That’s what Snapdeal and its investors are betting on. The India e-commerce marketplace is coming off of a $50 million Series C investment round, which included participation by eBay, pushing total funding past $100 million.

Snapdeal cofounders Rohit Bansal (left) and Kunal Bahl

The 800-person company started as a site that listed deals for services, but has since shifted to one that sells everything from consumer electronics to women’s shoes — all from third parties, akin to the Amazon Marketplace.

I sat down with CEO Kunal Bahl earlier this week, while he was on one of his biannual U.S. visits where he meets with investors and other e-commerce entrepreneurs. Here’s an edited version of our conversation:

Jason Del Rey: You started as a deals site, a la Groupon. Why the switch to a broad online marketplace model?

We started in February 2010 as a local merchants marketplace for services. Merchants would come and list their discounted services for an entire year. It wasn’t valued for just one day, like daily deals. It helped us build a lot of traffic and become a household name. Within six months, there were 50 players in the space.

By mid-2011, something interesting was happening. Merchants started reaching out, saying, “You have a lot of reach, and I manufacture watches, or men’s footwear. Can I list these on Snapdeal?” We started testing out listing physical products and showing early progress. Then we took a trip to China that convinced us this was the way forward.

What was that trip?

At the end of 2011, we visited China and did the same trip there that we do here, where we meet with investors and e-commerce companies. It gave us a very deep understanding of where India is headed in the next six or seven years. It’s very hard for us to relate to eBay or Amazon, because they are 20 years ahead of us. But Chinese companies are a lot scrappier, and maybe only six or seven years ahead of us. It’s a lot easier for us to empathize with them.

How much of your business is still the deals business?

One percent. This is the pivot Groupon always wanted to make. But they wouldn’t have been able to make it, because eBay and Amazon are already there.

But eBay, for example, is also in India, right?

EBay came to India in 2004. They’ve done a pretty good job, but are focused on C-to-C. Our focus is B-to-C, primarily. Globally, marketplaces are moving more and more to B-to-C.

Why’s that?

It’s very difficult to build trust in C-to-C. In B-to-C, you really know who the seller is. It’s typically high-trust, and tends to get faster traction.

And here is the macro reason: India retail is about 600 billion, out of which about 7 percent is modern, organized retail like big-box stores. Everything else is small mom-and-pops, export/import businesses. No individual fashion brand does more than $200 million in sales. There’s huge fragmentation from the supply side and retail distribution. The marketplace is really set up to aggregate long-tail of supply on one side and demand on the other.

You say you have 20 million registered users. How many visit the site each month?

About 14 to 15 million.

How do you market to them right now?

Mostly email. We create customer segments, and email at different frequency with different segments. We’ve also put a lot of effort into personalization and recommendation on-site. Those things account for 25 percent of our sales right now.

Amazon and eBay now have huge advertising businesses. Do you sell advertising on your site?

We recently started testing it. In the coming quarter or two, we’ll be launching our own ad exchange, giving sellers the opportunity to get prominent placement, but not in search results. We’re going to have a display ad network on the site for sellers.

eBay just led a $50 million round in Snapdeal. How did that happen?

India is really the last large ecommerce frontier left in the world. The Snapdeal team has been successful in building a scaled business in 18 or so months. Needless to say, that attracted interest of many large players, given the importance of the Indian market to their future growth, to which they set very, very aggressive targets. One way to achieve that is through the BRIC markets. And out of the BRIC markets, India has a tremendous amount of headroom for growth. And, hence, are some of the big, global players very interested in Snapdeal? The answer is, “yes.”

How do you make money?

We take commission on everything we sell. No insertion fee, no listing fee; we will never charge a listing fee, even though most marketplaces charge a listing fee. We realize the market in India is young, and we need to reduce hurdle for sellers to come to list.

What cut does Snapdeal keep?

It can range by category from 5 percent to 15 percent.

What’s your revenue?

We’ll do $400 million in topline this year — gross merchandise value. And, in India, building a $400 million business is like building a $1.5 billion business in U.S.

But your cut of that is only 5 percent to 15 percent?

It averages out to somewhere in the low teens.

Is it safe to assume you’re not profitable?

No, we’re not. And that’s okay. There’s a time for everything, and right now getting to great scale is very important to us.

What’s your biggest challenge right now?

Making sure enough new transactors are coming onboard in India. There are 100 million Internet users and a little over a billion people. But only seven to eight million have done a non-travel e-commerce transaction online.

Google Google’s VP of Shopping Sameer Samat

At the top of the Shopping page, a photo shows a snowboarder floating down a mountain on a clear blue day, directing consumers to a page where they can compare the lastest ski equipment. Another link sends consumers to a Garnet Hill catalog, where they can see an electronic copy of the print version that normally clogs mailboxes.

A deeper dive into the Shopping experience reveals that some of the product pages have a blue button in the top right-hand corner that could easily be mistaken for Amazon’s “Add to Cart” yellow button.

Despite these visual cues, said Sameer Samat, Google Shopping’s VP of product management, in an interview with AllThingsD, the company has no aspirations to open a store. “We aren’t planning on being a retailer,” he said. “We don’t view being a retailer right now as the right decision.”

Behind closed doors, some have wondered if Google was building up the infrastructure before making the move into selling physical items. Along with the updates to the site, another recent announcement that got people chatting was when Google announced last month that it acquired BufferBox, a locker service where consumers can safely pick up packages.

Samat said that BufferBox had nothing to do with becoming a retailer; it was about helping other retailers to become more competitive.

“We are trying to provide a level playing field for retailers,” he said, adding that there are some companies that have managed to do both tech and retail well. “How’s the rest of the retail world going to hit that bar?”

Of course, one of those companies is Amazon. The technology powerhouse has been working for almost two decades at building out the infrastructure to store merchandise all around the world. It has also built a first-class consumer-facing business that sells and distributes nearly anything you could need, as cheaply as possible.

To compete, retailers — and especially brick-and-mortar companies — are faced with either investing heavily in technology or teaming up with a technology partner like Google. At least, that’s Google’s pitch: “I think it’s great that Amazon and others, like Rakuten, are upping the bar,” Samat said, but Google is just trying to partner with retailers to “create a level playing field.”

Over the past year, the Google Shopping team has been busy adding improvements to the site.

This summer, Google completely overhauled its shopping experience. While the move has remained fairly below the radar for consumers, it has been very controversial among merchants. In fact, Samat jokes that at some point he’ll receive “The Least Popular Dude” award.

That’s because in the new system, retailers must pay to ensure that their products show up within Google Shopping. Previously, merchants could upload their data feed for free. This is the first holiday season in which retailers have had to pay to participate, and despite the service being so new, many retailers are reporting good results.

Google has made some major technology improvements, too.

It built an imaging system that creates 360-degree photos of the products. While it’s still not like being in the store, you can get a better sense of the product when you can see an item from all angles. Look for the “3-D” swivel icon on the product image to get the 360-degree view. It’s not available for that many products at this time, but Google did put together a Holiday Toy Collection, featuring 3-D images for each of the items.

There are at least a couple of hints that the photos aren’t a completely smooth-running operation yet. Google had to purchase all of the toys in the collection in order to take the photos, and, as Samat found out, those Lego kits don’t build themselves.

Google’s goal of becoming a retailer’s best tech friend may sound noble, but it is also smart. Amazon is already a starting point for many consumers on the Web, especially when it comes to shopping. Google obviously wants to be the first destination people visit for pretty much anything.

Additionally, the Seattle company is encroaching into other territories, including consumer electronics, like the Kindle Fire, which, coincidentally, runs on Google’s Android operating system. Amazon also distributes digital content and provides back-end cloud services to enterprises.

Google is not the only technology retailers can turn to if they are feeling competitive pressure from Amazon. Just down the road is a major player in the retail services space: eBay. The San Jose-based company has spent more than a year making inroads into the space, by forming tight bonds with a number of big retailers and by acquiring a company called GSI Commerce, which provides a lot of the back-end services mentioned.

Looks like it’s not just the consumer’s pocketbook that businesses are after anymore — it’s the retailer’s purse strings, too.

Wall Street is certainly enthusiastic for such an outcome — even grabbing onto a specious rumor that perhaps Google was sniffing around the troubled Chicago-based social discount deals company, which is currently valued at just over $3 billion. On Friday, Groupon’s stock jumped 23 percent on takeover speculation after Tom Forte of Telsey Advisory Group was quoted as saying: “Where the stock is currently trading, it’s a takeout candidate.”

Actually, the stock has been trading at these levels for a very long time, so the sudden attention is decidedly overwrought. More to the point, sources close to Google — which had offered $6 billion for the company before it went public — said that Google has not been contemplating a second foray into acquiring Groupon.

