Wednesday, February 10, 2010

Mobile couponing: lowering the cost to $0 for merchants and consumers; new companies try to achieve scale

You can't compete with free -- ask any newspaper classified ad manager.  No matter what your paper's circulation and penetration, if Craig's List is free, your paper has lost the business. Keep this in mind as we explore the next phase in online coupons -- mobile couponing.

A search of the iTunes store for "coupons" turns up dozens of apps that allow the consumer to receive coupons right on their mobile phone.  Most of the apps are free to the consumer and many use the iPhone's ability to triangulate the user's exact position in order to offer coupons for merchants close by.  Some of the names your find are familiar: Coupons.com, ValPak, and the like.  Others have sprung up recently such as Yowza!! and have received good Internet word of mouth as consumers have discovered that they can get discounts right on their phones.


MobileCoupon.com's new app for the iPhone.

Some mobile couponers, such as Cellfire Mobile Coupons (iTunes link), are taking a fairly traditional approach: giving consumers access to the coupons free, while charging merchants for the right to appear on the device.

MobiQpons, however, offers merchants a subscription based approach to couponing. A merchant, whether a brand or retail outlet, registers with MobiQpons, and for a subscription price of $400 a year, the client can submit coupons to the service for delivering through the app.

The issue here is scale, though. Most of the coupon apps appearing in iTunes are very poorly rated. For instance, MobiQpons has received 4,568 ratings as of today for its app. Of these, 505 are five star ratings (the highest), but 2,195 are one star ratings -- the lowest rating allowed.  Ratings are just as bad for such couponers as Coupon.com and Coupon Cabin.  In contrast, the New York Times app, one of the most popular on the iPhone, has received 20,117 ratings for its most recent version -- of which 9,406 were five star ratings, and only 2,365 were one star (who were these people?).



By far the biggest complaint is that the couponers do not have a large enough volume of coupons from local merchants or brands to make the service worthwhile -- even when it is free.  A typical complaint was one like this: "I agree with most of the other posters here . . . app is useless. I'm from a large city in the Northeast and no stores found." Without scale, that is, a large inventory of coupons, most consumers feel let down -- even as they love the idea.

Of course, forcing customers to pay for the app doesn't make the situation much better.  Grocery IQ's 99 cent app lets customers use the iPhone's built in camera as a barcode scanner. Users can scan the items they need in assist in building their shopping lists which can be shared with others. The user then can retrieve coupons.

But users soured in a hurry when Grocery IQ began streaming advertising, failing to learn one basic lesson of the iPhone: there are free apps, where advertising is considered acceptable; and there are paid apps, where advertising is generally considered inappropriate.

Wrote one reviewer: "It's amazing how quickly an app can go from 5 stars to 1 star. If I buy an app that doesn't have ads in it, I expect it to stay that way. What's next? Data mining and auto-added "preferred" products? If I wanted that I would have downloaded a free version!"



A new mobile couponer today announced their iPhone app though it has been available for a short while.  The iPhone app from MobileCoupon.com suffers from the same shortage of inventory as others, and not surprisingly has received the same kinds of ratings.

But MobileCoupons.com President Rob Deubell told me that his company will be taking a very different approach -- offering their service free of charge to not only the consumer, but to merchants as well.  Not surprisingly, Google's name came up several times as Deubell discussed their approach.

MobileCoupons.com is owned by OpenMotion LLC & RACO Industries, whose expertise is in the barcode and data collection industry as well as in creating mobile applications for consumer brands.  Customers like Hotels.com, YellowPages.com and Expedia use their services to serve their sites content to mobile users.

"When we first launched that business we spent about a year and a half building out that platform, six years ago. One of the things in the business plan, we thought that mobile couponing would be the big space -- for consumers it was like the holy grail for mobile -- where merchants and consumers meet in the middle," Deubell told TNM.

The company was able to buy the MobileCoupons.com URL a few years ago and now have launched apps for the iPhone, Android phones, as well as having their own mobile web site.

Like Google, MobileCoupons.com is trying to build scale by offering coupons to merchants for free. A merchant simply goes to the company's web site, registers and can quickly begin to create and publish coupons.



Once the company has a large offering of coupons, and has a large group of participating merchants, the company can then begin to employ some of the monetizing strategies that Google has employed -- paid listings and the like.

The model makes sense assuming the company can market themselves as effectively as Google did.  Where Google and MobileCoupons.com differ is in the uniqueness of its offering.  While search engines existed before Google came along, the whole reason for Google's creation was that they did it better. Google went from serving 10,000 to 18 million search queries a day in less than one and a half years because of the demand and the uniqueness of the service.

For MobileCoupons.com, they are entering a field already crowded with competitors.  If they are able to achieve scale, however, this would become the big market differentiator.

And, remember, you can not compete with free.  If online coupons become like search, free to both the user and the content -- with something like AdWords being the paid model -- then it will be a race to see who can be the dominate player.



For old media, this would be a nightmare, of course.  But then again, old media is living a nightmare now, so I suppose this would just be the latest blow.

But there are other players in the couponing world who are sure to take notice.  Rupert Murdoch's NewsAmerica owns SmartSource, and it is a huge business, both in print and online. Valassis, which recently settled a lawsuit against NewsAmerica for $500 million, has its own interest in both print and online couponing.

Neither seem eager to enter the mobile space with free apps, of course. But that simply means that in the months and years ahead we can watch their reactions to their new competitors and compare their actions to those taken by newspapers when confronted with similar competition. We'll see if these old media dogs will have learned their lessons any better.

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