Giftly Looks to Disrupt Traditional Gift Card Market

11/26/12Follow @e_craig

When CEO Tim Bentley founded Giftly, a site that allows users to give gift certificates through recipients’ credit cards, he realized business would be heavily seasonal. The three big holidays for gift cards are Christmas, Mother’s Day, and Father’s Day, and almost 50 percent of the market is sold in the fourth quarter of the year.

“A lot of folks are using traditional gift cards for obligatory gifts,” he says. “They’re great when you’re in a situation where you definitely want to give a gift, you don’t know what they want, but you know their interests. I know with my dad, a gift card to Best Buy will 100 percent get used.”

But those obligatory gift holidays left his San Francisco-based business stuck squarely in the fourth quarter.

To encourage gifts throughout the year, he came up with the idea of “microgifting.” Instead of just giving gifts for special occasions, Bentley thought it would be great if he could send a friend a small present to help celebrate or commiserate about something, without having to be in the same location. “You can send a friend of yours having a bad day a cupcake, a beer, or coffee, something to make them feel a little bit better,” he says. “Or send something to someone who’s having a great day and got a promotion. People have so many friends all over the country now, you can’t always do that.”

A page from Giftly's mobile app

A page from Giftly's mobile app

Here’s how Giftly works: Users can pick the type of gift they want to give, from a microgift like a doughnut to a traditional meal or even a pair of shoes from a boutique; they then choose the amount of money they want to spend, and the location where the gift can be redeemed. The “Giftly” can be sent through Facebook, via text message, email, or even a printed piece of paper.

To redeem it, a recipient registers his own credit card on Giftly, and then makes purchases at the designated retailer. If users aren’t sure what store or vendor to choose, they can give a gift with general categories—for example, a specific café, or any café. Once recipients have used their gifts, they can simply log back into the site or app, and redeem the gift in two clicks. Then, the credit card is credited with the price of the gift.

Giftly competes with a similar San Francisco-based startup called GiftRocket, which sells online gift cards that can be redeemed for cash via bank transfer, PayPal, credit card, or a check in the mail. Both companies earn revenue by charging the giver a nominal service fee—on average about 5 percent, in Giftly’s case.

Because Giftly works directly with credit card companies and vendors, Bentley says, it can always guarantee that users will be able to get a certificate to the restaurant, cupcakery or boutique of their choice, no matter the city or size of the store; they just have to take credit cards.

For Bentley, being able to buy a gift certificate anywhere was a really important piece of the business. The idea first came to him in 2010, shortly after he left Aardvark, a social search service acquired by Google that year. He wanted to send his mother gift certificates to a Vermont restaurant called Sarducci’s and the local movie theater, but the restaurant couldn’t take orders over the phone. And while there might be more options for gift cards in a startup-heavy culture like San Francisco, that wouldn’t help him much in Vermont. “I realized there was really no great solution out there,” he says. “The whole system seemed pretty flawed to me.”

Since leaving Aardvark, Bentley had been considering starting his own company, but the experience made him want to start a business that could rethink the market and create a gift card system without the usual constraints.

He pitched the idea to credit card companies and processors, and partnered with a bank to secure all of the purchased gifts. “We have a pretty elaborate financial back end to run the program,” he says. “We took the first six months to put the right financial system in place to build the user interface we wanted. It’s the sort of platform most startups don’t take on.” It was complicated, but not totally unfamiliar territory for Bentley, who has a background in both finance and tech.

Initially, he bootstrapped the company, but by March 2011 he had raised a seed round of about 2.6 million from investors including Baseline Ventures, Lightspeed Venture Partners, RPM Ventures, SoftTechVC, Floodgate Fund, and Thrive Capital. The company has also grown from Bentley’s idea to 10 employees.

So far, he has avoided dealing directly with vendors, but next year, he would like to build more relationships to help improve the experience for merchants. “They contact us all the time about whether we can issue gift cards on their behalf,” Bentley says. “They want to be able to hand things out in their store. That will be next year.”

Bentley is still working to even out the gift cycle so that it’s not entirely bunched around major holidays, but still, this quarter will be a busy one. The company has only been operational during one holiday season—the fourth quarter of 2011–but Bentley expects even more traffic this year. “Last year, Christmas Day bought on our biggest surge of traffic by far,” he says. “Last Wednesday, we had as much traffic as we did last year on Christmas Day.”

In the meantime, Bentley himself is a big fan of microgifts and uses them all the time, sending along a drink, for example, to get together with friends.

“I’m still the number one gifter on Giftly. I don’t have more friends than the next guy, but it seals the deal for really making plans.”

Elise Craig is a freelance reporter based in San Francisco. Follow @e_craig

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  • http://www.socialbakers.com/ Peter Kelly

    In my opinion, with those “micro-gifts”, the potential of Giftly is really high. I mean, people like when they do something good for others, when they can cheer them up with a coffee or something like that. I think that this has been a great move from Giftly.