Mobile Couponing

GSBA 556Business Development in the Network Digital IndustryAbhinav Astavans

1. The business concept

A way to link marketers and users in a mutually beneficial relationship, the SMS based mobile coupon solution. Marketers can identify users most likely to consume their products and increase marketing ROI. And users receive only the most relevant offers, reducing their search costs and helping them get value for their time and money.

The business concept is best explained through the following usage scenarios –

Scenario 1: Sushi Bar in Santa Monica wants to give $10 off to - Males between 18-27, annual income > $50,000, when they are in Santa Monica, Ocean Park or Venice between 12:00 PM and 2:30 PM on Monday, Wednesday. Run for 2 weeks, no more than 100 coupons.SMSs based on <advertising> Sushi bar campaign are sent, as conditions are met.

Scenario 2: You have been going to a circuit city every week (maybe trying a product), next time, when you are about to enter the shop you receive a coupon for 15% off on any purchase.

Scenario 3: User asks for “Sushi” in a text message to GOOGL from the mobile phone. Return SMS lists a sushi bar around the next corner and a $15 off coupon at the bar.

The solution is built around the premise that “search is the precursor to sale” and that, the best search experience is able to predict exactly what the user wants, and the search term is just one among the many variables (about the user) evaluated before rendering results.It is a white label service sold to a carrier that allows them to serve coupons on the mobile phone via text messages. The service takes into account demographic information, location based information and the user’s own selection to determine a coupon most likely to be redeemed.

2. Why SMS

A study by Engadget Mobile says that there will be 100% mobile penetration in the US by 2013. 84% of the US population already has mobile phones in 2008.

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Also, in terms of mobile phone usage, data (SMS) is claiming an increasing share (as indicated by revenue figures). “Data” accounted for 17% of the total mobile revenue in 2007. This is expected to increase to 22% by 2017.

Among these data services, SMS (Short messaging) is the most popular. A recent Wirefly survey indicates that 65% subscribers use text messaging. Of this 29% are occasional texters and 36% are heavy texters, sending up to several hundred messages a month!

Clearly this shows the growing popularity of mobile phones and SMS text messaging as a communication medium.

Other than the size of the market but what makes the mobile phone an attractive advertising platform is –

Consumers rarely leave home without their mobile phones. Mobile phones provide the opportunity to serve customers the advertising when they are already in consumption mode. (message me a discount coupon for the pizza chain round the corner, when I query a directory service asking for pizza joints in the area!).

With the co-operation of mobile service providers (privacy concerns aside) advertisers can take advantage of the customer’s current location to serve context sensitive advertising.

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Consumers carry their mobile phones wherever they go. Moreover, mobile phones are hardly ever switched off. (When was the last time you switched off your mobile phone?)

Compared to mobile internet based advertising, SMS is far more widely used and are far less susceptible to the variances in device form factors and capabilities.

3. Why Coupons?

Coupons are promotional messages sent to a customer in transaction mode. Jupiter Research estimates that up to 30% of the US mobile subscribers would like to receive mobile coupons. In order to be truly successful, however, such mobile tactics must focus on highly relevant offers, deliver value, manage frequency, and give the consumer control. Even for advertisers mobile couponing has several advantages over standard couponing techniques like -

Real-time offers Geo-targeting Personalization Time-of-day redemption tracking Triggering impulse purchases Lower cost of delivery

4. The ecosystem

The diagram indicates current structure for our product you can visualize the mobile coupon component much more deeply integrated with the carriers (being a white label service)

The SMS based mobile couponing service addresses a 3-sided market between – Carriers – they get a share of the revenue from the marketers. Marketers – subsidize the user. User – the service is free to the user.

The advertisers pay in this market and the users are the free side of the market.

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Customer Group 1 Advertisers

Customer Group 2Wireless Careers

Mobile Coupon Companies

Mobile Platform

End Users

Two very distinct groups of customers

Customer Group 1 Advertisers

Customer Group 2Wireless Careers

Mobile Coupon

Companies

Mobile Platform

End Users

Customer Group 3End Users


Is this a winner take all market?

Multi homing costs are low, it is very quick and easy for the advertisers to signup to use the service and start sending coupons, the entire IT infrastructure is managed by the carrier and the carrier (our product) cares about volumes, security, and maintenance and support costs. The advertisers don’t require committing a huge investment up front and having the flexibility to pull the plug whenever they want. Even for the users there are no significant homing costs.

