Another Groupon Clone? Bloomspot Says There's Room for One More.

With two dominant players–Groupon and LivingSocial–in the daily deals space and hundreds of copycats popping up in every city, a frequently asked question is, is there room for anyone else in the market?

Jasper Malcolmson, the CEO of Bloomspot, a San Francisco-based startup doing something very similar, says it’s a no-brainer.

Of course there is room for another player.

When you stop and listen to what he has to say, the former Yahoo exec makes a pretty compelling argument.

The 16-month-old company, which has raised $11 million in capital and has roughly 100 employees, is announcing today that it is expanding into three new markets: Seattle, San Diego and Denver. As of June 1, it will now serve 11 cities total.

On a recent trip to San Francisco, Malcolmson and I sat down to discuss all the misconceptions in the space; he believes there are at least five. “No one has written about what’s really going on,” he said. “It’s about the economics and what really makes money and what doesn’t.”

At least three of his misconceptions are worth repeating here:

  1. The deal has to be profitable for the merchant. In other words, he says, a company can’t make up a loss on every unit by selling more–they just end up losing more money.
  2. The space is not fragmented. In fact, of the 38 players he tracks in the largest markets, four players dominate 89 percent of the market. Outside the top five players, all the rest do less than half of Bloomspot on a monthly basis (Most players post online how many deals they sell daily, making this fairly public data). Only four pure play companies have raised more than $10 million.
  3. It’s not about bagel shops. The space is not about saving $5 on a $10 meal, but about offering deals that normally have a price barrier and hold a particular cache.

As the industry matures, he says merchants will only participate if deals are profitable. Likewise, consumers will only continue to pay for deals that are compelling enough to buy in advance.

In the future, he sees two types of deals emerging: those for the masses vs. those for a select set.

Companies or venues which have very little variable costs, like the zoo, will be able to continue offering deals to the millions of users registered on sites like Groupon and LivingSocial. But for restaurants or spas, which have a high variable cost of serving each additional customer, really good offers will be offered only to the most prized customers.

“Can anyone get the best offer on a mortgage? No,” he said. “The business will gravitate to a function of the customer’s profitability. There’s economic logic behind that…Amazing offers will be a privilege, not a right.”

Malcolmson said not just anyone will be able to sign up for a daily deals site and see all the offers available. Very soon, they will only see the ones they qualify for.

Already, Bloomspot has practice rewarding its best customers.

It has a loyalty program called Bloombucks. Consumers earn one Bloombuck for every dollar they spend over the total amount of the voucher. Users can earn those Bloombucks by taking a picture of their receipt and sending it to the company via its mobile applications. Those Bloombucks can then be redeemed for discounts on future offers.

He said nearly 80 percent of its customers overspend, and on Friday, it received data from a restaurant partner and found that an average customer spent on average 75 percent above the certificate value. Already, the average deal spend is fairly high. The average price is $112, including travel deals. The average spend on restaurants is $54.

The old school version of this philosophy is more like American Express rewards points, or airline miles. Loyalty and profitability is rewarded.

On the back end, Malcolmson also believes they are building some pretty defensible technology, including algorithms to predict the profitability and the success of any particular offer before it’s offered.

A banner hanging in the office sums up the company’s mission in four words: Great Offers. Great Customers.


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