The same is true for eBay, said sources, and Amazon is an unlikely buyer because it already owns a stake in LivingSocial, the second-largest daily deals provider. Additionally, there are lots of other problems that any purchaser would face in buying the company, which sells everything from bikini waxes to GPS devices at a discount.

In an onstage appearance this morning, CEO Andrew Mason declined to address the thinly sourced rumors of a takeover. “What I have said about Groupon is everything I will say about it,” he said. “I am focused on looking forward.”

Given the non-answer, it’s still prudent to ask, is there actually a buyer for Groupon?

First, let’s address the price. Two years ago, Google offered to purchase Groupon for $6 billion. A year later, it went public at $10 billion, and today, it is trading for $2.9 billion. The company has $1.2 billion in cash, and owes merchants about half of that, or around $573 million.

That said, it is still a relatively low price for a company that includes a customer base of 40 million people who bought something in the past year, a hodgepodge of local retailers and merchants that consider Groupon their online marketing channel, and — perhaps most importantly — a better-than-expected mobile business that now represents a third of its transactions.

But, while it costs much less than it once did, that doesn’t necessarily make Groupon a steal.

That’s because over the past year, the Chicago company has stumbled operationally. Europe is underperforming, the company’s main coupon business is slowing as the novelty of the business is wearing off and it has started investing heavily in selling products, a low-margin business that requires tons of logistics to package and ship items to people’s front doors. On top of that, the board recently discussed replacing Mason, who some directors fear may not be the right choice to continue leading the company. While they ultimately decided to keep him, it was a perceptual blow.

At least one big investor is betting something will happen: Tiger Global Management, which recently bought up close to 10 percent of Groupon. The well-regarded hedge fund and private equity firm may be betting it can’t get worse, and perhaps would even push for a sale.

In any case, here’s a look at some of the scenarios:

Google

When Google made the offer two years ago, the search engine was interested in entering the daily deals business as a way to gain a foothold into all things local, including commerce. Since Groupon rejected that $6 billion acquisition, Google has spent the past two years building Google Offers.

While Google Offers still has a very small piece of the market, it has been pivoting toward an integrated ads model, which is less complementary to Groupon’s approach. Google believes that merchants will pay Google only after a purchase has been made, and the sum will be determined by the consumer. The cost per acquisition model is very different from Groupon, which has the consumer paying up front for a heavily discounted coupon.

As one source with knowledge of the situation said: “The timing would be a bit wacky.”

That said, Nikesh Arora, Google’s SVP and chief business officer, had been a very strong advocate of the original deal and might still want more heft in Google’s corner in the competitive local scene. One major plus is that Groupon could also help build a local salesforce to push Google+ Local, which includes Zagat, the online reviews site that competes against Yelp. Groupon might also support its Google Wallet business, which has largely failed to gain traction among consumers.

Another source familiar with the two companies said running a daily deals business is “operationally intensive, and it’s a muscle that Google doesn’t have, so from a synergy standpoint it would be complementary.” But, “if they are still serious about local, is that the business model for local that they want to pursue?”

eBay

For the past two years, the e-commerce company has aggressively been going after the local commerce market by helping transactions occur online or at a nearby store. Additionally, its PayPal division is moving fast into the physical payments space. Strong merchant relationships, like the ones Groupon has, could go a long way toward making those things happen faster.

EBay recently raised $3 billion in debt financing and has $7.3 billion cash on its balance street. Its stock price also has gone up more than 65 percent in the past year, giving it plenty of fire power to make a big move.

It also has the stomach for acquisitions. However, many of its purchases over the past two years have been about buying technology and talent. It bought RedLaser, the barcode scanning technology for $10 million; Milo.com, a local inventory company, for $75 million; and Zong, a mobile payments company, for $240 million. Over the years, it has also made substantial purchases, including GSI last year for $2.4 billion, Bill Me Later for $1.2 billion and Skype for $2.6 billion.

A few months back, the company entered the daily deals business with the launch of eBay Lifestyle Deals, which runs daily deals in a number of markets, including San Francisco, Seattle, Los Angeles and Washington, D.C. To do so, eBay teamed up with Signpost, which arranges the deals with local merchants. Interestingly, Signpost is backed by Google Ventures, and already provides deals for Google Offers.

The company is also experimenting with eBay Now, a service that allows consumers to buy something on their phone and have it delivered within an hour. “They continue to be interested in local, and they have this experiment going on right now with eBay Now, but they are still iterating and figuring out the local angle,” one source said.

Likewise, PayPal’s local strategy is under development. It is trying to roll out physical payments to big-box retailers like Home Depot while also offering a credit card reader for smaller retailers called PayPal Here.

The biggest argument against this deal is that eBay may not need Groupon, and that it already has the infrastructure to roll out deals through partnerships — which would cost a whole lot less and be a lot less painful.

Amazon

Simply put, Amazon already has its own troubles with its significant stake in LivingSocial, which just slashed 400 jobs. In the third quarter, Amazon took an impairment charge of $169 million, or 37 cents a share, related to its stake in LivingSocial, resulting in the company reporting an overall third-quarter net loss of $274 million, or 60 cents a share.

Any potential Amazon-Groupon tie-up would then be a merger between LivingSocial and Groupon, creating perhaps an even bigger black hole that would also result in a lot of ongoing integration problems. While together LivingSocial and Groupon would easily make Amazon the largest daily deals company and up its local commerce efforts, it’s still not clear if the online retail giant wants to double down here.

Separately, Amazon has entered the daily deals business on its own with a service called Amazon Local that competes directly with LivingSocial and Groupon. The offers became particularly interesting to the company after it started using them to discount the price of its Kindle e-readers and tablets. If owners don’t want to see the offers, the tablets can cost up to $40 more.

The company has said that it essentially doesn’t need help building the business – it thinks it can get to scale fast in the space because it already has 164 million active customer accounts worldwide (which are defined as people who have made a purchase in the past year).

Perhaps most importantly, though, Amazon has a history of building, not buying.

Visa, MasterCard, American Express

These three payment companies have huge market values, and should not be discounted as players in the local commerce space. In addition, a year ago, all of them started looking for new revenue streams after the Durbin Amendment capped the amount that banks and card networks charge merchants on debit card transactions.

Already, many banks are sending targeted ads or deals to consumers based on their spending habits. However, it’s unclear whether they need to be the actual deal makers, or just act as a distribution system for advertisements and coupons. For example, MasterCard recently partnered with Gilt City, the daily deals division of Gilt Groupe. Through the partnership, MasterCard will be able to offer its users deals for restaurants, concert tickets and travel, and at the same time, help Gilt City get in front of some of the card issuer’s millions of users.

MasterCard may be the frontrunner of the three as a potential suitor. Not only has it shown direct interest in the space, American Express is still absorbing its acquisition of Revolution Money, for which it paid $300 million cash in 2010, and Visa has been active with its purchase of CyberSource for $2 billion in 2010. More recently, it made an investment in Square, the hot mobile payments company.

Other Suspects

A number of other companies could be put on a Groupon acquisition list, such as Yahoo, Microsoft and Facebook.

Microsoft and Yahoo both have the money, but have not done much in the space so far. An acquisition would allow them to catch up quickly, but would be expensive and largely not complementary with what they are doing already — which is almost nothing. Facebook, in particular, tried once to enter the space and failed and might be focused on other lower-hanging revenue sources.

Groupon could also look to private equity firms for a buyout, which would allow it to have some space while it fixed some of its issues.

Internationally, there is Japan’s Rakuten, which owns Buy.com in the U.S., and China’s e-commerce giant Alibaba, which has been looking at ways to enter the U.S. market.

Of course, Groupon might simply keep stumbling forward and hope it can turn itself around. But, at some point, without improved revenue and cohesion at the top levels, something is sure to bring pressure to its options. 

In fact, in afternoon trading today, the rumors continued to keep the stock elevated. Shares closed 3.76 percent higher today at $4.41 a share.

iStockphoto.com/mbortolino

“E-commerce has been on fire since its inception and it still continues to grow and outpace the overall retail economy,” said Sucharita Mulpuru, an analyst with Forrester, who studied recent trends to come up with this year’s holiday forecast. “And because e-commerce is growing so much faster, it’s taking share from the offline world. It takes more share during Q4 than the rest of the year.”

In the report, Mulpuru concluded that the number of online shoppers in the U.S. will grow a modest 3 percent, but that the average shopper will spend $419 online this holiday, a 12 percent boost over 2011.

Overall, if spending does increase 15 percent this holiday, the rate of increase will be flat compared to the prior year, but the gains are still very impressive given the much larger base (see chart below). It also points to the fact that e-commerce still makes up only a small fraction of overall retail spending.

