Research for Foundation Capital over five days in summer 2011

1. The E-Commerce Landscape Jeff Grimes, Foundation Capital July 2011

2. 2 Contents Offline vs. Online Social Mobile Daily Deals Location-Based Subscription-Based Conclusions

3. Commerce: An Overview E-Commerce has been surging, especially over the last four years (2007-2011). As more companies capitalize on the “local” market, it becomes necessary to understand the differences between online commerce and offline commerce. Let’s begin by defining terms: Local: Small- to medium-sized businesses (SMB) that are non-national, non-chain, and aren’t using mass-marketing techniques – e.g. Joe’s Yoga Studio or Menlo Park Nails. Offline: Any commerce that happens at a brick-and-mortar location. National chains and stores are included – e.g. Safeway, TGI Friday’s, or gas stations. Local commerce is a subset of offline commerce. Online: Any commerce that happens on the internet and involves physical shipping. The customer makes an order using a credit card on a website, and the e-commerce provider ships the product – e.g. Amazon, Zappos, BestBuy.com. E-Commerce: Synonymous with online commerce. Online-to-Offline (020): The emerging trend of using an online platform to attract customers to a brick-and-mortar location, usually local as opposed to merely offline. The customer begins online, makes a transaction or reads a review, and finishes by visiting a local venue – e.g. Groupon or OpenTable. Source: “020” was coined by Alex Rampell, CEO and Founder of TrialPay, in his 8/7/2010 article “Why Online2Offline Commerce Is A Trillion Dollar Opportunity” that appeared on TechCrunch. 3

5. The average American spends $1,000 per year on E-Commerce products.

6. The rest of spending, then, happens offline at gas stations, restaurants, spas, etc.

7. About 70% - 80% (estimated) of the average American’s total lifetime spending happens within a 20-mile radius of his home.Kantar Media survey: Do you plan to purchase the following products in the next 6 months? Source: United States Census Bureau; Kantar Media’s Online Shopper Intelligence Survey 4

9. According to the US Census Bureau, total retail spending in 2010 excluding autos was $4,193,258,000,000.

10. Combining this data, we see that e-commerce was 3.39% of total retail spending in 2010 (although the figure is often given at 5% - 10%).

11. Offline commerce still dwarfs online commerce, although e-commerce as a percentage of total retail is growing.Source: United States Census Bureau; comScore, Inc. reporting 5

13. Database marketing

14. Real-time product and feature testing

15. Clickstream monitoring

16. Customer relationship management (CRM)

17. Search engine optimization (SEO)

18. Social media optimization

19. The result was that online retailers were empowered to build information-rich databases and send out real-time targeted offers using complex analysis of “big data” sets.

21. A media mix of text ads, banner ads, and rich-media ads lead us to e-commerce retailers who immediately quantify conversion rates.

22. Despite effective measurements of key metrics, e-commerce retailers struggle to replicate the social, face-to-face experience of shopping in a store with friends, where you can ask the clerks questions about merchandise and turn shopping into a fun experience.

23. Online merchants buy commodity inventory at a low price point and then mark it up, whereas offline merchants can resell locally (a more efficient system due to its low marginal cost). For example, if Joe’s Yoga Studio has two spots unfilled in a class of thirty, his marginal cost is low to fill the slots vs. the cost of an online retailer’s burden to dump unused inventory if it is not purchased because demand was unexpectedly low.Source: Booz & Company 6

25. Google, Twitter, Facebook, YouTube, and Yelp all empower local companies to target their core market segments online, but since the end result is always foot traffic, they have nothing to offer local merchants that can give them useful metrics.

27. 020 companies improve on the ecommerce model because they preserve data tracking while offering users a fun, social experience.

28. There is still much room for improvement in this gap between offline and online commerce – the winners will be the intermediaries (like Groupon) that collect money as customers move from the online space to local stores.

29. Point of sale optimization, gamification, near-field communication innovations, and mobile payment will all play a key role as performance measurement drives the bottom line of local merchants and democratizes offline commerce. Successful companies in e-commerce over the next five years will integrate 020 solutions and reside in the intersections of social commerce, mobile commerce, daily deals, location-based services, and subscription-based commerce. Source: Tech MEGAtrends, SV Angel 7

30. 8 Contents Offline vs. Online Social Mobile Daily Deals Location-Based Subscription-Based Conclusions

32. Of that 23%, 14% actively search for and share product reviews and opinions.

33. 25% of Facebook users who follow brands do so to receive discounts.

34. Over 50% of Facebook users who Like a company’s page and 67% of Twitter users who follow a company are “more likely” to make a purchase from that company.

35. Facebook and Twitter users spend 250% of the average Internet user’s time on the web.

36. Facebook and Twitter users spend more money online per month than the average Internet user ($50/month), to the tune of these figures:

37. As companies search for the most effective ways to monetize Facebook and Twitter users, they are quickly realizing that the “Social Graph” is not as powerful as the “Interest Graph.”

38. Whereas the Social Graph plots people’s connections and interactions with one another, the Interest Graph plots their identification with brands, their browsing and spending histories, and their responses to special customized offers.

