“I believe it’s the pocket aces of IP in group collective buying,” Martin Tobias tells me.
Tobias, the Seattle entrepreneur and investor who heads up the online community site Kashless, is talking about his latest strategic move. His company has acquired the patent portfolio of former Bellevue, WA-based dot-com Mercata from Paul Allen’s Vulcan Capital, and is using the technology to power a new group-buying website called Tippr.
The intellectual-property portfolio consists of more than half a dozen granted patents, with a couple dozen more in the works, covering areas like price optimization, demand curve modeling, and buyer-seller interaction models. Financial terms weren’t disclosed, but as part of the deal, Vulcan Capital now has an equity stake in Kashless. (Tobias says Tippr is a separate entity, but it is part of the Kashless family of related sites.)
It’s certainly an interesting move for Kashless, which started in 2008 as an online recycling classifieds site and has recently focused on promotions for local merchants to reach customers. Tippr, the new site, features deals from local stores—restaurants, cafes, entertainment sites, museums—where you can buy discount vouchers online. The key is that as more people sign up for a deal, its value gets better. So 10 people each may buy a $22 hot dog voucher for $10, say, but if 50 people buy it, the voucher becomes worth $30. That’s called an “accelerating deal,” and Tobias says his newly owned IP covers that type of dynamic price adjustment based on demand.
“The patents provide a really deep well for us to tap into unique and powerful features,” he says. “We’ve thought pretty deeply about how someone does a fast follower in the collective buying space. One thing you need is super strong IP.”
For now, Tippr is available to consumers just in the Seattle area, but the plan is to expand to 20 cities in two months. That sounds awfully ambitious, but Tobias says he has already made progress in hiring sales people in cities like Los Angeles, San Francisco, Portland, and Boston. There are currently five advertised open positions in the company.
Besides the challenges of expanding geographically, the main question would seem to be why group-buying should take off now, when it didn’t back in 2001, when Mercata shut down. Tobias says with the rise of e-commerce, and sites like Yelp and Craigslist, consumers see going online as their first option for deals and such—and online marketing is much more viable in 2010 than in 2001. “The numbers are here now,” he says.
What’s more, Tobias emphasizes the value of Tippr for local businesses, many of which have been suffering a 20 to 30 percent decline in revenue during the current recession. “This isn’t pay per click, or Google customer acquisition. This is, ‘How do I get the customer to walk in my door,’” he says.
Tippr faces stiff competition from other group-buying sites around the country like Groupon, based in Chicago, LivingSocial in Washington DC, and BuyWithMe in Boston (which just raised $5.5 million last month). But Tobias insists that he now has obtained a competitive edge. “None of those have IP protection,” he says. “And I do.”