There are three factors driving consumers to spend more online this year:

• Online vs. offline: Customers would rather shop online to take advantage of the sales and to avoid crowds.
• Mobile commerce: Smartphones and tablets will likely make up 40 percent or more of traffic to a retailer’s site on the major shopping days as consumers get offers sent to them by email and check them out wherever they are. Still, conversion rates are fairly low, Mulpuru said.
• The economy: Overall, holiday retail estimates are extremely positive and consumer confidence scores hit a six-month high in October.

Still, the trend largely benefits online-only retailers, like Amazon, which means that physical retailers must come up with a plan to keep consumers coming to the stores or their Web sites.

Target and Best Buy are two of the big-box retailers that have committed to matching online prices to prevent “showrooming,” where people scan barcodes in the store to find better deals for the same product online. PayPal is also supporting price matching for customers who use the payment provider to make purchases. And Walmart is experimenting with same-day delivery in some markets to fuel its online transactions.

Mulpuru said she wasn’t sure if stunts like that would move the needle, but agreed that “the biggest reason why Amazon is gaining share is because of price, free shipping and doing it quickly.” She said Amazon is willing to subsidize those costs and to spend more to acquire and retain those customers. However, she said, there is some backlash from manufacturers. Companies like Samsung and Sony have started a universal price protection program, where they guarantee the same price no matter where you shop.

“That’s been long overdue,” she said. “There’s been a lot of monkeying around with what’s the right price. With mobile, price is transparent. Up until now, the manufacturer hasn’t had to enforce pricing.”

Many believe the future of tracking purchases and making payments lies with near field communication technology or smartphone applications, but this Kirkland, Wash.-based company is betting on something much lower tech: Text messaging.

“It’s not only because not everyone has a smartphone, but in a high-volume restaurant, or coffee shop, they don’t want someone fumbling around or holding up the line,” said James Sun, CEO of Pirq. “Text messaging is very fast, and it’s supported by all phones, including feature phones.”

Pirq became well-known this summer after announcing a partnership with Apple to bring an exclusive set of restaurant deals to all of its employees in Silicon Valley. But that was just a side deal to get the start-up some buzz. The company’s core business is in running loyalty programs for any small business. Many others are competing in the space, including Groupon, Belly and FiveStars.

Pirq takes a slightly different approach. For $50 a month, it gives each merchant an Android tablet to place on their counter. From there, consumers can scan a bar code using the Pirq application on their iOS or Android phone, or they can choose to send a text message to the short code displayed on the screen. Because they have a choice, consumers don’t have to take the time to download a new application, or even register — two big hurdles for adoption.

Merchants also have a choice on what to offer loyal customers. They can either reward consumers who hit a certain spending threshold, or they can send consumers a text message to promote a deal during off-peak hours, when business is slow. “There’s a big trend right now,” Sun said. “[Merchants] don’t want to discount the brand to the public. They are private deals for existing customers.”

Merchants pay $50 a month for the service, and from 50 cents to $6 for each reward redeemed. Costs vary depending on the service, ranging from cups of coffee on the low end to spa services on the high end.

The second round of funding was led by Rally Capital, and brings the company’s fundraising total to $3.2 million. The funding will go toward rolling out the company’s new text messaging program. Sun said that the service will be live in 70 stores in Seattle and San Francisco by the end of next week. The company plans to raise a larger round next year to hire sales people to expand nationwide.

From where he sits now, high-tech companies surround him: Zynga is across the street, and Airbnb will soon move in upstairs. But even though the young professionals are buzzing all around him, they rarely patronize his store.

Based on watching his four twentysomething children, Padis says he understands why: “Literally, all of their processes start online,” he said. “A great deal of young people don’t even think of walking into a store to make their decision and purchase.”

That reality is hard for most local retailers to swallow. Online retailers continue to gobble up local sales with the lure of convenience and, often, cheaper prices. In the jewelry business, the main opponent has been Blue Nile, which got its start selling engagement rings online back in 1999, and now operates as a lucrative publicly held company.

But instead of bemoaning this trend, Padis now hopes to benefit from it by partnering with a new e-commerce site that is launching today.

Ritani, a New York-based designer of engagement rings and other jewelry, is unveiling a new way to buy engagement rings that unifies both the online and offline shopping experiences. Under the new model, consumers will be able to purchase an engagement ring from the Web site and have it delivered directly to their home. Or it can be sent to a local jewelry store, where they can decide whether to buy it or return it.

The new business marks a major transformation for Ritani, which quietly got started about nine months ago with $15 million in funding led by Cantor Ventures.

As part of the overhaul, it hired a 20-person e-commerce team in Seattle, and named Brian Watkins president. Watkins, who previously worked at Blue Nile and Nordstrom, said the first-generation of online engagement stores, like Blue Nile, are missing out on the opportunity to offer personal service. He estimates the engagement ring business at $60 billion annually, of which less than 10 percent occurs online today.

Watkins said Ritani is going after the substantial percentage of people who like shopping online and doing research online, but are uncomfortable with buying one of the biggest purchases of their life without seeing it first. “That’s the gap we are going after,” he said.

Ritani’s main purpose, however, is not to take away sales from local retailers.

Generally, you can think of local jewelry stores as an extension of Ritani. Customers can create a custom engagement ring online and have it delivered to a local jeweler, without any obligation to buy it. Since Ritani is a manufacturer, rings can easily be sent back to its New York plant, where the metals will be melted down and the diamonds will find new settings. Every order offers free overnight shipping and a 30-day return policy, no questions asked.

That’s the process that the customers will see, but on the back end, Ritani has formed tight partnerships with local retailers to make it work. The most complicated part is in the revenue share: Ritani will share a percentage of every sale made within a certain distance of a jeweler, regardless of whether it played a role in the sale. Likewise, if that customer ends up patronizing that retail store in the future — to service a ring or to buy a watch — the retailer must share a percentage of the revenue back to Ritani.

“If you truly believe in integrating the online and offline experience, then putting people out of business is not good,” Watkins said from the company’s Seattle offices, which are a short drive from Blue Nile, his old employer and new competitor.

For Padis, it was easy to say “I do”: “These are customers that we otherwise may not have seen. I like the idea of a revenue share; it eliminates the animosity between online and offline retailers. We are cooperating.”

In addition to working with Steve Padis Jewelry, Ritani has partnered with a handful of other stores for today’s launch: London Jewelers in New York; Underwood Jewelers in Jacksonville, Fla.; Fink’s Jewelers in Virginia and North Carolina; Bachendorf’s in Dallas; and Brown & Co. Jewelers in Atlanta. More territories will come as Ritani expands the number of jewelers it works with. It plans to lean heavily on the 380 stores that sell its jewelry today.

In addition to setting up the back-end infrastructure, the company also had to completely redesign its Web site. Previously, it was just a catalog of rings; now, it has the look and feel of a glossy magazine with joyful pictures of newly engaged couples. Watkins said they were also careful to create some balance, so the site was attractive to both women and men. For men, that meant having a heavy spreadsheet component, where diamonds could be compared side by side. Other features include high-end photography and videos that offer 50-times magnification of the diamonds. There’s also a service called “Virtual Gemologist,” which provides one-on-one consultations with diamond experts.

Watkins said all those steps are necessary in order to make customers comfortable about buying online. Even as the head of merchandise at Blue Nile, which is the largest diamond buyer in the world, he would order four diamonds and inspect each one before selecting the very best.

As the new head of Best Buy’s online business, Durchslag couldn’t be joining the largest U.S. electronics retailer at a messier time.

Over the past year, Best Buy has faced enormous pressure from online competitors, which can often accept lower margins because they lack the expense of operating physical locations. To deal with those challenges, the company is undergoing a massive period of disruption that has included the resignation of its CEO and an unsolicited bid from its founder.

In an interview with AllThingsD, Durchslag acknowledged the challenges ahead: “You know me — if it isn’t hard, it isn’t worth doing,” he said. “There’s a lot of work to be done, but I think it’s also doable.”

Durchslag, who officially started Monday, is the president of Best Buy Online and a company senior vice president in charge of Best Buy’s online and mobile commerce businesses. He joins from Expedia, where he was president for 14 months. During his time there, he was responsible for managing the company’s strategy, including product development, marketing and operations for its 27 sites around the world. While he was president, Expedia made some fairly drastic changes to its platform: It spun off TripAdvisor to become a separate publicly traded company, and it formed a partnership with Groupon to create a travel-focused daily deals business.

Before that, Durchslag worked at Skype — before eBay purchased it — and Motorola.

He said one main reason he decided to take on this task was because he believes it is a cause worth fighting for: Best Buy employs roughly 170,000 workers, which represents a significant number of U.S. jobs. He said those people are playing a valuable role in “helping customers figure out how to use all the products and technologies available to them.”

And he believes things can be fixed. “I think that with so much going on at Best Buy, there’s never been a bigger felt need for change,” he said. “All parts of the company are recognizing that things need to change. … My inclination is to strike while the iron is hot. And it’s hot.”

