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

7/11/11Follow @wroush

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Crate & Barrel, West Elm, Target, teen clothing retailer Wet Seal, and hundreds more Best Buy locations. The app itself has been spreading at an accelerating pace: it took 7 months for the startup to obtain its first million users, but only 4 months to obtain the second million, Roeding says. And unlike apps that get used once and then forgotten or deleted, Shopkick seems to have staying power: 30 to 40 percent of users fire up the Shopkick app at least once a month, 15 to 20 percent use it at least once a week, and 5 to 10 percent use it every day, Roeding says.

Roeding, who’s 38 but looks a decade younger, says he realized mobile was “the next big thing” back in 1994, when he was studying management at Sophia University in Tokyo. After a consulting gig with McKinsey, he co-founded a European-based mobile advertising startup called 12snap in 1999, then moved in 2004 to Los Angeles, where he spent three years building a 60-employee mobile division for CBS. After a 2008 trip around the world, he ended up as an entrepreneur-in-residence at Kleiner Perkins, helping to evaluate applications for the venture firm’s $100 million iFund, which was created specifically to back ventures building apps or services for the Apple iPhone. (It has since grown to $200 million.)

The surprising thing about working on the iFund, Roeding says, was seeing how few of the incoming proposals made full use of the iPhone’s capabilities. “I couldn’t find anything that I thought had a breakthrough potential,” he says. “So I started taking time to think about what is truly mobile about the cell phone. The usual answer is the ‘anywhere, anytime’ argument—I can now watch video anywhere. But there is mobile video without mobile—it’s called YouTube. And there is mobile social networking without mobile—it’s called Facebook. What I was really looking for was an idea that would make absolutely no sense without mobile.” Rarely, Roeding argues, do extensions of existing platforms lead to venture-scale returns: “The breakthrough businesses are the ones that were simply not possible before.”

As the first interactive platform that people can carry almost anywhere, Roeding argues, smartphones will have their biggest impact in environments that are currently non-interactive, such as hospitals and retail stores. “So the next question I asked was, ‘What is the number one problem of every physical retailer in America? It’s foot traffic—getting people through the door.”

Which led to the idea for Shopkick, and won Roeding the $5 million Series A investment—from the iFund and LinkedIn founder Reid Hoffman—that got the company off the ground. A $15 million Series B round followed not long after.

While Shopkick went after the big chain stores first in an effort to build a wide national footprint quickly, it’s now expanding to smaller retailers. Last month Citi agreed to foot the bill for free installation of the ultrasonic signal boxes at 1,000 local merchants in Austin, Chicago, Dallas, Detroit, Los Angeles, New York, San Francisco, Seattle, and Washington, D.C. (Citi didn’t explain its largesse, except to say that it was an early investor in Shopkick and that it’s “happy to help” small businesses take advantage of the technology. But it’s easy to see how greater retail spending might benefit one of the country’s largest credit card providers.) “We are focused on large stores because that’s where most of the foot traffic is, and by the way most of the dollars too, but the shopping experience of the individual consumer also entails your local bakery,” says Roeding. “If Shopkick is supposed to be the shopping app, why shouldn’t it contain that, too?”

Remember how Roeding says Shopkick sees walking into a store as the offline equivalent of a Web click? The startup takes that analogy all the way into its pricing scheme. “It’s the first 100 percent performance-based marketing model in the physical retail world,” Roeding says. Clients pay Shopkick a percentage of the value of each kick earned, meaning they only shell out for actual shoppers entering the store. And the retailers aren’t on the line for the value of the kicks (which convert to cash at the rate of about 250 kicks to the dollar, by the way). Shopkick covers the cost of all redeemed points out of its own profits. This has the added advantage of making Shopkick’s app into what Roeding calls a “the first and only coalition rewards program in America,” since kicks earned at Target, for example, can be spent at Best Buy and vice versa.

Roeding says Shopkick is signing up new retailers, and hiring more software engineers, as fast as it can. But its $20 million in venture cash should last a while nonetheless, he says. “Our vision is to transform shopping into a more personal, rewarding, and fun experience for everyone,” says Roeding. “We hope to make stores into interactive worlds where consumers are exploring in a completely new way. Shopping should be something you are not dreading but enjoying, and until we have managed to make that possible, we will not rest.”

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

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