Tippr’s Martin Tobias: Groupon Clones Done, ‘Arms Dealer’ Approach Paying Off

10/24/11Follow @curtwoodward

Updated 10:45 am Pacific
After Groupon’s season of woe, a truckload of me-too disappearing acts, and last week’s mass-layoff meltdown at third-place competitor BuyWithMe, it sure isn’t looking like a very bullish time to be operating a daily deals startup.

Martin Tobias would disagree. The Seattle entrepreneur, who been through some notable ups and downs in digital and cleantech ventures over the years, still sees a huge upside in the group-buying dynamic that daily deals services have unleashed. He’s chasing that opportunity with Tippr, a roughly 90-person startup headquartered in Seattle’s University District. [Changed headcount number from 120 to about 90---Tippr halved the number of people working in its marketplace division after this interview.]

The trick, Tobias says, is aiming at the white-label side of the market—providing deals services to other publishers, rather than trying to build a standalone consumer brand, as market leaders Groupon and Living Social have done. Cut out the huge marketing and sales expenses, spread the technology and other costs across a pool of customers, and blammo—you’ve potentially got yourself a pretty nice business.

Tippr CEO Martin Tobias

It also doesn’t hurt to be armed with a trove of patents. Tippr’s were acquired from former Paul Allen company Mercata, and Tobias has not been shy about using the portfolio, employing it in a licensing program, using it to gain at least one acquisition, and more recently opening up a broad federal patent lawsuit that, as we reported last month, has now been quietly settled.

Interestingly, Tippr has thus far gone after other middle-tier or small group-buying companies in the courts, but not market leaders Groupon or Living Social—when asked about that in our interview, Tobias declined to comment.

Tippr is backed by $9 million in venture financing, led by New York-based RRE Ventures (Vulcan Capital also acquired a stake in parent company Kashless in the patent deal). The startup debuted in February 2010, but by that November had announced the white-label provider service that is now the company’s major focus.

That software platform, called PoweredbyTippr, runs daily-deals offerings for other website publishers around the country. A prominent example is Yollar, the daily-deals offering from TV station owner Belo (NYSE: BLC). Tippr provides the technology back-end for the Yollar service, but the local TV stations keep their own branding on the group discounts that are offered to subscribers.

That strategy appears to be paying off. Tobias wouldn’t talk revenue specifics, of course, but left plenty of bread crumbs that point toward a possible multi-million-dollar revenue stream for the startup.

The overall daily deals sector in North America is pegged at $2 billion-$3 billion by such observers as research firm BIA/Kelsey and daily deals aggregator and data provider Yipit.

Yipit also estimates that white-label operators only make up about 10 percent of the daily deals market right now. But white-label providers should have success “working with media companies as a way to monetize existing subscriber bases rather than having to build entire bases from scratch, which is the plight of most smaller daily deal sites,” said Unaiz Kabani, a Yipit data analyst.

Tobias pegs the white-label slice at 5-10 percent of the overall market. And he says Tippr’s the leader of that white-label subsector, with about 35 percent market share. That leads me to a back-of-the-envelope figure of maybe $44 million-$88 million in possible annual revenue.

Tobias says Tippr’s annual revenue growth is “comparable to a Groupon. We are growing at hundreds of percent year over year.”

“Our numbers aren’t the size that they are. But if you actually look at our quarterly growth rate versus the first couple quarters of Groupon, we’re growing faster than they did when they came out,” Tobias says. “I haven’t raised a lot of money and I’ve got 120 guys, so do the math. I’m doing OK. I’ve raised $9 million. Groupon’s raised a billion and a half.”

Continuing that growth, of course, depends on more publishers jumping on the daily deals bandwagon with gusto. That’s a potentially dicey proposition, since a lot of traditional publishers have been tentative at best in embracing the online age (take it from someone who’s worked in media for almost a decade). But Tobias says that phase is passing, and publishers are now eager to hook up with partners that let them hold on to their own audience.

