The rapidly expanding economy of discount vouchers and coupons is entering its Third Age, changing not just the means of distribution, but also, potentially, the whole model.
In the beginning there were paper coupons, distributed through newspapers and magazines. These have been hard to track for merchants and advertisers, distressingly easy to counterfeit for criminals, but also incredibly popular. It is estimated that the printed coupon industry turns over some $7bn annually in the USA and perhaps as much again in Europe.
The second age was that of the online coupon and voucher code, available from retailer websites and through the many companies that have grown astonishingly rapidly by specialising in digital vouchers - not merely as a consumer offering but also as a marketing channel in its own right.
Now, the industry is changing again, adding mobile to its channels, with digital vouchers deliverable to cell phones and redeemable through the new generation of smartphones, such as Apple’s iPhone, Palm Pre and Google Android. In this second transformation, however, there is potential to transform not just the individual customer relationship but also the industry playing field, with new launches set to revolutionise the model.
The maturing digital channel??
Discount vouchers began moving online some five years ago but this process is very far from complete. According to a report by Scarborough Research, released in August 2009, only 8% of American households routinely obtain discount coupons via email or SMS text, with even fewer (7%) downloading them from internet sites. The dominant means of distributing offers remain newspapers (51%), in store coupons (35%) and through the letterbox (31%).
Nevertheless, the uptake of digital vouchers has increased rapidly, with Google Trends data showing that the baseline number of online searches for ‘vouchers’ and ‘voucher codes’ has perhaps trebled since mid 2004, with seasonal Christmas spikes increasing year on year. There have been recent suggestions by Hitwise Intelligence and others that online voucher traffic may now be in decline, based on an observed fall off in searches since the pre-Christmas peak of 2008. However, those UK companies specialising in voucher codes hotly dispute this.
Past the peak?
One of the newest entrants, and also one of the most successful, is Mark Pearson, a former chef from Liverpool. He started www.myvouchercodes.com from his bedroom in early 2007 and now heads a team of more than 70 people, running a site with more than nine million visitors per month.
“I think the Hitwise statistics are aggregating across the whole industry,” says Pearson. “I don’t know about other piggyback sites but I can confidently say that our site is still growing and that In the past month, growth has been bigger than ever.”
Pearson’s principal competitor in the UK is Duncan Jennings, whose company eConversions branched into digital vouchers with the launch of www.vouchercodes.com in early 2008. Jennings, too, says he sees little sign of the UK industry becoming saturated or traffic declining.
“Not for us,” he says, “but it depends what stage you’re at in terms of growth. We’ve only been around for a year or so and are seeing huge amounts of growth. As far as I can see, in terms of people searching for wide range of terms, it’s still growing. And we’re not at Christmas yet, which is when you will see the real boom.”
Content is King
However Jennings concedes that online voucher growth will inevitable tail off as the market matures, although he expects digital voucher to become more ingrained as a consumer behaviour and as a marketing channel.
Both Jennings and Pearson ascribe the success of their sites to a ‘Content is King’ approach, eschewing clickverts ad banner adverts in favour of user friendly clean design and compelling offers, with affiliate marketing generating the revenue.
While both sites place a great deal of store on their emailed newsletters to generate repeat visitors and increase uptake of offers, the fact remains that vouchers have hitherto largely been a ‘pull’ proposition, relying on consumers themselves to seek out offers and store them. It is this basic proposition that now shows signs of changing with the move into mobile.
Enter the mobile
In the USA, two of the fastest growing sources of discount coupons have been Cellfire and Yowza!!, both of whom specialise in delivering offers via mobile phones, though in distinctly different ways.
Cellfire (formerly Moonstone) launched in early 2006 following a meeting of minds between venture capitalist Brent Dusing, disenchanted with the limitations of paper vouchers, and former NASA software engineer Preston Tollinger, who was looking for new mobile applications.
Cellfire provides mobile coupon and discount offers that are accessible to consumers via almost every cell phone in the United States, by adopting what Dan Kihanya, its VP of Consumer Marketing, describes as a ‘ubiquitous’ approach.
“We started the platform in Java J2ME – applicable to most feature phones and later added a mobile web version Cellfire Express – which doesn’t require download but just login to a mobile website. From there, we’ve gone on to support Windows Mobile, Blackberry and iPhone/iPod Touch, We support pretty much every phone in the US, one way and another,” says Kihanya.
Cellfire now has 1.3 million registered users, with a further 60,000 new registrations very month, but has plans for link ups with one or more major cell phone providers in the USA that could extend its reach and market weight significantly.
Enterprise in an app
Growing faster still is Yowza!!, an infant company that demonstrates the potential of the new generation of smartphones to support new enterprises based on an application.
Where Cellfire uses web-based content portable to a broad range of mobiles, Yowza!!’s offering and features derive from the Apple iPhone Operating System, using geographic location awareness to contextualise offers and the high-resolution screen to enable barcode redemption at point of sale. Launched in February 2009, the free Yowza!! app has so far been downloaded by more than 500,000 iPhone and iPod touch users, of whom there are now an estimated 60-70m in North America.
