Dave Ambrose is a co-founder of Scoop St., a collective commerce site for the NYC market that harkens back to the Chinese shopping concept of tuangou — loosely translated as group buying or “store mobbing.” Like many other group couponing sites, the service offers deep discounts from local merchants that are activated when a certain number of people participate. Scoop St. closed out June as its best month so far; in the past four weeks the company signed a syndication partnership with New York magazine and grew its membership base by approximately 25%, largely because of Facebook and Twitter referrals.
Ambrose recently spoke with Street Fight about how “branded experiences” set his company apart, the coming convergence between loyalty programs and customer acquisition models, and the biggest challenge that companies in the deals space face.
Where did the idea for Scoop St. originate?
It was the fall of 2008. My former college roommate [co-founder Justin Tsang] and I … were both out in San Francisco. We talked to a lot of investors about the overall idea of group buying and what it meant. Originally we wanted to do physical products, with tiers and price points activated through a group buying mechanism.
Some [investors] said, “You know, we invested in some companies back in the day that were in that space, and here’s the reason why they failed. So you need to come up with reasons why you’re not going to fail, and why you’re not going to have the same problems they had, whether it be acquiring inventory or selling things.”
We ended up talking to a professional angel investor who later invested in Scoop St. He said, “You should strip away the original idea you had for selling physical products and drop-shipping things, and think about something that’s in your respective backgrounds.” He was talking to Justin, and he said, “Why don’t you think about what you grew up with in China, this tuangou idea…and take that idea and apply it to your backyard, in New York City? If you guys can apply this same idea that you had with tuangou, where you get a bunch of consumers to basically flashmob a business, you could … funnel that toward a small business.”
The investor continued, “If you have a burger, shake and fries from Shake Shack, which normally is ten bucks, but if you get fifty people to come in in front of Shake Shack and say ‘I want this deal,’ maybe Shake Shack’s willing to facilitate that for only five dollars, because they’ve got all this consumer demand.” I really have to give credit to that investor, who started that idea in my head around the local setting.
There are so many local deal sites and group buying organizations now. What sets Scoop St. apart?
With the third deal we ever did [in early 2010], something unique occurred … some of the merchants had a different idea. They wanted to do something that was an event, an experience. The sales process changed all of a sudden. It was no longer a transactional type of approach. It became a conversation with the merchant — something very intimate.
[That event became] the Taste of Seventh St. It was our first experience, which we branded. We wanted to take the signature dishes of each of [the restaurants that participated], and offer not a crazy discount, but a good value. If you get an arepa, which is normally five bucks, maybe it’s offered for $3. If you bundle all of them together — which I think is the key — that’s offered on our site. The logic was that we wanted to have a certain time and place when you could get this. Instead of a transactional deal good for six months to a year, the experience was a specific [weekend] in February.
What happened after that changed how I thought about the business. A thousand people showed up in a snowstorm and went up and down the block with Scoop St. vouchers and punchcards we had made. They had a chance to meet other members, the merchants came out of their restaurants and started talking with [Scoop St.] members…it became unreal to see, “Wow, this product is facilitating what we always thought group buying could be, this tuangou idea of meeting new people.”
So, there’s this new product [we’ve] been working on, trying to recreate what we did with Taste of Seventh St. We call it “branded experiences.” The reason that’s powerful is that it does something that a deal doesn’t necessarily do, which is create a sense of community and give our members a chance to meet other members in NYC.
If you have a burger, shake and fries from Shake Shack, which normally is ten bucks, but if you get fifty people to come in in front of Shake Shack and say “I want this deal,” maybe Shake Shack’s willing to facilitate that for only five dollars, because they’ve got all this consumer demand.
It also gives merchants an opportunity that we don’t have to mask in a deal. That’s been a concern within the daily deal space: “I don’t want to discount my product too much,” or “I don’t want to operate at a loss.” These [branded experiences] are much more customizable. It’s still the same mechanics, with the prepaid voucher, but the merchants are much happier because it’s only for a certain day and time. It does create that sense of [community].
What’s interesting about the secondary revenue model at Scoop St. is that none of that existed when we started in the space. When we started, there were a few companies offering daily deals. In the restaurant category, it was these three types of deals. In the spa category, it was these three types of deals. [But] this moves away from a transactional idea in terms of getting customers in, and does more in terms of community-based offers.
Will the development of community and camaraderie among merchants and members ultimately lead to loyalty? Do you have evidence of repeat transactions?
We definitely keep in touch with the merchants. What they’ve found is that they have higher stickiness around repeat customers. What’s even better is that people spend a lot more than what they just came in for.
I think it’s too far of a stretch to say we’re building a loyalty program. With local commerce, that’s certainly one piece of the puzzle. The “experiences” product is still a factor, and still at the end of the day a deal, but it’s a different type of deal. I think to do the loyalty side of it, that’s another product set that I’d have to think about in order to solve it.
You have site operators like ourselves, largely a direct sales force that goes out to merchants and says, “Are you interested in getting more customers?” And on the other end of the spectrum you have technology-based companies, location-based apps more on the loyalty side of things. Those are two different aspects. But there’s going to be convergence at some point. It’s already happening. I can definitely see the overall space and people who have the overall infrastructure to get into that arena.
What is the biggest challenge daily deals sites are facing?
When we first started, people would say “it’s a race to the bottom.” A direct sales team goes out and talks to merchants and the only way you can compete in the very crowded marketplace is to facilitate profit margins at zero, or ten percent. Now, once the Groupon S-1 came out, it shed light in terms of saying, “Groupon started out at 50%, but they’re holding strong month over month at 41, 42, 43% profit margin.”
In fact we haven’t seen [a race to the bottom]. We have the same metrics as Groupon when it comes to our profit margins on the sales and inventory acquisition side of the business. So, they keep going up. I say it’s a testament to the sale process and the sales team.
The general issue with the overall space…when we started there was a window between September-October 2009 to April-May 2010 where you could acquire emails through social channels and direct channels for less than a dollar [per lead]. Now the prices for email addresses are through the roof. They’re above $5…I’ve seen it as high as $20. And it fluctuates based on the channel. Now, the reality is that most companies within the ecosystem cannot afford to pay that. The only companies that can afford that have a capital structure with a war chest of money.
The bigger aspect is not only acquiring the audience…but it’s also retaining them. Business is very easy to get into, which is why you see a lot of folks coming in. What’s more difficult is building a sustainable business, and a sustainable brand. That was a big reason why we started Experiences. Because consumers flip-flop from site to site and merchants flip-flop from site to site. So if we can provide the best customer experience in a stickier environment for consumers to come back to Scoop St., as well as for merchants with the Experiences product, that’s another product feature set we can offer them. At a high level, the biggest challenge I would say is…acquiring and growing an audience. That’s been the hardest thing to do.
This interview has been edited for length and clarity.