Scoutmob Attracts Investors and Partners by Saying It’s Not a Daily Deals Company
Scoutmob was able to attract $3.25 million in new funding and a major new payments partner by pitching itself as a mobile company and not as a fledgling competitor in the daily deals space.
The Atlanta-based company’s mobile app tries to be a resource to consumers who are looking for local merchants and events, sort of like the Web’s original CitySearch service from years ago — except that it’s on mobile. The app also distributes coupons to restaurants, but instead of charging consumers for the deals, like Groupon does, they are free, and merchants pay a flat rate to Scoutmob each time one is redeemed.
Investors in the company’s second round include AOL Ventures, New Atlantic Ventures, Capital Broadcasting, Cox Enterprises and Thrillist CEO Ben Lerer. To date, Scoutmob has raised $5 million, which means that even if it wanted to, it doesn’t have the resources to go up against Groupon and LivingSocial.
In an interview, Scoutmob co-founder Michael Tavani said the company gets lumped into the daily deals category, but said that from day one, “we tried to differentiate ourselves and to be more of a mobile company.”
So far, the strategy has worked.
The app, which is available free on iOS, BlackBerry and Android, has 1.2 million users who have redeemed one million offers. To date, the company has launched in 10 cities, with varying success rates. Some markets, like Seattle, don’t have many deals yet, while other cities, like Atlanta or Washington, D.C., are used more.
Because of its emphasis on mobile, the company was also able to to score a partnership with payment processing company First Data Corporation.
“It’s crazy, we are a two-and-a-half year-old company, and every week we have the largest payment companies in the world contacting us,” Tavani said. “They are worried that if they don’t have mobile engagement, then what do they have?”
First Data processes about 55 percent of all transactions in the U.S., and will help Scoutmob close the loop of offering a discount, making a purchase and earning loyalty points.
The new funding will be used to support the company’s next wave of product development, which will include building out a mobile rewards program with the help of First Data and other payment companies it signs up.
Tavani said it will work like this: When users make a purchase at a Scoutmob location using a credit card, they’ll accrue points automatically. Once enough points have been accumulated, they can be redeemed at any Scoutmob retail location.
Unlike traditional loyalty programs, which require consumers to go to the same coffee shop 10 times in order to earn a free coffee, Scoutmob will let consumers earn and redeem points by visiting any merchant in its network. It’s similar to frequent flyer programs, where miles can be earned at a variety of merchants and then redeemed at a handful of airlines.
“We want to be the equivalent of an airline reward program, but for local,” Tavani said. “That’s exactly what we want to be.”
Scoutmob has landed in a sector spanning local businesses and mobile payments, which is ripe from innovation and extremely crowded by well-funded start-ups and massively large incumbents. But Tavani argues that it’s a level playing field.
“There’s going to be multiple players and lots of winners,” he said. “Groupon and LivingSocial are two with a gigantic lead. But we can go out and visit merchants today — there’s no one preventing us from having those conversations.”