BlackboardEats Chops Fees on Groupon-Like Deals Because Free is Better

What’s better than $1? Free, of course!

That’s what BlackboardEats, a Los Angeles-based company, discovered after implementing a $1 fee back in January.

BlackboardEats is Groupon or LivingSocial with a twist.

It sends restaurant deals to its members via emails that offer up to 30 percent or more off on meals. But instead of having to pay $10 for a $20 coupon, for example, it charges only $1.

Starting today, it is waiving that fee altogether.

Originally, the idea behind the fee was that it provided a big enough barrier that only people truly interested in the deal would bother to buy it. Before the fee was implemented, BlackboardEats members would quickly gobble up deals on the off chance they would use them.

But “it got in the way of the spontaneity and simplicity of it,” said Maggie Nemser, BlackboardEat’s founder and CEO. “It wasn’t an exponential revenue stream, and yet it was so clearly impacting the experience.”

Additionally, the fee didn’t change conversion rates, either.

Before users paid $1, on average 10 percent of the 4,000 coupons that were handed out would be redeemed. After the fee went into affect, redemption rates went up to 50 percent, but only 400 to 1,000 coupons would be sold.

That’s the difference of 400 people visiting a restaurant vs. a range of 200 to 500.

Nemser said the $300,000 in annualized revenues–and the impact on restaurants–didn’t justify the inconvenience to customers. “It was a no brainer. We will grow much faster and people will be much more excited about telling their friends about it. It’s now a simple elevator pitch.”

The change, while minor, seems completely unintuitive since charging for deals is how Groupon and LivingSocial have amassed such large businesses in such a short period of time. But unlike like the Groupon and LivingSocial sites, which are founded on being a platform for local businesses to advertise, BlackboardEats is based on editorial reviews.

Its staff of writers–who come from publications such as Food & Wine, Bon Appétit, Gourmet and DailyCandy–review establishments anonymously and don’t accept complimentary meals. In return for running the review, the site asks that the restaurants offer a discount to its readers.

“We aren’t a deal site,” she said. “We are more of an insider’s club for culinary enthusiasts. All of our content is handpicked by food editors…We send in reviewers anonymously and they [restaurants] don’t have approval rights. We don’t touch the revenue to ensure quality.”

Instead it makes money from advertising, which in addition to display units, also includes very clearly marked sponsored offers that are more similar to a Groupon offer.

The model is comparable to Travelzoo, which also offers its customers deals on vacations, but sells advertising.

Because it doesn’t keep a share of the revenue, Nemser argues BlackboardEats becomes very profitable for the restaurant. For example, a recent offer for a Los Angeles restaurant resulted in 1,661 visits, which resulted in revenue $415,000 to the restaurant over two months.

“That’s the key to our success–that’s what people like about BlackboardEats. They know they are going to have a great experience. It’s not random.”

The company, which has 10 employees and launched just a couple of months after Groupon in 2009, has so far been fueled by a small round of angel financing. Does Nemser feel like she’s missed the boat on building a very large company?

“It’s not about getting a huge valuation overnight, or about selling the company overnight. It’s a passion play. We are culinary enthusiasts and want to do justice by the restaurants and our subscribers.”

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