There are however strong cross network effects, as the number of advertisers on the platform increase, the users have better choice and more relevant ads can be targeted, users disclose more information about themselves by their purchase behavior and advertisers get higher redemption rates.

While the users don’t have a preference for special features the advertisers may like additional analytics and campaign management features which help hem better manage their marketing ROI.

We feel that while this market is not a winner take all market. if we are able to gain traction with major carriers, we can build switching costs by controlling the analytics on customer buying behavior, advertiser preferences and campaign management and ROI tracking features. We feel that data will set us apart from newer players. Google is ahead of competition because of the troves of data it has.

Our solution differs from existing players like Cellfire, because it is an offering by the carrier – A white label solution (green space)

Code

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WirelessCareers

Access platform

Go GreenNon-Profits

AdvertisersPromotion

Code Providers

Mobile Coupon

Companies

Complementary

Customers

Mobile Coupon Ecosystem

WirelessCareers

Access platform

WirelessCareers

Access platform

Non-Profits

Advertisers

Providers

Mobile Coupon

Companies

Mobile Coupon


Health of the ecosystem1. Market sizeMobile couponing is nascent and it’s hard to estimate the market, but some close surrogates provide some guidance.

SMS marketing is a large market in the US already. Telephia reports that 63.7% of all American mobile phone subscribers are active users of SMS text messaging. This is up from 41% the year before and 25% this time in 2005.

US SMS text messaging traffic saw 93% year-on-year growth in traffic for the second half of 2006 (CTIA). Verizon, the first US SMS text message provider reports more than a message per day being sent by its users.

Worldwide mobile phone messaging was a $105B industry in 2007. Over 12.5% of this is premium SMS i.e. voting for American Idol etc. And here the user actually pays a premium to participate in an SMS marketing campaign!!

Message-based marketing, where consumers may be strolling by a billboard or watching a television commercial that encourages them to text a code to a number to receive a coupon or enter a sweepstakes. According to eMarketer, this ad category is the largest by far for mobile phones and will reach $4.2 billion in 2008

Even by our own very conservative ground up estimation, this market is about $200M in 2008.

A close competitor is Cellfire - which specializes in mobile coupons and is making the vouchers available via its Web site and text messages "We feel like the market is here," said Cellfire chief executive Brent Dusing, whose firm is doing national campaigns for Sears Portrait Studio and Hollywood Video. Cellfire started in 2005, and "when we started, we were just educating consumers. ... Now that we're here in 2008, we feel pretty good about market adoption."

2. Growth rate

All Figures in Billions 2000 2001 2004 2006

Number of text messages sent per year 160 250 500 1200Growth Rates 56% 100% 140%

Average number of text messages per mobile user in the world per year 390 430 460 560

Growth Rates 10% 7% 22%

Average number of text messages per person in the world per year 25 40 100 190

Growth Rates 60% 150% 90%

The market for SMS usage is expanding at a very fast pace.

3. Robustness

Currently Cellfire is the dominant player in the market and has been around since 2005.5

Go Green


Cellfire has partner ships with several chains and has succeeded in getting its second round of $12M in funding by Silver Creek partners. There are several other companies that are offering variants of the couponing services and doing well. Cellfire has about half a million users today, and 70% are under 35, said CEO Brent Dusing. "There will be millions of people on this program in the future,"

4. Niche creation - White spaces

Our business model is built around capitalizing one of the many niches available in this market space today. There are huge opportunities in getting information from carriers to create more targeted campaigns.

5. Value proposition

Value to the users – The users don’t have the hassle of clipping, managing and redeeming coupons manually. Customers are identified based on deep demographic and location information known to the

carriers. So, the coupons are extremely relevant. The website lets users list preferred vendors, preferred services and other details which

further improve relevance of coupons sent. Even the time and place at which the coupon is sent to the user is based on maximizing

redemption probability. Learning from analyzing redemption behavior enhances coupon relevance.

Value to Advertisers – With current providers, redemption rates are 5-15% in the US. We can offer much higher

coupon redemption rates. Advertisers will see a significant jump in marketing ROI. Online advertising promised better tracking of advertising dollars through earlier the CPM

(cost per 1000 impressions served) and then the CPC (Cost per click) approach, but even this approach is found to be an inaccurate indicator of purchasing behavior. With mobile coupon redemption tracking the “last mile” to the sale is covered and the most effective marketing ROI is possible.