Indeed, there better be a fire burning under management’s seats. In August, Best Buy reported one of its worst quarters ever. Revenue, gross profit margins and same-store sales all eroded, with earnings falling to $12 million from $128 million a year earlier. And now it’s confronted with the need to make changes just as it heads into the busiest retail season of the year.

One of the opportunities that Durchslag is excited to explore is the company’s overall strategy for creating a multi-channel experience, which is one of the industry’s big buzzwords right now. It means creating a closer connection between its online and bricks and mortar experiences, so that customers can be recognized seamlessly across both. Durchslag believes that Best Buy, as the largest electronics retailer and the world’s 11th largest online retailer, has a special opportunity to leverage those assets. “I see that this bricks and clicks model is going to be the key to consumer delight — you have to be able to do both well,” he said.

While many big box retailers have considered e-commerce sites the enemy, clearly Best Buy has decided it is better to embrace it than to fight it. Durchslag said it has one thing going for it that the travel industry did not. About half of travel purchases have already shifted online, whereas the electronics category is seeing less than half that rate. “Consumers want to touch and feel the products and make sure they meet the expectations,” he said. “They want to be comfortable that it’s going to work in the home.”

He’s also not entirely sold that Best Buy has a “showrooming” problem, where customers walk in to touch and feel the products but then order them somewhere else, like Amazon. “I think that consumers do that, but it’s too soon for me to have a fact-based answer. But the question is, how many consumers are actually doing that? To some extent I see that as an opportunity. If they are in our store, they are our customer to lose.”

Groupon’s entrance in the point-of-sale business was expected. In May, it acquired New York-based Breadcrumb, which developed the core of what the product is today.

The national rollout this week closely follows the unveiling of Groupon Payments, which enables merchants to accept credit cards using an iPhone or iPod touch. Breadcrumb is complementary, in that it works on an iPad.

Groupon’s goal for both Breadcrumb and Groupon Payments is to cut costs for merchants that are used to paying high prices for low-tech, antiquated systems. In return, Groupon hopes to create a closer bond with merchants that will encourage them — or potentially require them — to run coupons in the future.

“We are not focused on these businesses boosting the bottom line; they don’t need to be wildly profitable on their own,” said Groupon CEO Andrew Mason, in an interview with CNBC about Groupon Payments. “What we are really focused on is using additional services to strengthen the value proposition that we have for our merchants.”

Since profit is not the main motivator, Breadcrumb’s rates start off fairly low. For one terminal, it costs $99 a month; 10 terminals cost $399 a month. Merchants will have to buy iPads, cash drawers, receipt printers and Internet access separately (although Groupon promises that adds up to hundreds of dollars, compared to the thousands of dollars for other point-of-sale systems).

The software also will work closely with Groupon Payments, which guarantees the cheapest rates, or else Groupon will beat it. To qualify for 1.8 percent plus 15 cents per swipe, merchants will have to be existing Groupon users. But, that’s the case with Breadcrumb, likely because it already had hundreds of customers before it was acquired.

Last month, Wall Street reacted positively to Groupon’s entrance into the payments industry. Since then, Groupon has been able to hang on to those gains, with the stock closing yesterday at $5.27 a share. With its second big bet in the payments space being unveiled today, we’ll have to see if investors are equally pleased. It still has a long way to go, and it will have to stay ahead of many other competitors, including  Square, PayPal, LevelUp and VeriFone.

Today, the directory has about 200,000 restaurants, cafes and bars out of the more than two million individuals and businesses that are registered to accept credit and debit card payments using Square.

When looking at a map, that visually translates into a couple dozen shops in cities like downtown Seattle or Boise, Idaho. In San Francisco, where the company is based, there are even more.

Consumers will be able to use the directory to view menus, find deals and specials at restaurants and pay using the Square Wallet app, which consumers download to the mobile phone and where they store their payment card information. While the site doesn’t have Yelp-like reviews, some merchants do make recommendations on what to order and offer rewards, like 50 percent off your first purchase or 10 percent off every sixth visit.

If you think the number of locations where Square is accepted is sparse, keep these two things in mind: Square is already processing more than $8 billion in payments on an annualized basis, and soon it will be uploading every Starbucks into its directory based on a recent partnership it signed with the mega coffee conglomerate.

The program was first discovered by Channel Advisor, after Amazon sent detailed letters to merchants about the program. Channel Advisor provides tips to merchants, who sell items on marketplaces like Amazon and eBay. An Amazon spokesperson did not return phone calls seeking comment.

In the letters, Amazon said the new service, called Amazon Lending, can be used to “purchase inventory and increase your sales on Amazon.com.” If a merchant is approved for the program, the funds will be advanced to their Amazon Seller account within five days, and then a monthly fee will be automatically deducted from the merchant’s account.

While many consumers may think that everything they buy on Amazon comes directly from the retailer, in many cases it is coming from independent sellers, who choose to list their products on the marketplace for more visibility. Amazon collects 99 cents a sale, plus a percentage of each transaction if a merchant is selling fewer than 40 items, or $40 a month plus a revenue share if they are selling more.

By lending capital to its sellers, Amazon may be able to help merchants increase their sales, since one of the many constraints they face is having access to capital. This can be especially true ahead of the holidays as merchants stock up on inventory to meet additional demand. The loans, however, won’t come cheap. According to Channel Advisor, several merchants were offered an interest rate of 13 percent.

Other companies, like Atlanta-based Kabbage, serve online merchants, which typically have a hard time getting attention from traditional lenders. Kabbage, which has raised almost $50 million in venture capital, has now lent money to sellers — mostly on eBay, Amazon and Yahoo — that earn a combined $800 million in annual sales.

In an interview, Mihir Shah, Groupon’s VP of Mobile and Merchant Products, confirmed to AllThingsD that Groupon Payments is available starting today in the U.S.

The launch follows a pilot program in the San Francisco area with more than 150 businesses. The service allows merchants to accept credit and debit cards by swiping them through a card reader attached to an iPhone or iPod touch.

While payments has become a very hot space over the past year, with many companies providing card readers for mobile devices, what stands out about its service is the price. At least, that’s what Groupon is hoping.

Shah said Groupon is guaranteeing it has the cheapest rates — and will beat a merchant’s current rates if it doesn’t. He said that merchants often don’t even know what they are paying because of complicated rate structures and monthly fees that make it hard to figure out.

When pressed for a time frame in a recent interview, Rabois claimed that the transition could take place in as little as 18 months.

This would be a very fast pace, given that so many merchants have already invested thousands of dollars in their point-of-sale machines — not to mention other hurdles, such as getting employees up to speed on new systems.

Still, Rabois, whose business relies on this happening, is insistent.

“The era of standalone machines is over,” said Rabois, a former executive at PayPal. “Everyone will be migrating to iPads and comparable devices, which will be powered by an app — that is, hopefully, Square.”

We’ll see, but now Square has the money to try to make it so, finally confirming earlier today that it has raised a fourth round of capital. After months of rumors and an announcement last month that Starbucks would be one of its investors, the San Francisco-based payments company said it completed a monster round, totaling $200 million. This now puts it at a $3.25 billion valuation, according to sources. A spokesman would not confirm that amount.

The company said that it plans to use the money for more expansion. Over the past year, Square has already moved beyond handing out magnetic-swipe readers to anyone who wanted one to offering more robust experiences for both consumers and merchants. That now includes software on the Apple iPad, which acts like a register, and an application on the iPhone or Google Android phone that allows consumers to pay without using cash or plastic.

Square is not the only company that believes the transition will happen fast.

A survey by the National Retail Federation last fall found that while only 6 percent of retailers said they used mobile point-of-sale devices, half of the respondents said at the time that they planned to adopt such devices over the next 18 months. Additionally, about 75 percent of U.S. merchants said they intended to buy a tablet over the next year, according to market researcher NPD.

In the interview, which took place a few weeks ago, Rabois elaborated on his vision.

Essentially, Square’s biggest goal is to enable any merchant, regardless of their resources, to offer a mobile experience similar to the one Starbucks offers today through its application. In August, Starbucks announced that it was investing in Square, and was going to start using it to process all of its credit and debit transactions.

“Any merchant that is focused on customer service and the ambiance of their experience will be intrigued by what we offer,” Rabois said.

But if merchants are indeed eager to change out their legacy systems for something more digital, Square won’t be the only option for them to choose from. Other companies, such as eBay’s PayPal, Verifone and Intuit, also allow merchants to upgrade their systems without any additional hardware, as well as offering their own mobile-based solutions.

The technology, built by the company’s San Bruno, Calif., office, was designed over the past 10 months by 15 engineers, and is replacing Endeca, a third-party search engine acquired by Oracle.