”It’s been an explosion,” says Yowza!! co-founder and main software developer , August Trometer. “W already have over 200 merchants and some 10,000 outlets – however just one deal we’ve recently signed with a major food supplier has the potential to add a further 400,000 locations.”
Yowza!! is developing flavours for Blackberry Storm, Palm Pre and Google Android, but Trometer suggests this is a game of diminishing returns.
“While all of those devices are good ones and we’re definitely thinking about extending to them, when you look at the numbers it almost makes no sense. Analysts are saying Pre will come in well below sales expectations and there’s anecdotal evidence that the Android app market is horrible. One of the early developers for iPhone developed the game Trism for iPhone and made quarter of a million dollars in a month. He’s now ported that app to Android and in the month since that has made the grand total of $500. So there are a lot of reasons why iPhone is the perfect place for us – so many reasons to work with the iPhone and so few reasons to work with any other platform. Blackberry Storm looks most promising so far,” says Trometer.
Yowza!! also illustrates the power of Web 2.0 to enable and grow new enterprises with Facebook, Twitter and YouTube its most potent marketing channels. Indeed, the three founders; Trometer, Canadian Rick Yaeger and “Heroes” star Greg Grunberg ‘met’ on Twitter and collaborated online. They only shook hands for the first time after the app went live in April 2009.
Coming to the UK
Yowza!! and Cellfire both have plans to extend their offerings to Europe, while British digital coupon sites like Duncan Jennings’ Vouchercodes and Mark Pearson’s Myvouchercodes are both looking to develop into mobile. However, the first to market in the UK is set to be the Bristol-based company Invitation Digital with its offering called vouchercloud. This, too, is based on an iPhone application, but with new levels of functionality and merchant access that are potentially game changing.
Vouchercloud will launch nationally early in January 2010, with content supported by a cast of leading UK brands including food outlets, retail chains and leisure destinations, accounting for some 5,000 points of sale on Day One.
Uniquely, however, vouchercloud is also a local based channel, launching initially in the Bristol, Birmingham, Nottingham and Brighton areas. These local variants will add content from regional or local merchants and small businesses, which will, for the first time, be able to access the power of digital discount marketing that has hitherto been the exclusive domain of national chains and brands.
Changing the rules
Enabling this change is vouchercloud’s ingenious “Merchant Dashboard” feature that allows an end-provider, from local accountant to village yoga centre, direct access to the channel, using web-based features to shape, post, track and control offers that are then viewable on the iPhone or supporting website. Like Yowza!!, vouchercloud’s offers will be contextual, with the phone knowing where you are and presenting offers nearest to you or for any searchable category.
Invitation Digital director, Greg Le Tocq, says that “harvesting content”, much of it exclusive, will be at the heart of the vouchercloud proposition.
“One of our key aims is to show how content can be repurposed for different niche interests,” he says. “Whilst the vouchercloud app should appeal to everyone who wants to save money, we can surprise and delight people by segmenting and augmenting that content under different skinned apps for specific niche markets like eating out, days out, students, holidays abroad, fashion, gadgets and much more.”
Mark Pearson sounds a more sceptical note about the “local mobile” proposition.
“I really go a different strategy,” he says. “We’re looking at local online - it’s a bigger market - and then go local mobile. I wouldn’t go local mobile first because online content is really what counts and getting the traffic is the thing.”
Key messages?
One aspect all mobile coupon providers are agreed upon; that there is a major opportunity is to use the smartphone’s increasing pervasiveness, situational awareness and closeness to the user to deepen the customer relationship and ’stream’ content that adapts to the actual context of consumer interest, activity and location. At the same time, the challenge is not to become intrusive and abuse that almost intimate relationship that most people have with their mobiles.
The coming year is likely to see the digital voucher market expand and mature, with mobile shaping up as the next key battleground. The stage is set for an encounter battle between different forces: existing mobile power bases, principally the service providers, moving into the discount arena (following the example of Orange Wednesdays), meeting online voucher sites going mobile, US mobile specialists moving into Europe and new entrants like Invitation Digital harnessing the power of new technology and sophisticated mobile packaging.
All of these competitors will be looking to grab a share of hoped for growth to be fuelled by explosion in the number of smartphones, currently accounting for around 30% of total UK mobile sales in 2009 and predicted to reach 70% by 2012. Nokia and RIM (Blackberry) dominate these sales, with Apple a distant third.
Yet it is Apple that rules the applications arena. As August Trometer observed, one of the key factors in enabling the move of digital vouchers to mobile could yet be the efforts of other manufacturers to make their software developer kits as accessible and user friendly as Apple.
“Apple has taken a lot of heat about the way they review Apps for the iTunes store and while I agree it’s not an ideal system, I really can’t say enough good things about Apple and the whole process – the developer tools that they give away for free are unmatched on any mobile platform and maybe on any desktop platform. Take the Palm Pre for instance – when Apple released their SDK they had a website for developers to see sample code, manuals, video, and tutorials. But with the Pre, which supposedly was going to be the iPhone killer, their SDK was just a link for the kit itself – and that was about it.”
Author: Nick Valentine, Director, Vidar Ltd.