“Because the local media companies have gotten squashed by classifieds and a couple other things, frankly, their antennas are up. And a lot of them are saying, ‘Hey, we can’t get killed again.’ And that’s why we have over 100 publishers, that’s why the white-label daily-deal providers are getting decent traction and growing,” Tobias says. “Ten years ago, if I would have gone to the local newspaper, they would have told me to pound sand like they did to Craigslist. And they were wrong. But you go to them today, and they go ‘Please! Please stop my bleeding! Oh, you have a plugin that I don’t have to program anything? I put my name on it and I start to make money? Please, yes.’”

And unlike the consumer-branded side of daily deals, where Groupon and Living Social are the clear No. 1 and No. 2 companies, Tobias says the white-label sector is still scrappily competitive.

“We’re the biggest—we have 35 percent share. But there’s somebody that has 28 percent that’s right behind me. So I’m not as far ahead of all of my competitors as Groupon is of theirs,” Tobias says. He pegs Nimble Commerce as the No. 2 competitor on the white-label deals side of things, and says Shoutback Concepts, Second Street Media, and Group Commerce are “fighting it out” over the third and fourth spots.

A year from now, Tobias says, there will probably be only three serious competitors left on the white-label side: “And I guarantee you I will be one of them. I’ve got more money than anybody, I’ve got more patents, I’ve got more people, I’ve got more customers.”

Another way Tippr is hoping to outflank the daily deals market is by offering a source for daily deals, known as the PoweredbyTippr Marketplace, which allows publishers to fill out their inventory of discounts with offers generated by Tippr’s salespeople or other publishers in the network. That way, if a local publisher doesn’t have enough group deals to fill all the slots in their deals service, they can tap into the exchange to add new deals that apply to their area.

It’s a way of scaling up that doesn’t require the thousands of salespeople Groupon has on board—Tobias says there’s about 3,000 salespeople adding to the marketplace now, but only about 25 of them work for him. He likens the marketplace offering to Google’s AdSense network, which helps small publishers fill out their ad inventory—and has become a big revenue generator for the search and ad giant. [Updated the number of marketplace employees, now 25 instead of 50.]

“We’re the first and only company to be doing that in the deal space. Otherwise, everybody’s responsible for filling 100 percent of their inventory themselves,” Tobias says. “But if you look at what happened in display ads, you know this technology’s coming. You know it’s going to be important.”

And is that part patented too? “Oh yes,” Tobias says.

But here’s the big question: Will a product as specific as online coupons be a sustainable, long-term business? Tobias is betting that’s the case. He says daily deals have unlocked something that technology companies have been trying to do, unsuccessfully, since the dawn of the Internet: Tap into the huge base of small, local businesses that need better advertising.

“Small businesses don’t want to spend $1,000 on an ad campaign, they want to get 1,000 people in the door. And this group buying thing, this daily deal thing, is the only product that has gotten people out from in front of their computers, out from in front of their smartphones, and in local business, walking in the door, en masse—in in the millions,” Tobias says. “And consumers love it, because it’s not another ad. It’s something that they ask to be sent, that they want to see.”

“Advertising is a proxy for commerce. I do advertising because I’m trying to get my brand out there, I’m trying to get people to click on the site. But I pay for all of this stuff that doesn’t end up getting done what I actually want, which is somebody to buy my fucking product, walk in my freaking door,” he says with a laugh. “I do all that other shit to get somebody to buy my product or walk in the door. Group buying cuts out all that stuff and cuts right to the chase of what the merchant wants.”

But the pure “Groupon Clone” model of building a broad consumer deals brand, he says, is “done and stupid.”

“I’ve been doing this startup thing a long time, and the way most new technologies come along is: Phase One is somebody creates a consumer brand around the new technology, they get big fast, they get a lot of excitement and interest, there’s usually a blowup,” Tobias says. “Then, the guy who takes that technology and blows it out to everybody on a software basis, usually is the guy who makes most of the money over time and has the superior model. That’s why I’m doing it this way.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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