How Many Companies Can the Local Rewards and Loyalty Space Support?

Awhile back I posted a question on Quora about the opportunity to do a roll-up or consolidation play in the mobile SMB loyalty and rewards space. I’ve seen a number of interesting companies working on this problem but none has broken out as the leader. In my neighborhood it seems like every restaurant, cafe, or small business has settled on a different loyalty and rewards system. I take the prevalence of solutions to mean that consumers and merchants find the concept interesting. But the amount of fragmentation I’ve seen doesn’t seem sustainable.

At this point, it feels to me that this is really much more of a sales and marketing challenge (merchant and consumer acquisition) as opposed to a technology challenge. Almost every system I’ve seen in the market today has the three core requirements that any good system should have:

1. Ability to order ahead (when applicable) – I have been using Tapviva and I’ve seen signs for OrderAhead as well. There is also a large number of web-based food ordering solutions as well, but most of those don’t appear to be as focused on the total loyalty solution as their mobile brethren. The ability to order ahead is a nice feature for places where you know you’re likely to have to wait in line. Some services use a separate queue for these orders and some do not – either way I think it’s valuable to consumers.

2. Ability to track loyalty / return visits – Every system I’ve seen in this space has some concept of loyalty. Some of them are designed with rewards in place while others are designed to simply track visits over time to identify top customers. This seems like a must have and I’d say that it’s well-understood by most vendors how to provide this functionality. I’ve seen tons of solutions here, including Tagtile (acquired by Facebook), BadgeIn, Belly, Stampt, Punchd (acquired by Google), Perkville and a host of others.

3. Support for popular consumer mobile devices (iPhone and Android) – Last but not least, it seems like every credible system I’ve seen in the space works on mobile phones as a native app or HTML5 app on popular platforms.

That seems like the core set of must-have features for serving the loyalty are well known and can be built. It just feels to me like there are just a ton of companies that are still at the embryonic phase and that we’re entering a phase where there’s a real opportunity for consolidation and for someone to really own this space. I’m really curious to see whether any of the startups or larger companies in the space is the one to grab the prize – it just feels like the level of fragmentation we see today is not sustainable.

As always, comments are open or you can send me feedback on Twitter @chudson.

  • http://twitter.com/cbaakel Charles Baakel

    I was thinking about this as well when I came across yet another player in this space (that list of loyalty players is pretty long). The thing is, would it benefit a technology player, especially one of the big 4 with cash (GOOG,FB,AAPL,AMZN), to go on the spend & integration spree required to do this right? It’s not their core strength, and it would take a lot of deals to truly cover and dominate the market (buying one player in each market is not enough, especially if someone else also makes a consolidation play).

    That said, I could see a PE shop buying one of the larger players and then acquiring the rest. That approach makes a lot of sense to me.

  • michael_nurse

    It’s true that it would be quite expensive to make the acquisitions and then time consuming (and expensive) to integrate the technology and branding which might make it questionable to justify on the value from of the combined businesses alone… Where it gets very interesting to me though is when you consider the additional value that these businesses can drive for some of the large tech companies core businesses. Specifically, Facebook, Google and Twitter. These companies already have a way at aggregating data on individual consumer likes, and needs… Google primarily use what people search for and Facebook and Twitter primarily use what people talk about… Local loyalty plays would add a layer of what people buy and increase the precision with which these companies can target and thus drive enhanced advertising revenues… Facebook just bought one of these companies in fact (Sorry I can’t remember the name of it) and I have to believe that this was part of their thinking even if they decide to try and start from scratch

  • michael_nurse

    Another potential acquirer would be one of the coalition loyalty companies (Loyalty One, Groupe Aeroplan, Payback etc) who haven’t been able to make meaningful inroads into the US market to consolidate and then use the userbase and complementary small business partners to bring their enterprise coalition model to life.