. They needed it: Just one day before, the company had crossed the 2-million-user threshold. That’s how many people have fired up the Shopkick mobile app inside one of the hundreds of brick-and-mortar stores where consumers can use the startup’s system to rack up reward points.

Not bad for a company that barely existed two years ago, and that didn’t roll out its service publicly until August 2010. If Roeding is right about mobile technology’s potential to boost real-world retail sales, the startup will be searching for larger quarters very soon—and making backers like Kleiner Perkins Caufield & Byers, Greylock Partners, Reid Hoffman, and Ron Conway look prescient indeed.

Roeding (it’s pronounced RHO-ding) reduces the whole premise behind Shopkick to this: retail stores will do almost anything to increase foot traffic. After all, once you get people in the door, the “conversion” rates for bricks-and-mortar stores are very high; the proportion of visitors who end up buying something ranges from 20 percent for clothing stores to 95 percent for grocery stores, compared to a paltry 0.5 percent to 3 percent for most e-commerce sites. The problem, though, is that physical stores don’t have good ways to offer visitors rewards that might bring them inside more often, since merchants don’t even know who’s there until customers pull out their credit cards.

But these days, more and more shoppers are carrying sophisticated, Internet-connected sensing devices in their pockets—they’re called smartphones. The “creative spark” behind Shopkick, says Roeding, was the realization that merchants could deliver rewards to visitors via their iPhones or Android devices, if only there were some foolproof way to know when these smartphone-toting shoppers are really inside a specific store. GPS isn’t accurate enough, and Foursquare- or Gowalla-style checkins don’t work either, due to rampant cheating. (Roeding says the company’s tests showed that 80 to 95 percent of check-ins at retail locations are from people who aren’t actually where they say they are.)

Shopkick’s solution is surprisingly low-tech. It’s a white plastic box that plugs into a normal wall outlet and sends digital data via sound waves at 21,000 Hertz—just above the range of human hearing (but well within the range of your dog’s hearing, meaning the system might not work out so well at Petco). If you walk into a Shopkick-enabled store with the Shopkick mobile app already running on your smartphone, the device’s microphone will pick up the signal and use an embedded code to activate the reward of the day. Just for walking into a Target, say, you might get 60 “kicks,” the startup’s virtual currency.

The sound waves don’t leak beyond a store’s doors and windows, so you can’t earn kicks without actually stepping inside. You can pick up additional kicks by scanning product barcodes with your smartphone’s camera; build up enough kicks, and you can eventually redeem them for things like in-store gift cards, restaurant vouchers, and Facebook credits.

As the first app to reward shoppers simply for walking into a store, Shopkick has the potential to build a business at Google scale or beyond, Roeding argues. “Online, when you go to a page, you are expressing intent,” he says. “Offline, when you come through the door, you are interested in buying something. Google has built a pretty nice business on clicks. What if you could scale this up to the much larger physical retail world?”

Shopkick’s launch partners last summer included American Eagle, Macy’s, the Sports Authority, Simon (the nation’s largest mall operator), and Best Buy locations in Chicago, Los Angeles, New York, and San Francisco. Since then, it’s won accounts with … Next Page »

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

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