Walmart’s move to managing its own search in-house mimics the behavior of other online retailers, like eBay and Amazon, rather than its conventional brick-and-mortar peers. Online merchants are always fine-tuning the search experience, based on the logic that sales will increase if consumers can find what they are looking for.

Since implementing the new search technology three months ago, Sri Subramaniam, VP for @WalmartLabs, said that has already proven to be true — Walmart has seen a 10 percent to 15 percent lift in sales.

The team named the search engine “Polaris,” after the North Star, the brightest star in Ursa Minor, because it is the group’s guiding light for where they want to go with the site’s capabilities.

One problem Subramaniam said that Walmart faced — one that neither Amazon or eBay have to deal with — is having fewer items in its inventory. That may sound counterintuitive, given Walmart’s reputation as a mega retailer, but clearly, online retailers have a limitless catalog that would never be able to fit into a Walmart storefront.

“We have fewer items than Amazon and eBay,” Subramaniam said. “So the search has to work much harder at matching.”

He provided a few examples of how things have changed:

• Before, a search for “house” would have returned results for a doghouse or a dollhouse. Now, search items also include the hit TV series.
• Before, when users searched for “flat,” flat-screen TVs came first. Now, it also includes women’s shoes, or “flats.”
• Before, a search for “garden furniture” would return a ton of links to lawn chairs, tables and other backyard products. Now, Walmart will return a topic page that enables users to browse items by topic area. It also highlights items for sale.
• Before, a search for “chlorine tablets” might have returned results for the mobile device. Now it also shows pool equipment.

The new search engine technology has rolled out to both the Web site and mobile site in the U.S. Walmart is now planning to roll out internationally to Brazil and other countries. @WalmartLabs was created in part by the $300 million acquisition of Kosmix, a data company based in Mountain View, Calif.

However, that’s just one side of the equation. To be successful, it will also need to get consumers excited about using its in-store payment offerings.

“If you build it …” goes the “Field of Dreams” philosophy. But will they come?

“That’s ultimately the question that they need to solve,” said Rick Oglesby, an analyst with Aite Group. “PayPal has achieved merchant coverage, as far as Discover goes, but on the consumer side, they have 50 million active users and very few of them have the ability to transact in the store.”

Initially, consumers will have to sign-up for a Discover-backed and PayPal-branded credit card, which does little to slim down the number of items consumers are carrying around in their wallets. Later, consumers will also have the option of paying by entering their mobile phone number and PIN at the terminal.

Clearly, having a registration requirement of any kind will slow adoption, especially since the easiest option will be to continue using cards or cash.

But there’s also the question of whether consumers trust PayPal enough to be the brand they use to make everyday purchases, from gas to groceries to clothing. The company has been around long enough to gain significant brand recognition, but in that time, the online payments pioneer has also accumulated a bit of baggage.

Almost anytime I write about PayPal, commenters voice their dislike for the eBay-owned company. From today’s post, one person complained: “PayPal is one of the worst companies to deal with. I’d rather pay with pretty much any method than PayPal.” Another said, “I like Discover, but hate PayPal with the fire of a thousand suns. To be honest, this agreement sours me on Discover a bit, just because PayPal is so anti-consumer.”

The brand also continues to be tarnished by a constant stream of negative media reports — even if they appear to be coming from a vocal minority.

A New York Times story earlier this month highlighted several horror stories from recent years that made consumers and businesses think twice about using PayPal. And sites like PayPalSucks.com, and its accompanying Facebook page, provide forums where consumers can rant. (The PayPal Sucks Facebook page has 83,500 “likes” compared to PayPal’s own Facebook page, which has 324,000.)

There is no doubt that PayPal is fully aware of this problem and is actively working on solutions.

In a recent blog post, Katherine Hutchison, the head of risk management for the Americas at PayPal, recently addressed one of the chief complaints from businesses regarding the freezing of funds in their accounts.

“We understand that it’s frustrating as a seller or small business to have delayed access to your money and feel like you don’t understand why,” she wrote. “We work to communicate this effectively through various channels (emails, customer support, web site and policy terms) but we understand that sometimes you’re looking for more from us.”

But at least PayPal is there to answer the phone when a problem does occur, which is more than some tech companies can claim. Based on the most recent information available, PayPal said it has 17 operation centers worldwide, staffed by 6,000 employees who speak 15 languages and answered an average of 64,255 calls and 16,670 emails a day in 2010.

To be sure, there was at least one entity that thought the deal had potential: Wall Street.

Today, both Discover and eBay hit new 52-week highs. At the close, eBay was at $47.00 and it continued to climb after hours. Discover closed at $38.43, then slipped back a bit after hours.

“The whole industry has been looking for a landmark that says that all of this is really happening,” said Don Kingsborough, PayPal’s VP of Retail Services. “This is an important deal for us, because it gets us to over seven million locations pretty seamlessly.”

Groundbreaking deals such as this one are becoming commonplace in the industry, as businesses move quickly to make it possible for consumers to pay with their mobile phone or some other form of digital currency at the cash register.

Just two weeks ago, Square made a huge splash after announcing that Starbucks would use the start-up to process all of its credit and debit transactions.

Now, one of Square’s biggest rivals is making it clear that it is still in the game.

In ranking the two deals, Ken Paterson, VP of Research at Mercator Advisory Group, says he would guess that PayPal’s deal is potentially larger. ”It could bring PayPal to the majority of card-accepting merchants across the country,” he said. “The potential scale involved here is very significant.”

Discover may not hold the same cachet among consumers as Visa and MasterCard, but it reaches nearly as many merchants, roughly 95 percent of the two other payment networks combined. And when matched up with PayPal’s more than 50 million users in the U.S., the two could mark the first mobile payments network that spans both millions of users and millions of locations.

Starting in April, Kingsborough said, Discover’s merchants will be able to begin accepting PayPal’s charge cards. Or consumers may choose to pay by entering their mobile phone number and PIN at the terminal (which requires no wallet). The merchants will also have access to other PayPal features, such as the ability for consumers to order online and then pick up their purchase in the store.

In the future, PayPal could provide other features to participating retailers, such as location-based check-in capabilities and loyalty programs.

Kingsborough expects the rollout to be fairly easy, because no software upgrades will be necessary, given that PayPal already has partnerships with the necessary hardware partners. “We’ve been working on this for 18 months, and have the building blocks in place,” he said.

Separately, PayPal already has deals with 16 merchants and expects to have 20 signed up by the end of the year. Today, consumers can pay with PayPal in 3,000 stores, including all Home Depots and some Abercrombie & Fitch, Jos. A Bank and Jamba Juice locations.

Kingsborough said it will give the payment company a cut of each transaction for the right to run via Discover’s network, and added that the deal is not exclusive, but that it would be “highly unusual [for either party] to do a similar deal with someone else.”

Mercator Advisory Group’s Paterson said that the deal is mutually beneficial. “It’s a small fee on each transaction, but the numbers involved get pretty large pretty quick,” he said.

So why is now the time to shift consumer behavior to mobile payments? It would appear that we’re fixing a problem that doesn’t exist. Are we simply attempting to engineer a revolution?

Actually, no. There’s far more happening behind the scenes that must change — and change fast — for the economy’s sake, and for the sake of the consumers who fuel it.

Many people are speculating about how mobile payments can capture the mainstream’s interest, and their wallets. Here are a few of the things that will drive the mobile payments revolution.

Get Merchants by Crushing the Silent Economic Threat
One of the biggest invisible taxes on our economy (to the tune of $50 billion a year) is interchange, also known as “swipe fees” on credit cards and other forms of payment processing. Merchants pass along these fees to consumers simply because of the need to move money.

For the longest time, the only true zero interchange way of paying was cash (the oldest and arguably the least convenient). But prices for cash-toting customers are often exactly the same for credit- or mobile-paying customers. Up until last year’s passage of the Durbin Amendment, that price equality was actually mandated by federal law. This means that whenever you pay cash, you’re subsidizing the credit card-carrying masses. Credit cards are faster and more convenient, so why not jump on board? And the more people jump on board, the more fees the credit card companies can rake in. You get the picture.

The good news is that increased competition, and some helpful legislation, is already driving these fees down — slowly, but surely.

It’s this shift toward real savings that will motivate merchants to adopt a new payment infrastructure. Not the cool factor, not the desire to be on the leading edge, but cold, hard, economic facts. If mobile payment companies lead this shift (as many like Dwolla are), merchants will adopt them — and consumers will follow. If credit card companies were to lead this shift and price interchange competitively, mobile payment would stop in its tracks.

The good (and bad) news is that the existing players won’t cannibalize their own interchange-driven revenue streams. So it’s up to the new companies — mostly mobile in variety — to push the shift. This means that the opportunity for existing players to shift to mobile is open, but that it’ll take a lot longer because the big guys won’t structure their networks to fuel mass merchant adoption.

