“Arms Dealer” Martin Tobias Talks Tippr Strategy Vs. Groupon

6/9/10Follow @gthuang

Where the heck did all these group-buying websites come from? With the rise of Groupon, LivingSocial, BuyWithMe, and dozens of other smaller daily-deal sites, suddenly it seems like every Web entrepreneur and his brother are out to make a quick buck. So maybe the better question is, where is this all going?

Tippr.com is the Seattle representative in this scrum. The local-deals startup—which rolled out its site in February, based on patents purchased from Mercata, an old Paul Allen-backed dot-com—has been on an expansion and acquisition tear recently, punctuated by its purchase of Austin, TX-based FanForce, which was just announced today. Chief executive Martin Tobias says Tippr now has 21 employees (up from four at the start of this year) and 20-25 open positions around the country.

The company has a pretty compelling expansion strategy. It couples consumer-facing deals sites in different geographies (10 U.S. cities and counting) with a technology platform approach that is the focus of its latest acquisition. Tobias, the sometimes controversial entrepreneur and investor, did not mince words about the FanForce deal today. “They realized what they were doing was covered by my patents,” he says. “It’s a great fit, we love the management team. We love their drive. These are serious startup guys.”

Tippr’s and FanForce’s software is targeted at “anyone in the publishing business,” Tobias says. That means everyone from niche blogs and online communities to big newspaper groups, radio and TV companies, and tech companies like Microsoft, Yahoo, and Google. The idea is that these sites can hook up to Tippr’s platform, and quickly start making money on daily deals and collective coupons from local businesses. “They’re all sitting there saying, ‘Hey, Groupon is competing for the local merchant marketing dollars.’ They have all called us,” Tobias says.

While Groupon shares revenue with merchants, Tippr’s approach is to cut in the Web publishers. If the right publishers eventually sign up (think MSN, Hearst, or Viacom, hypothetically), the market could be much larger than that for a single branded site like Groupon. That’s a big “if,” though.

In the meantime, Tobias declined to give any stats on revenue or percentage growth just yet. But he says, “The numbers are big…I’m making a [boatload] of money and I’m growing, and I have too much work to do.” Which is why he says he’s hiring aggressively.

Entrepreneurs I’ve talked to around town seem to think Tippr could be on to something big. But the window of Wild West opportunity—rumor has it a couple guys in a garage can make $300,000 a month selling local deals in underserved markets—is closing fast.

“We’re moving into the consolidation phase of group buying. More importantly, we’re moving into the next phase of how consumers will find group buying and daily deal opportunities,” Tobias says. He is betting that consumers will find these opportunities largely through media outlets and websites that they already like to visit, rather than brand sites like Groupon.

So where is the sector headed overall? “There will be one or two branded players,” Tobias says. “And there will be one arms dealer. I’m going to be the arms dealer… Groupon is building Yahoo—there’s no technology, but a brand. I’m building Google [think the AdSense network].”

And why should this strategy be successful? He continues, “People want to buy deals in context. They see ads in the context of editorial. So there’s more value to the guy who runs the ad network on a bunch of publishers…I could be wrong, but that’s my bet.”

The challenge for Tippr, at least in the short term, will be to gain traffic and to work with the right publishing partners. With a “channel” strategy like this, the startup is dependent on its partners’ ability to execute their strategy using Tippr’s technology. Traditional media companies have not usually led the way in implementing cutting-edge technologies, so it seems like getting enough smaller niche sites on board will be the key to Tippr’s success.

“It would not be inconceivable that the majority of our new customers will come from Tippr-powered publisher websites in the next six months,” Tobias says.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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  • Dave Lukas

    Is there any data on whether being featured in a daily deal actually improves sales with any degree of peristence? Certainly the siren’s song of 1-2,000 new customers in a 24-hour period must be irresistible, but presumably those customers are achieved at negative margins. I would be very curious to know at what rate they come back and pay full price later. I’ve probably used close to 30 deals from livingsocial and groupon, and I don’t know that I’ve gone back to one single establishment that I didn’t already frequent before. Maybe I’m an aberration.

  • http://www.xconomy.com/author/ghuang/ Gregory T. Huang

    Dave, good question. I’ll ask around. Anyone have any numbers?

    Greg

  • Nik
  • Dave Lukas

    Seems pretty clear that this is a marketing strategy that sacrifices current profits for current sales. Could be defensible if a) you’re trying to show an increasing sales trend in anticipation of selling the business; b) things are really slow but you don’t want to lay off your people; c) you’re desperate and will try anything.

    Otherwise, the pertinent question is, how does social buying impact customer base and long-term sales. That, to me, is the key metric that will tell us where the whole groupon/livingsocial craze will go. You have to assume that all the VCs who have invested in these companies did their math, but maybe it’s just too soon to say definitively whether the model works or not.

  • JT

    Small businesses are struggling to pay bills specially in the restaurant sector. This is nothing more than a quick pay day for restaurants and small businesses to pay bills and order more food all in an effort to keep the doors opens until this economy turns. Robbing peter to pay paul!!! It doesn’t build repeat biz and there is no loyalty in people that search for deals.

  • Chuck

    It looks like Mr. Tobias held the gun to the head of another business. The story states, “Tobias, the sometimes controversial entrepreneur and investor, did not mince words about the FanForce deal today. “They realized what they were doing was covered by my patents,” he says. “It’s a great fit, we love the management team. We love their drive. These are serious startup guys.”

    Let me point out the statement again, “They realized what they were doing was covered by my patents.” So it appears that Mr. Tobias went to this business and gave them two choices. Choice one, you can sell your business to me because you are using my patents. Choice two, I can take you to court for patent infringement and because you’re a small businesses you’ll be out of business.

    Mr. Tobias does not believe in entrepreneurship and what makes this country great. He is no better than AIG and the big banks. He is attacking small businesses with his patents. Patents that he didn’t even create, but bought. These small businesses is what our economy needs right now…Not Mr. Tobias who is the bully on the playground. It is time to boycott Tippr.com until they start to play fair.

  • Bullshot

    No publisher is calling tippr, I can assure you. Who wants to work with a start up that has no revenues, no deals, no traffic, no users and some worthless patents?

    I dont blame him for trying though. NEXT!

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  • http://www.sumballo.com/MySecretHabit.aspx mysecrethabit

    I agree, these group buying sites do not encourage repeat business, they sell a quick fix at a discount (who knows how much the vendor is profiting) and that is it.

    From my experience people that buy deals from these sites, simply buy the deal that day and that’s it. They don’t go back to the salon or restaurant ever again. Just human nature to take advantage of a good deal and move on.

    The only upsides for the business is that alot of folks buy the deals and they don’t use the deal that they already ponied up the money for.