Value to Carriers -

Carriers are essential to this product, the deep demographic and location based information provided by the carriers is a keystone in making these coupons relevant for the customer. Carriers can be compensated by their services by getting a share of the revenue from the advertisers.

SMSs received by the customer can be subsidized (maybe free) or be provided as a part of a “plan” where the carrier charges a premium fee.

The analysis of customer redemption behavior and other information on the customers and their preferences might give the carrier more insight in to the needs and wants of the

customer, helping them understand their client base better and building more stickiness in the clients.

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6. Interface

There are 3 basic components of the interface – 1. Web site Advertisers

Select the demographic, location, time and redemption statistics of the target users. Create campaigns based on target customers, frequency of SMSs, and customizing SMS

content Analyzing statistics on SMS sent, redeemed and other information

Users - Select the marketer, location, time and other criteria based on which SMS will be filtered. Web site Carrier

All the same information the advertisers can see Statistics across advertisers that allow carriers to evaluate, revenue earned usage, best

advertisers, campaigns, most popular SMS etc.2. SMS

The advertiser defined content is pushed to the customer as a message on the phone. The SMS can be redeemed (if allowed by advertiser), forwarded or ignored.

Coupons may have an expiry date, and may be multi-use coupons redeemable for a fixed number of transactions.

3. Redemption - There are several redemption options available to the user such as – Manual – show the SMS on the phone screen to the establishment (the SMS carries a

unique code; the employee at the establishment can enter the customers phone number and the unique code on the website).

SMS – the user forwards the SMS to a short code setup for the advertiser. The redemption information (establishment, time, date etc.) along with the user’s phone number are again parsed by software and entered into the marketer information maintained by the software, visible in the advertiser’s login on the website.

Scanning terminals – the SMS contains a quick code/barcode that can be read by a scanning device, which reads and transmits the information for storage and makes it visible under the advertisers login.

Bar Codes with Extra Information, "Quick Response" codes, 2-D data matrices. One QR campaign developed for the clothing industry by Philip Warbasse, founder of Los Angeles-based Warbasse design, puts the codes on in-store apparel that allows shoppers to purchase sizes not in stock—right on their phones. The codes also offer customers a same-day in-store coupon, and other codes in the campaign help up-sell the customer with a discount on a second item in the store if they buy it the same day.

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http://www.warbassedesign.com/


While the user interface (SMS) is not new or unique, it has the potential to be a wow interface in its simplicity and the fact that it can be seen with little degradation across almost all device platforms, whether internet enabled or not.

The internet interface is a wow interface in terms of all the information it can aggregate in a single place for the advertisers, carriers and the users. It also allows business intelligence, by allowing the user to slice and dice the transaction data in a host of ways.

4. Service platform

The delivery platform for the service is SMS for the users. As described in detail in the interface portion this is simple and has mass appeal. Another alternative service delivery platform is a downloadable application, similar to the one provided by Cellfire Inc. today. The advantage with this platform will be that it will allow much more functionality than a simple SMS in terms of managing, grouping and requesting coupons. But the trade off is the mass appeal will be reduced to only the handsets capable of accessing the mobile internet and also the interface will suffer when ported across a range of devices.

5. Organizing model

One of the main reasons this product will be better than competing products out there today is the carrier involvement. The viability of the business is hinged on acceptance by carriers. Couponing applications available today whether on mobile or the internet are very basic and not very targeted because the privacy concerns that prevent the carrier from sharing user data. But the carrier can use this data themselves and that it what will help us build a solution that is way better than any on the market currently.With partnership with the carrier, we have access to deep information on the customer which together with the customer’s own preferences can help create a really targeted coupon with near perfect redemption probability.Another keystone in the organizing model is the advertiser’s signup. Our experience with most of the coupon solutions in the market today is that, users get on board before advertisers do, so as a user I go to the website looking for coupons and find very limited or no coupons in categories of my choosing. This destroys the user experience and decreases the probability of the user accessing our application again. Therefore it is vitally important to signup popular advertisers and creates an environment where the user is spoiled for choice. That’s why it is essential to have deeper relationships with advertisers to go beyond just one time coupon offerings to building recurring campaigns, with this the user gets predictability in terms of the coupons they can expect and increases their stickiness to the website.