Get Widespread Acceptance by Making It Painless
Instead of trying to rebuild decades-old payment constructs or the point-of-sale systems that millions of businesses run on, build a payment ecosystem that’s as painless as possible for merchants to adopt. Entrenched players (Micros, Aloha, PosiTouch) won’t be going anywhere overnight, so it’s incredibly important to take a more open approach to support the systems merchants already have in place.

On the flip side, mobile payment apps have to be easy for any user with a phone to download and access. Everyone is speculating over whether an NFC-equipped iPhone will catapult mobile payments into the mainstream, and the answer to that question is: Probably not. NFC, QR codes, stating your name, swiping your finger, retina scans or the deposit of first-born children should all be acceptable ways to pay. It’s not the medium that matters.

What I’m getting at is simple: Make it as easy as possible for both merchants and consumers to adopt your mobile payment technology, and mobile payment technology will become more mainstream. We don’t need to have painfully long meetings about it. (Disclaimer: I didn’t get invited. I’m totally not cool enough.)

Put Something (Other Than a Phone) Into the Hands of the Consumer
The act of paying with your phone is only a fraction of what’s cool about mobile payments. In theory, paying with my credit card and paying with my phone will do the exact same thing (get me that sandwich or fully functional Iron Man suit I’ve been wanting). So why would I want to make an unnecessary change to the way I’ve always paid?

There has got to be some kind of larger benefit to the consumer to force this change. Just as credit card companies introduced rewards points and benefits to get people to use their cards, mobile payment companies need to do something to sweeten the deal for consumers.

Getting There Might Take Awhile
In conclusion, revolutions don’t happen every day, and for good reason. Change is never comfortable. Many technological shifts throughout history have started out awkward. Just think about how far we’ve come since we started downloading the interwebs through a CD we got in the mail. For now, mobile payments seem messy and fragmented, but a future in which everything just works (and works very much in favor of both the consumer and the merchant) is not all that far off.

At the age of 12, Seth Priebatsch founded his first web start-up. It failed gloriously, achieving profits several times those of Twitter. After completing his freshman year at Princeton (the official requirement to achieve the term dropout), Seth took a leave of absence to found SCVNGR, the parent company of payment network LevelUp.

The three-year-old company in San Mateo, Calif., follows other big-money rounds, including WhaleShark raising $150 million, CouponCabin raising $54 million and Coupons.com raising $30 million.

Who knew it was so expensive to save money?

FreeMonee’s round was led by Charles E. Ryan, current chairman of UFG Asset Management and former chief country officer and CEO of Deutsche Bank Group in Russia. Returning investors, including Redpoint Ventures, Sutter Hill Ventures, Opus Capital Ventures and Pinnacle Ventures, also participated.

To date, the company has raised $45 million in total.

FreeMonee falls somewhere in between a Groupon and a rewards program, like the ones offered by American Express.

The first time I wrote about FreeMonee, I explained: “The idea piggybacks on concepts that have been in existence for years. Today, credit card companies reward customers with points when they visit certain hotels or rental car companies, so why can’t that be applied on a much wider basis? Why can’t your credit card company track how much you’ve spent at particular retailers, and calculate what rewards you may qualify for?”

The offers don’t need to be purchased in advance or printed out. Consumers automatically get the discount when they use the same credit card that received the offer. The offers can appear in a number of formats, from a Web site to an email or a line item within their bank statement.

While there are a dozen or so companies competing in this general card-linked offer space, FreeMonee has another spin on the concept, too.

They aren’t actually offering coupons, but are handing out gifts. Merchants, retailers and restaurants sign up with FreeMonee to grant consumers $5 or $10, in the hope that they will come into the store and spend much more. Once the purchase is made, a credit appears on the consumer’s card within three to 14 days. Cardholders can’t directly enroll in the program, but must access promotions through their financial institution. By this definition, the company is competing with Wrapp, a social gifting company.

The massive funding round will go toward hiring and to build out the support teams in charge of managing bank deployments.

Here’s the full release:

FREEMONEE NETWORK RAISES $34 MILLION,

MORE THAN THREE TIMES ITS SERIES A ROUND

Fueled by Rapid Expansion with Top Retailers and U.S. Card Issuers,

FreeMonee is Driving Marketing Spend Shift—Changing the Economics of Advertising

SAN MATEO, CALIF. – August 7, 2012 – FreeMonee Network, the world’s first and only provider of consumer gift incentives, today announced $34 million in investment funding led by Charles E. Ryan, current Chairman of UFG Asset Management and former Chief Country Officer and CEO of Deutsche Bank Group in Russia. Returning investors, including Redpoint Ventures, Sutter Hill Ventures, Opus Capital Ventures and Pinnacle Ventures also participated. This round is more than triple the initial $11 million 2010 Series A round and brings the company’s total raise to $45 million. The new funding will fuel FreeMonee’s rapid expansion.

“FreeMonee Gifts are a new class of consumer incentive that will change the economics of advertising forever, marking the death of coupons,” said Gadi Maier, CEO, president and co-founder of FreeMonee. “The FreeMonee promise may seem too good to be true—and our early results extend that perception, with sales lift of 400–700 percent and return on ad spend of 500–900 percent. These amazing results far surpass the performance of existing marketing products, so demand is exceeding our early expectations. The new funds will help us to expand FreeMonee to even more retailers and broaden programs with top U.S. banks and credit card issuers.”

FreeMonee’s product addresses three key challenges facing the market today: retail marketers struggle to drive growth without resorting to brand-eroding coupons or discounts; consumers labor through floods of offers and deals; and financial institutions seek new products to positively engage customers. FreeMonee Gifts are unique consumer incentives that meet these challenges head-on and deliver clear benefits to each group:

1) Retailers generate profitable new sales at scale.
2) Consumers receive relevant and irresistible incentives.
3) Card issuers engage customers while increasing card usage.

FreeMonee Gifts link directly to a consumer’s credit or debit card, delivering cash gifts that can be spent on any purchase at designated stores or restaurants. Unlike a coupon, the consumer is free to spend any amount they want—there are no conditions.

To deliver a no-strings-attached incentive to consumers, that is profitable for retailers, is extremely difficult. FreeMonee invested two years in developing a proprietary Gift Underwriting Engine that matches the right gift, to the right consumer, at the right amount. The results are response rates that are 10–50 times that of traditional promotions or coupons and profitable new sales for merchants.

“FreeMonee is attractive because it is a simple, powerful idea that will change how marketers reach customers. The company should be the beneficiary when marketers shift their ad spend from less efficient vehicles to the FreeMonee approach,” said lead investor Charles E. Ryan. “This is the first really big idea to come along in the retail marketing space in a long time, and I believe it will change the game. I was excited to lead this round, because I want to be part of the sea change in advertising that FreeMonee will create.”

Of the $300 billion merchants spend annually on promotions and direct marketing initiatives, much is wasted because it doesn’t shift consumer behavior. Offers, even in their newest forms, are not motivating consumers to act in a substantially different way. The FreeMonee Gift is proven to be different. Consumers love the simplicity and freedom offered by a FreeMonee Gift and go out of their way to visit the store or restaurant and use that gift before it expires. As a result, more of the dollars spent by marketers go directly into the hands of consumers, creating a far more effective and efficient way for merchants to generate incremental sales.

Since its November 2011 consumer launch, FreeMonee is experiencing rapid growth. FreeMonee currently delivers gifts through partnerships with four of the top eight banks and card issuers, and is in development with several others. Fueled by unprecedented initial results, FreeMonee now delivers FreeMonee Gifts to millions of customers each week from a variety of merchants across 30 categories.

About FreeMonee Network

FreeMonee is changing the economics of advertising by enabling stores and restaurants to attract customers on demand using FreeMonee Gifts. With its unique new consumer incentive, FreeMonee delivers gifts of money directly to cardholders of the largest financial institutions. Customized to precisely match consumer interest, gifts allow consumers to purchase anything they want at designated stores or restaurants—no strings attached. The gifts are made possible by FreeMonee’s proprietary Gift Underwriting Engine, which accurately determines the right gift to ensure the highest level of consumer interest and the best return on ad spend for a merchant. Unlike traditional coupons or offers, FreeMonee Gifts feel like a gift card from a friend—money to spend at places consumers like. For retail marketers, FreeMonee Gifts enable brands to attract large volumes of profitable, incremental customer visits—without discounting. For banks and credit card companies, FreeMonee provides the opportunity to positively engage customers and strengthen loyalty.

Founded in 2009 and located in San Mateo, California, FreeMonee is led by former executives of Google, Visa, Oracle, Cisco, Procter & Gamble and Coca- Cola. To date, FreeMonee has raised $45 million in funding with investments from Charles E. Ryan, Opus Capital Ventures, Redpoint Ventures and Sutter Hill Ventures, among others. Through continued partnerships with the top U.S. financial institutions, the company expects 50 million households to have access to FreeMonee Gifts in 2012. For more information, please visit www.freemonee.com.

