CrowdMob builds a Tapjoy+Groupon for distributing local deals

Mobile startup CrowdMob quietly debuted earlier this year with a location-based game called Mob Empire that tried to take a very social approach to real-world gaming. But the game was just the start for the company, which is now taking the wraps off its real business: creating a next-generation deal network that combines Tapjoy with Groupon.

CrowdMob — which is backed by Andreessen Horowitz, Crosslink Capital and Western Investments Capital, and was co-founded by former LOLapps creative director Damon Grow along with Alex Han and Matt Moore – is offering merchants and retailers a way to distribute their local deals through third-party apps, incentivizing mobile users to buy a deal in exchange for virtual currency or goods. Users who play certain mobile games on Android and iOS devices will see a nearby deal offered in a mobile ad, which they can purchase immediately without leaving the app.

This plays off of incentivized offers like those from Tapjoy, which provides mobile gamers with virtual currency in exchange for downloading an app, viewing an ad or signing up for subscription service. But instead of those largely digital actions, CrowdMob ties the incentive to real-world deals from merchants and retailers looking to drive traffic to their stores. Deal providers have been advertising through mobile apps, but CrowdMob believes it has created a unique network that plays off incentives, leverages social and viral channels and establishes a seamless payment and redemption system that encourages transactions, builds loyalty and helps with additional personalization of offers. It’s also another way for mobile developers and publishers to monetize their apps and acquire more users.

Tying virtual incentives to real-world deals

How will it work? Let’s break it down: CrowdMob works with a retailer to offer a deal inside an ad — banner, interstitial or offer wall — that’s running in a mobile game. When a user buys the deal in exchange for currency, they are given a number of options to pay for the deal, including credit card, PayPal or Amazon. The first time a user buys a deal, they create a CrowdMob account and if they sign in with Facebook, CrowdMob can take their preferences, use them to personalize future offers and also encourage people to share their deals via the social network. When users pay, they can then redeem the deal via their mobile phone when they visit a merchant. That merchant can confirm the purchase with a barcode scan, SMS notification, confirmation code, visual inspection or through an HTML5 app for merchants. Users can pull up their deal from their email account, from CrowdMob’s website or from any app that they’ve logged into CrowdMob from.

Merchants who sign up can use a self-serve tool to decide what kind of deal they want to run. They don’t pay up front, but typically make 50 percent of the revenue on a self-serve deal with 35 percent going to the app developer and 15 percent going to CrowdMob. They can tie CrowdMob into their existing loyalty programs, or they can create a digital loyalty card for their business within CrowdMob’s network. Business owners can then provide additional incentives or rewards like extra credit on their card when a user get a friend to buy a deal. Because the redemption loop is closed by CrowdMob, merchants can also see analytics on deals purchased, conversion rates, how often deals are shared, how many are repeat customers, and what the lifetime value is of users. They can also home in on their most loyal users or the ones who share the most.

Tapping the mobile gaming market

CEO and Co-Founder Grow tells me he learned from his gaming background how to efficiently acquire users, something Facebook developers, and more recently, mobile developers, have been able to do with incentivized offers. By pairing user acquisition in the booming mobile game market with social virality and creating a very seamless way to pay and redeem local offers, CrowdMob is able to fuse two markets into one, said Grow.

“It’s the first time that the world of incentivized virtual economies is matched with real-world goods,” Grow said.

Grow said CrowdMob has been testing the system in San Francisco and is opening the platform to merchants nationwide. It has also been pursuing a national deal with a gift card provider in time for the holidays. He said CrowdMob will offer merchant its self-serve tool, but it’s also building a direct sales staff. It’s open to working with deal providers, who would like to leverage CrowdMob to distribute their deals.

Reducing the friction

This is an interesting idea in the local deals market, which is being approached by all manner of companies looking to help merchants and retailers acquire users. I think CrowdMob has a solid take in that it’s focusing on mobile games and using a popular mechanism of offering virtual goods to entice users to take an action. This has been a very cost-effective way to acquire users. I particularly like the way CrowdMob has tried to make the buying and redemption process pretty simple. If users can buy a deal without really leaving the gaming experience, it’s easier to pull the trigger on a purchase. And by allowing merchants to redeem a deal through a variety of methods without having to take a paper coupon, they can facilitate easy redemptions and also get back information instantly on how deals are selling and being redeemed and who’s doing what.

Also, this also seems like a good deal for developers. They have a new way to monetize their apps and they can enjoy higher usage of their apps if users come back for deals or to redeem their offers. And as users share their deals, it encourages more awareness about their apps. Developers are also able to set a floor on CPMs, so if CrowdMob doesn’t deliver a specific amount, it shuts itself off so a developer can run a different ad.

Questions ahead

There are still questions about the long-term success of CrowdMob, which was founded last year and has raised about $ 2 million to date in seed funding. It’s relying on mostly self-serve tools and so its customers will need to be ready to step up to that. It’s a cost-effective approach but it may not work with many merchants who expect to deal with a live salesperson. Also, there’s so much noise and competition in the local deals space that it’s hard to get the attention of retailers and merchants. And the initial sign-up process could hold people back. The bigger value comes later after the first sign-up but getting past that initial purchase might not be easy.

Still, I think this is a pretty creative attempt to provide a tool that can benefit merchants, developers and consumers. I think sustainable models need to be a win for everyone and this might have the features to do that.

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