Last week, Pasadena-based Punchcard (www.punchcard.com) launched its mobile apps, which help local retailers provide rewards to loyal customers. The firm is backed by Idealab, and is headed by Internet veteran Andy Steuer. We caught up with Andy, whose executive experience ranges from ZeroDegrees, NBC Internet/Xoom.com, Infoseek / Go Network, to CNET and Snap.com, and whose last firm was MerchEngines, which he sold last year, to hear more about his new startup.
What is Punchcard?
Andy Steuer: Punchcard is a mobile loyalty rewards app. It provides consumer rewards, and on the merchant side, it allows them to identify local customers and reacquire them by pushing them offers and incentives to come back. For example, if you as a consumer shop at a place, when you're done with your transaction, you can take a picture of your receipt, and start earning "punches" on Punchard at the places you shop. If you earn enough punches, you get rewards, such as cash back, free merchandise, in-kind store credit, that sort of thing. Different businesses might have different number of punches on Punchcard. It's like an old world punchcard, taken to the current 21st century technology.
We've also made it so that consumers can get offers pushed back to them, and those offers will be relevant, because unlike a deal-of-a-day, you will get targeted offers based on what you like, where you shop, and the stores and restaurants where you go to. Those offers might be a thank you for coming in yesterday, please come back next week. If it is a restaurant that you went to for dinner, they might provide a free dessert or appetizer. All of this allows businesses to identify who their customers are, and incentivize them to come back again and again.
How does this compare to how they might be doing this now?
Andy Steuer: If you view this without Punchcard, consumers usually end up walking out of a store or restaurant, and when they walk out at the end of that transaction, that business has to go and reacquire them again. That's currently very ineffective. Oftentimes, businesses don't know who their customers are, and how to reach those customers. The best form of this right now is email, and even then, that's through a one-size-fits-all email. What we're able to do, is to segment our customers based on purchase behavior and demographics, and push offers to them. We're able to do lots of this segmentation and sophisticated remarketing back to consumers, to get them to purchase more from the businesses they love. That's something that typically only large companies with large ERP budgets, like Amazon or eBay, have been able to do, something which has not been available to local businesses.
Can you talk about your background?
Andy Steuer: This is the eighth startup I've been a part of. It's the second one I have started myself. I started early on in my career. I was at the Annenberg School for Communications in 92 to 94, and saw Mosaic first come out. I called up the CEO of a company, MusicNet one day, because I am a big music fan and musician myself, and saw what they were doing. At the time, they were shipping out CD ROMs with 300 albums, album artwork, and three song samples each. You'd pop in that CD ROM, listen to the song, and then call an 800 number to purchase the album. I called up the CEO one day, and suggested they put it online. To make a long story short, I went up to San Francisco, interviewed for a position, got it, and built out all of their online capability. A short few months later, we sold to RealNetworks, which was really exciting. I then wen tto CNET, and was one of the first fifty employees there, and then joined a company called Snap.com that spun out of CNET. While I was there, I was product manager leading efforts to include third party content into the platform. It was a portal, and partnered with ISPs so that those ISPs could generate ad revenue, and create stick entertainment for customers. That was a rocket ride as well, and that took us to a top 10 website, and NBC took an equity steak in the company. I then moved on to Infoseek, which at the time was just a search engine. I headed up product development to build out their portal services. I did that, and the company was acquired by Disney to provide the Go Network, and I became part of Go Network at Disney.
After Go Network, I joined the team at Xoom.com, which was the first wave of user generated content on the Internet. I was employee seven or eight there. As Vice President of Development, I took it from zero to a top 10 website in a year and a half, and was part of the management team that took it public. We sold the company to NBC, to form NBCi, which we merged with Snap.com where I was before. Shortly after that, the CEO of NBCi and myself started a venture fund, invested in a handful of companies, had a couple of good exits, and then I went on to become part of the founding team at ZeroDegrees, the social networking platform focused on the jobs space. We sold that to IAC. After IAC, I started my own company, MerchEngines, which was a search marketing platform for local businesses. We made it easier for local businesses to acquire customers through search and social media We sold that to Deluxe Corp. in 2009, and through that process I learned a lot about local businesses, and about customer acquisition pain points. One of the things I heard often when doing any marketing, was that although local businesses would get customers from their advertising efforts, the didn't know when they were coming back. That, couple with my own experience, which you may have experienced yourself, is you might go to places you shop at frequently, and a lot of the time, they just don't know who you are. There might be a different staff member there, even though it's your fiftieth time shopping there. They just don't know who you are, which is a broken part of the supply chain. I thought it would be a really interesting opportunity to create the insight into who their customers are, and acquire them efficiently. That led me to Punchcard.
So how did you end up back in Southern California?
Andy Steuer: Back in 2002, I moved back to Southern California, because my wife runs her own interior design company, and there are great jobs down here for her. There were also opportunities for me down here, as I was running the venture fund. We moved back down to Southern California, and never looked back.
Is this part of Idealab's new ventures group, or how did you connect with them?
Andy Steuer: It's actually out of Idealab proper. I connected to them through a friend of mine, Julie Schoenfeld, who is also one of my advisors, and the CEO of Perfect Market. After I met the team here at Idealab, we hit it off.
Of all the opportunities out there, why did you decide to address loyalty punchcards?
Andy Steuer: When you look at the cost of acquisition through any form of advertising, whether that is print, search, or any kind of marketing, the cost of acquisition is fairly high for local businesses. I started doing a little bit of experimenting on how we could acquire customers for less, and doing research in the space, found that the Kellogg School at Northwestern found that 12 to 15 percent of the customer base at a local business makes up fifty percent of a company's profits. That's an interesting jump off point. Looking through the lends of all the online analytics and customer acquisition work I'd done prior, that means that 85 percent of your customer base is going away. There's an interesting book called the Loyalty Effect I read as well, suggesting if you take that 12 to 15 percent, and increase it by just five percent, you can double your profits. Loyalty is something very important, and it's hard to wrangle if you don't have the toolset to do that. I think we've approached that problem, by providing a very easy user experience to the customer, so that a consumer can get rewards. Earning points and badges for checking into a place might be cool, but checking out and earning cash back is better. So, from the consumer perspective, it's easy to use, and on the merchant side, merchants are not reaching out on a cost effective basis, which is much better than search or other advertising.
Finally, can you talk about your geographic strategy and rollout plans?
Andy Steuer: Our initial phase is focused on Southern California. The reason for that is we're looking at creating the density effect within Southern California. Punchcard currently works with 147,000 local businesses here in Southern California. We also want to be able to hop in the car, talk to merchants, hear their experiences first hand as they are rolling this out, and be quick to respond to any feedback--before a national roll out. Currently, we have about 1 percent of the population in Pasadena already using our app. We've had a huge amount of growth in the past few weeks, which I think is a great indicator of what is to come. We're focusing here locally first, to be able to ensure that our customers are getting a great user experience, and businesses are getting a good user experience. We're also really listening to feedback, so that we can scale this business effectively on a national basis, as we grow.