And Google Wallet has been one of the biggest offenders.

But starting today, the company is making a few key changes that will remove a lot of barriers to entry.

For instance, now users will be able to store multiple cards in the Google Wallet, whether they are issued by Visa, Discover, American Express or MasterCard. In addition, users will now also be able to use Google Wallet to pay online at thousands of participating merchants.

“When we launched, we only supported Citi MasterCard and our own prepaid card,” said Robin Dua, Google Wallet’s head of product management.

With this new approach, adding a new card will be easy. Before, he said, it took several months to a year of working with a bank to complete — a lifetime in the fast-moving technology space.

To make it work, Google explained in a blog post, it will now store the payment information in the cloud, rather than in the phone’s secure element. When users add a credit or debit card to the Google Wallet mobile app, they will be issued a “virtual” MasterCard card number. As a result, the merchant will never receive your real credit or debit card credentials, but rather be presented with that number, adding another layer of security.

As part of the announcement, Google also added new security features that will allow users to log in online and delete all of their information if they ever lost their phone.

So, is Google Wallet now perfect?

No, not really. For now, it is still limited to six NFC-enabled phones.

In the second quarter, the company reported revenue of $32.7 million, up 67 percent from the same quarter a year earlier. The only thing that could have been better was the company’s net loss, which totaled $2 million, or three cents a share, compared to a loss of $1.2 million, or eight cents a share.

Analysts had been forecasting revenues of $30.7 million and a six cent per-share loss.

In after-hours trading, the company’s stock was up nearly 14 percent, or $2.58 a share, to trade at $21.40. The company went public in March, selling shares at $15 a pop.

In a canned quote, CEO Jeremy Stoppelman credited the positive results to a jump in usage across Yelp’s 90 markets. The company’s average monthly unique visitors are up 54 percent year over year to more than 30 million. He said Yelp is “seeing an increase in our consumer engagement, especially on mobile, where their connection to local businesses is enhanced by the location-based capabilities of their mobile devices.”

Yelp is also providing guidance for its third quarter for the first time, and is raising its full year 2012 guidance:

• For the third quarter of 2012, net revenue is expected to be in the range of $34.5 million to $35.5 million. Adjusted EBITDA is expected to be in the range of $750,000 to $1.25 million.
• For the full year of 2012, net revenue is expected to be in the range of $135 million to $136 million, representing growth of 62 percent to 63 percent compared to the full year of 2011. Adjusted EBITDA is expected to be in the range of $3 million to $4 million.

That’s because, for every transaction, they usually pay the payment processors 2 percent or more. On small purchases, that can often be the retailer’s profit.

But, starting today, LevelUp is providing merchants an alternative that will charge absolutely nothing. It is calling the program Interchange Zero, because when both merchants and consumers use LevelUp, it won’t cost a single cent to accept a payment.

On the consumer-facing side of LevelUp’s business, consumers must pay using a mobile application on their phone that is tied to their debit or credit card. This makes LevelUp one of dozens of companies also competing in the hotly contested mobile payments space.

LevelUp CEO Seth Priebatsch says he’s been talking about charging zero interchange fees for the past eight months, but only now has figured out a way to roll it out. ”Once you go to zero, you can’t go back,” he said, noting how confident he is in making the move.

But getting both merchants and consumers to adopt the mobile payments has been challenging for others, including Google Wallet, PayPal and Square, which are all arguably in the very early stages. Others, including Groupon and Apple, are also contenders, and, oh yeah, don’t forget about Visa, MasterCard and American Express, which all have healthy businesses based on charging interchange rates.

Crazy as it sounds, Priebatsch believes that his Boston start-up, which is a division of Scvngr and raised a modest $12 million in its most recent round, has an honest chance against them all.

That’s because he is leapfrogging everyone else by going directly to zero.

“It’s a commodity. Everyone is competing on price,” he said.

Up until now, LevelUp was charging about 2 percent per transaction. Under that model, it had signed up 3,000 merchants, and said that roughly 200,000 active users were spending about $2 million a month on its network. Going forward, rather than making money on interchange, it plans to sell services to merchants with the aim of getting new consumers in the door and keeping them coming back.

For instance, a common promotion that a merchant could offer would be offering $2 off a purchase. When redeeming the offer, LevelUp earns 35 cents for every dollar off. In this example, the merchant would have paid $2.70 to acquire the customer, which becomes a whole lot more economical if there’s no interchange. Priebatsch believes that by offering such promotions, they can sustainably bring interchange to zero. Currently, 98 percent of the businesses using LevelUp are running campaigns.

“We don’t need it [interchange] anymore. We’ve found ways to add value that can fully subsidize it,” he said.

It also helps that LevelUp is trying to come up with creative ways to limit the amount of interchange it pays.

Priebatsch didn’t go into details on how, but he said that the company has built proprietary algorithms to route money more intelligently, which saves it 50 percent compared to when LevelUp didn’t have the technology. The company also worked aggressively to reduce fraud in the system, and says it has 99 percent less fraud than a standard credit card because merchants never see a consumer’s 16-digit code, but instead scans a QR code.

But even if merchants like it, will consumers be willing to adopt mobile payments?

Priebatsch is insanely optimistic on that front, too, believing that merchants will do most of the legwork for LevelUp, because if they save money, they can ultimately pass it along to the consumer. So far, that’s penciled out, with LevelUp reporting that 85 percent of users are signing up for the app inside of a store.

LevelUp is not the only one moving fast on this front.

Dwolla is working hard to build its own network that limts interchange; Google Wallet plans to subsidize its network with advertising; and PayPal believes that it can continue to charge as long as it offers other perks and services to the merchant.

For more information, here’s the whole release:

LevelUp Becomes First Payments Solution to Achieve ‘Interchange Zero’
“Merchants Will Never Pay a Processing Fee Again,” says CEO Seth Priebatsch

Boston — July 12, 2012 — Accepting credit cards costs merchants a total of $50 billion every year. In fact, payment processing fees are the single largest ‘invisible tax’ on businesses in the American economy. This hurts consumers, too. That $50 billion comes out of your pocket in the form of higher prices anywhere you swipe your card.

Luckily, that fee is going away forever.

As of today, any merchant accepting LevelUp as a form of payment will join the Interchange Zero revolution and stop paying processing fees forever.

What is this “Interchange Zero” thing?
Interchange Zero is the revolutionary — and now, real — idea that it shouldn’t cost merchants a single cent to accept a payment. No ifs, ands, or buts. Instead of making money just for moving money, payment providers should add value above the transaction in ways that help businesses thrive and grow, such as customer acquisition and customer loyalty campaigns.

Priebatsch first broached Interchange Zero as a burgeoning shift in the payments industry last fall at Fast Company’s Innovation Uncensored conference. He’s written on the topic in Inc. Magazine and this spring at SXSW Interactive, Priebatsch addressed the crowd about this inevitable payment revolution.

And now it’s finally here.

OK, this is cool. But why is interchange a dying business?
Fifty years ago, interchange — the movement of money — had reason to be costly. For example, physical lines were laid to connect merchants to the network and large fraud risks had to be covered.
But this day in age, those lines are already laid and heavy-duty security innovations have lessened the real value of interchange. Yet, as these real costs went down, the interchange rate stuck around. What a swindle!

“The process of moving money is now becoming a commodity, a de facto service. We’re entering an era in which merchants should get — and will eventually only pay for — value above and beyond the transaction,” said Seth Priebatsch, Chief Ninja of LevelUp. “LevelUp is skipping this ‘race to the bottom’ happening between the major payments companies and leading the way by providing real value beyond the transaction.”

Today: 0% payment fee. Forever.
Today, LevelUp is taking the bold step of dropping its interchange to zero. Entirely. Forever. From here on out, LevelUp will only make money by providing value beyond the transaction.
LevelUp provides that value with campaigns. The first two are built to solve big problems:

Customer Acquisition campaign: On LevelUp, businesses easily create a compelling incentive to bring new customers in the door. LevelUp will promote it. By bringing in new customers, LevelUp is providing real value. The consumer saves. The merchant wins a new customer. No other payment processor does this!

Customer Loyalty campaigns: Businesses create awesome loyalty campaigns on LevelUp. In doing so, LevelUp motivates customers to come back more often to unlock the loyalty incentives. More visits per week is real value. The consumer is rewarded. The merchant is busier than ever!

OK this is pretty sweet. But how does LevelUp make money?
When merchants choose to run a campaign on LevelUp, LevelUp earns 35 cents for every dollar of credit redeemed through that campaign. That means LevelUp is only making money when real value — which is determined by the merchant when they set up their campaign(s) — is created.