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6. Revenue & Cost

Revenue models– Licensing the solution to the carrier – the service is sold to the carrier as a licensed product.

The license could be – o Per advertiser o Per 1000 SMSs (sent or redeemed)o Per users signed on

Revenue share agreements – The carrier will earn revenue from the advertisers paying to send coupons and/or from SMSs traffic generated. We will ask for a 10% revenue share agreement with the carrier for all the revenue thus generated.

In the search part of the business, there is an opportunity to build a Google like model wherein when a user searches for a particular keyword, relevant coupons can be messaged to the user appended to the response to the search query. Advertisers may be allowed to bid on these keywords.

The bids will be weighted by the percentage redemption to create an effective CPC (cost per coupon). This is exactly how Google challenged Overture’s dominance. While overture was offering a pure bid, Google multiplied the bid with the likelihood of the user clicking on the link to come up with an effective CPC, ensuring that the top results are not only the highest bidders but also the most likely to be clicked – this helped Google change the game by moving to a Cost per Click environment where everybody else was stuck on the CPM model.

We modeled the first year revenues under various scenarios. We carried percentage adoption and amount paid per coupon to calculate the annual revenue from the service in 2008.

US Population 303,824,646Penetration rate 84%Total Subscribers 255212702.6Percentage Active SMS Users 63.70%Total Potential Customers 162570491.6Percentage likely to use service 5% 10% 15%Customer Base 8,128,525$ 16,257,049$ 24,385,574$ Number of coupons sent per month per user 1 1 1Amount paid per coupon 1$ 1$ 1$ Total Revenue per month 8,128,525$ 16,257,049$ 24,385,574$ Annual Revenue 97,542,295$ 195,084,590$ 292,626,885$

Percentage likely to use service 5% 10% 15%Customer Base 8,128,525$ 16,257,049$ 24,385,574$ Number of coupons sent per month per user 1 1 1Amount paid per coupon 0.5$ 1.0$ 3.0$ Total Revenue per month 4,064,262$ 16,257,049$ 73,156,721$ Annual Revenue 48,771,147$ 195,084,590$ 877,880,655$

Revenue Range 48,771,147$ 877,880,655$

MONTHLY COUPON REVENUE ESTIMATION

SCENARIOS

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We assumed the percentage of users likely to use the service at 5%, 10%, and 15% and cost per coupon ($.5, $1, $3). We feel that the lower mid end of the range is more realistic, the revenue may be close to around $200M per year. If the carrier passes on 10% of this revenue share that comes to $20M in revenue.We understand the reality of the dominance of the carriers in the current market and are willing to start with a relatively un-attractive revenue share agreement. We believe that once we have a critical mass of advertisers signed up and insight based on the huge information on the consumption behaviors of the users, we will be in a strong position to negotiate better terms

7. Competition

8. The value network

The input material for SMS based Coupon Business Model is the promotional codes that the advertisers/suppliers (retail products, restaurants, technological devices, etc.) will provide to users. SMS Based Coupon model has a value network as shown below that includes suppliers, mobile coupon companies - in the center of the operations- customers and channels. The relationships among these participants are mutual and have an impact on the overall health of the value network.The main driver of this value network is:

Promotional Codes – suppliers will provide these based on the market research Approach: Needs based segmentation – targeted coupon approach through insightful market

and customer research in partnership with wireless careers

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SMS BASED COUPON SOLUTION

COMPETITORS

List of marketers offering coupons available on website, users choose the coupons they want, download the application, access coupons when they visit the stores

Users pick the coupons they want, coupons are SMS’d to users (Zip required)

User selects what they want, recieves alert on deals, can go to store to redeem (SMS based, Zip required)

Coupons are emailed to users or displayed as ads on websites, manual coupon clipping

SMS advertising agency, appends ads to SMS or set up short code based SMS campaigns

Marketer SMSs unique code to initiate an account, customers send an SMS with the code to subscribe, send Text MOQPON YourUniqueQword Text of your coupon to 41411 to send a coupons to all your subscribers


When additional suppliers are involved in the model, the value is created for the whole network as follows: Value for Supplier: More Advertiser / Supplier Involvement better competitive positioning

in the fast moving mobile space among other competitors Value for Mobile Coupon Companies: More Advertiser / Supplier Involvement more

customer involvement Value for Channels: More Advertiser / Supplier Involvement more customer involvement

more mobile coupon company involvement Value for Customers: More Advertiser / Supplier Involvement better deals on procurement