That’s it?
That’s it. So businesses, stop paying interchange! Like, now. Accepting your customers’ money should be free. And with LevelUp it is. Zero percent means zero percent.

Now, take that money, and reinvest it in campaigns that actually grow your business. If they don’t work, improve them. Or stop running them. All the data is yours, all in real-time.

And one last thing…
“Google gave away access to all the world’s information for free. They could have charged per search, but they didn’t. They chose to make money only when they added real value for an advertiser by driving a consumer to a website with a click,” added Priebatsch. “We’re doing the same thing with payments. We’re going enable the frictionless flow of money and only make money when we add real value for merchants — in this case, by driving a new customer to a business with a transaction.”

Britannica might not have liked Google giving away access to information for free. But consumers and businesses sure did. We don’t think everyone will like Interchange Zero. But businesses and consumers sure will.

To join the 3000+ brick-and-mortar merchants already on LevelUp, please visit TheLevelUp.com/business.

About LevelUp

LevelUp is a revolutionary new way to pay. Users pay with their phone, saving time and money. Businesses pay 0% payment processing fees and re-invest those savings into growing their businesses by attracting new customers and bringing them back.

LevelUp is a part of SCVNGR which is backed by Google Ventures, Balderton Capital, Continental Advisors, Highland Capital and Transmedia Capital.

In that short time, the venue has hosted 50 events, from a three-hour iPhone photography class that was followed by a round of beers, to ordinary yoga.

The experiment has represented a massive investment.

The historic building was meticulously remodeled to blend old exposed brick walls and antique chandeliers with modern accents like bamboo floors and large flat-screen TVs. (See the accompanying slideshow for a better look.)

While it’s too early to call the clubhouse a success, there are some signs that the concept is starting to pay off.

And if LivingSocial can replicate the venue across other cities, it could be able to distance itself not only from the stigma of the daily deals business, but also from Groupon, which despite being the category leader, has struggled as a public company.

In a presentation to the media earlier this month, LivingSocial’s co-founder and CEO Tim O’Shaughnessy said he wants LivingSocial to be to local commerce what Amazon is to online retailing and what Google is to search.

“In a three- to five-year timeframe, I want LivingSocial to be a tab that you keep open in your browser all day long,” O’Shaughnessy said. “We think that there has to be that integrated commerce platform for local commerce, and we really hope it’s LivingSocial.”

Productions

It’s still early days for 918 F Street, but LivingSocial has produced dozens of events there, and thousands of events elsewhere.

Packages have included zip-lining, wine tasting, beer festivals and small concert series. LivingSocial even once organized a summer camp for adults. Inside of 918 F Street, there’s a test kitchen for three dozen students, an art studio for painting classes and various empty rooms that can be set up for different events. A commercial kitchen allows chefs to host pop-up restaurants at the venue to try out new dishes or concepts — LivingSocial is there to fill the seats.

Sometimes the concepts are juvenile, perhaps, but when you mix in alcohol, as they usually do, it’s hard not to compare the place to a virtual Club Med, or a YMCA on steroids.

One benefit to producing its own events is that LivingSocial can solve one of the biggest problems in the daily deals space: Unique inventory. Too many providers are all selling the same stuff. By default, the F Street deals are all exclusives.

For example, a recent event called “Sumo, Sake and Sushi” sold out in 40 minutes.

Not only was it popular for consumers, but for merchants, too. The event was being used to help promote a new restaurant in town.

“When you own the experience, you can produce something great for your membership, and then you have the opportunity to bring in sponsors,” said Doug Miller, who is in charge of new business initiatives at LivingSocial.

So far, the approach is working.

The company says that 25,000 people from the D.C. area have already attended events in the four months the building has been open, and that 83 percent of the merchants had never worked with the company before — including using daily deals.

More validation

In research shared with AllThingsD, Yipit reports that the venue has generated roughly $1 million in gross billings since opening, and that the deals sold there were consistently double the gross billings of the average LivingSocial deal.

Furthermore, the researcher found that 918 F Street’s gross billings per deal have grown steadily — from $18,000 in February to more than $22,000 in May — and perhaps most surprisingly, it already accounts for 10 percent of LivingSocial’s D.C. business (even though it hosts fewer than 10 deals per month in the building).

O’Shaughnessy said the company is still fine-tuning the approach, but of the 50 different types of activities hosted at the venue, only two have not been profitable.

Additionally, he noted that people who participated in events at 918 F Street became more valuable customers, because they were more likely to spend with LivingSocial afterward, whether it’s to return for another event or to buy more vouchers.

Expansion plans

The company was reluctant to say if — or when — it would bring the concept to other markets, but maybe it won’t have to.

In May, LivingSocial announced a partnership with AEG, which owns and operates some of the most well-known venues across the U.S. Together, the two companies plan to co-produce events, by packaging regularly occurring events, like concerts or sports, with other activities or transportation.

If LivingSocial decides to go it alone and build replicas of 918 F Street, it will need additional capital.

As the second-largest daily deals provider in the U.S., LivingSocial has raised $600 million, and already has 5,000 employees. The company’s CFO, John Bax, said it does not need to raise more capital today, based on how it is currently configured.

A baby step away from Groupon

By becoming an entertainment and media brand, LivingSocial is distancing itself from the daily deals business, and from Groupon.

This is true for one main reason: Most of the deals that LivingSocial produces and hosts at the venue or elsewhere are not daily deals in the traditional sense of offering half-off the price — that’s because they are full price.

“Already it [full price] is a significant percentage of what we do. It will be a driver for a lot of what we do, but not the primary driver,” O’Shaughnessy said.

But LivingSocial is not just drifting away from Groupon. Groupon is also finding its own way in determining the future of the daily deals business.

While LivingSocial focuses on producing and curating events, Groupon is determined to become a technology company by building software, such as online calendar tools and payment technologies aimed at the local merchant.

LivingSocial says it also has plans to test out at least three concepts in the payments and loyalty space this summer, but it is not as interested in developing any hardware, and does not want to compete directly with payment processors.

With the two different approaches to the market, it’s anyone’s guess what the daily deals market will look like in three to five years.

During an all-day media event today, the company’s top executives provided a very broad overview of the privately held company.

It also gave us a tour of its six-story building in Washington, D.C., that it uses for hosting events, including art classes, pop-up restaurants and exercise classes. Later, it gave us an option of checking out a mixology class or trapeze lessons. (Personally, I opted to learn how to make refreshing beverages on this blistering 95-degree day!)

Dickson Chu, LivingSocial’s SVP of merchant services, said this summer it will test out at least three concepts with merchants in the payments and loyalty space. He declined to provide specifics, but LivingSocial’s CEO Tim O’Shaughnessy verified that it was not interested in competing directly with payment processors.

That’s sort of a novel comment given that so many companies have recently entered the space to compete against Visa, MasterCard and American Express, like PayPal or Square.

“We have a big business here, and we probably aren’t going to be a real active Square competitor,” the company’s chief said.

Over the past several months, critics have wondered if the daily deals business is sustainable and if it will be able to continue to attract consumers at the same rate. After all, the novelty of getting meals, spa treatments and other services at 50 percent off starts to wear thin. As a result, providers in the space have begun to cast a wider net by branching into other areas of local commerce.

In particular, Groupon, the industry leader, has been vocal about providing technology solutions to local merchants, including online scheduling software and rewards programs that track consumer spending. More recently, reports have surfaced that Groupon is testing out a mobile payments product, including an aggressively priced service that is much cheaper than the big payments processors like Visa and MasterCard, and even than the emerging players like Square and PayPal.

Over lunch at Kushi, a Washington, D.C., sushi restaurant that has run three LivingSocial deals, owner/chef Darren Norris said he spent $17,000 on his restaurant’s point of sales system, and it’s “the worst built machine in the restaurant.” In response, Chu said LivingSocial isn’t particularly interested in making hardware, but “we will solve that problem.”

Since joining the company in December from Citibank (and before that, PayPal), Chu has been investigating other services they could offer to merchants. One idea is to come up with a way for LivingSocial to automate a restaurant’s Facebook page or other social channels, which small business owners don’t typically have the time to keep up to date.

During the company’s update on the state of the business, the executives declined to comment on the private company’s financials. O’Shaughnessy also said it had no immediate plans to file to go public. Amazon continues to own roughly a third of the company, and reported as part of its financial results that the company had an operating loss of $92 million on revenues of $110 million in the first quarter.

Here are some of the figures that LivingSocial did provide:

• has 67 million subscribers
• operates in 600 markets in 20 countries
• has worked with 115,000 merchants
• employs 5,000 employees
• has raised $600 million in capital
• says 20 percent of purchases occur on mobile devices, and that its apps are being downloaded 100,000 times a week for a total of 11.5 million times
• says 25 percent of revenue now comes from non-core daily deals, such as travel, family, adventures, Amazon.com — many of which are full-priced.