When additional channels are involved in the model, the value is created for the whole network as follows: Value for Supplier: More Wireless Career involvement increased negotiation power among

all the available channels optimized cost structure for the service to be delivered Value for Mobile Coupon Companies: More Wireless Career involvement more customer

involvement (on both ends as these companies will become the main platform two connect the two sides of this market)

Value for Channels: More Wireless Career involvement increased competition Value for Customers: More Wireless Career involvement better deals on procurement

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9. The business model

Wireless Careers, Advertisers and Mobile Coupon Companies (which links these two to the end user) Form the infrastructure of this business model. What they have to offer is the value proposition to the customer. Impact on Advertisers: Mobile Coupon Companies (MCC) can financially be a very favorable link to potential markets for advertisers. As MCC link companies to wide range of consumers, the potential revenue stream – as estimated in previous pages – is a very attractive solution to increase revenue. According to statistical analysis, almost half of the direct mail offers are remained unopened which shows the potential of SMS based coupon approach. Moreover, this is a much cheaper and more environment friendly direct marketing approach compared to traditional way of paper advertising.

No-paper-approach: This mobile platform also supports go green, save green approach given each year almost over 100 million trees are destroyed to produce direct marketing materials in the US.

Impact on Careers: Given the number of people who use mobile phones in the US and the revenue estimates, this model is a big additional revenue source for wireless careers.

Impact on Customers: This is a very effective model for customers as they have costs associated with this business model. The service is a secure application that puts the consumer in control of when they access offers and allows the advertiser to reduce risks associated with fraud and consumer confusion.

10. Challenges Privacy concerns - "It's the most personal thing: How much closer can you get to

somebody's space than their phone?" says Eric Lazar, founder of Chicago-based Image Architecture, the firm that created the campaign for Sam's Wine and Spirits. "It's the last bastion of privacy."

Carrier dominance User acceptance Rate of growth of SMS usage in the US Rate of adoption of mobile internet services

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Advertisers

Value Proposition

CRM

Customer

Cost Structure

Revenue Streams

Careers

Distribution

infrastructure offer customer

finance

Core Capabilities

Partner Network

Value Configuration

Advertisers

Value Proposition

CRM

Customer

Cost Structure

Revenue Streams

Careers

Distribution

infrastructure offer customer

finance

Core Capabilities

Partner Network

Value Configuration


Competition from “me too” players Data is the cornerstone of making this service effective, the more data we have the better

we can target, it is essential to signup all the major carriers onto this service as soon as possible to build the wealth of data that allows us to add value to the marketer and user by enhancing relevance and predicting redemption probabilities

Coupon usage - A recent Jupiter Research survey found that when consumers were asked “which types of mobile-coupon offers would interest them most, a good 70 percent said “none of the above” This indicates that current technology and enterprises have not been able to crack the code for making coupons attractive to customers, out hypothesis is that this can be done with the targeted offering we come up with, in our carrier partnership approach.

Redemption methods are one key inhibitor to wider use by advertisers. Few retailers have systems able to read coupons directly from handset screens. This lack means the POS requires another way of verifying and tracking. Current methods include the following: entering the code manually in a cash register; matching it with a customer’s loyalty card number; or writing it down on paper—the least preferable way. But while there are still hurdles that need to be cleared, this method of mobile marketing presents some potential and clear benefits to advertisers.

Competing technologies like the Mobot which allow cameras to capture coupon images and shown to the establishment for redemption.

Regulation - Industry guidelines call for opt-in procedures, whereby consumers must send in their agreement via text message if they want to receive additional promotions on their

Phones or enroll in loyalty clubs. Other recommended practices include easy ways to opt out of promotions via text, and clearly asking for permission to send offers from affiliates.

11. Viability & Sustainability

A lot of people view SMS as a transitory technology until mobile internet acquires mass appeal, efforts by Google in building their Android platform, are working to solve the biggest issue with the mobile internet – the diversity of platforms and the lack of a single standard, once this problem is solved, mobile internet adoption and usage will shoot through the roof making SMS a poor alternative to the mobile internet applications. Our long term business plan is too get into the market using the SMS couponing niche that currently exists and use the transaction information; partnerships and user lock in to keep evolving the couponing service as platforms develop.

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Mobile Couponing

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