39. Winners in the social world over the next five years (aside from social media companies like Facebook, Twitter, etc.) will be the ones who use the Facebook and Twitter platforms to do the best analysis on the Interest Graph.Source: comScore, Inc., Q1 U.S. E-Commerce Spending Report 9

40. The Social Advantage (2 of 2) Facebook use as a percentage of total time spent online Twitter users’ main interests Source: comScore, Inc., Q1 U.S. E-Commerce Spending Report 10

41. Top Brands Have a Head-Start The country’s top brands are already pushing social engagement and paid presence: Source: FanPageList data on 21 July 2011 11

42. The Future of Social (1 of 4) Stickybits Stickybits is the first social object network, connecting the digital and physical worlds. each stickybit is a unique barcode than can be scanned by iPhone or Android devices and then augmented with user generated content. Users can be notified when their codes are scanned, augmented or moved by other people. The company’s first product is a beautifully designed pack of stickers that can be purchased on amazon.com. Users can also choose to print out their own codes at home from stickybits.com. Funding: $300K seed + $1.6MM Series A ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ShopKick Shopkick bridges the worlds of mobile and physical retail. In August 2010, shopkick launched the first mobile application that hands consumers rewards and exclusive deals at shopkick’s national retail partners simply for walking into thousands of stores and malls. Shopkick created a new location technology that allows the app to verify the user is actually present inside a store (GPS is too inaccurate for that). Like advertisers pay Google for click traffic in the online world, they can pay shopkick for foot traffic in the real world. Shopkick’s growing partner alliance includes Best Buy, Target, Macy’s, American Eagle, Crate & Barrel, Sports Authority, West Elm, Wet Seal, Simon Malls (largest U.S. mall operator), Procter & Gamble, Kraft Foods, Unilever, Intel, HP, Covergirl, Revlon, Levi’s. shopkick is the only 100% performance-based marketing platform in the physical retail world, with measurable foot traffic and transactions at stores. The app grew to 1,000,000 users in its first six months. Funding: $5MM Series A + $15MM Series B ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Viewpoints Viewpoints Network is a social technology and media company focused on helping consumers make smarter decisions. They specialize in building communities and motivating “social influencers” to share their experiences by writing reviews, blog posts, how to guides, participating in discussion boards and contributing and voting on ideas. They then help organize and present those contributions to help other consumers make well informed purchase decisions. The Viewpoints Technology Platform runs Viewpoints.com and also powers communities for customers like Sears Holding (www.mysears.com). Funding: $5MM Series A Source: The Companies; CrunchBase 12

43. The Future of Social (2 of 4) Polyvore Polyvore is the leading community site for online style where users are empowered to discover their style and set trends around the world. With over 7 million unique visitors and 140 million page views a month, Polyvore’s global community has created over 20 million fashion sets that are shared across the site. The company collaborates with prominent brands such as Calvin Klein, Diane Von Furstenberg, Lancôme, Net-a-Porter, Gap and Coach to drive product engagement; and its user-generated fashion campaigns have been judged by Lady Gaga and Katy Perry. Headquartered in Silicon Valley, Polyvore is funded by Benchmark Capital and Matrix Partners. For more information, please visit www.Polyvore.com. Funding: $2.5MM Series A + $5.6MM Series B ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Kaboodle Kaboodle offers an easy way to collect information from the web and also search for things you may be interested in. Kaboodle can be used to collect and share information for shopping, travel, research, or just about anything else. With over 35,000 users, Kaboodle’s user base is relatively small, but the site is young and has much room to grow. Funding: $1.5MM Series A + $2MM Series B + $1.5MM Series C ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Lockerz Lockerz is a social commerce site whose mission to be the homepage of men and women ages 13 to 30, building a community of more than 19 million members worldwide. The site rewards members with PTZ (points) for doing the things they love to do online, such as watching videos, listening to music, uploading photos and inviting friends. These PTZ can then be used to drive down prices of popular brands offered in Lockerz SHOP, which include the latest fashions, music and electronics. Lockerz was founded by former technology and retail executive Kathy Savitt, and is backed by Liberty Media Corporation and Kleiner Perkins Caulfield & Byers. Funding: $30MM total Source: The Companies; CrunchBase 13

44. The Future of Social (3 of 4) Go Try It On Go Try It On allows guests the ability to share photos of themselves and get an honest opinion on their look before they go out. Guests can either ask the community or keep their look private and just ask their friends for feedback. In the first 7 months since launch, users shared 1 million opinions. Funding: Unknown amount of Seed ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Fashism Fashism is one of these entertaining websites where you can have others judge your looks and your fashion sense. The way this site works is straightforward enough, since all you have to do is upload a picture (or a couple) with you sporting the look that you need rated. You then provide some background information, and ask some specific questions that you want to have answered. Site users will then give you their own insight on that look that you had assembled. The will also give it either an up or a down vote, and that will be used to rate you on the provided Leader Board. Funding: $1MM Series A ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Blippy Blippy is a service that allows you to automatically share your credit card transactions as you make them. This includes the place you made the purchase, the amount, and in some cases, the item. This is all placed in a social stream where other Blippy users can comment on and “like” the various items. Funding: $1.73MM Angel + $11.2MM Series A ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Swipely Swipely provides a secure platform for consumers to recommend purchase experiences, discover new places and products through trusted friends, save money, and have more fun shopping. Our vision is to reinvent how people shop, share and save by adding value to every swipe. Funding: $1.1MM Angel + $7.5MM Series A Source: The Companies; CrunchBase 14

45. The Future of Social (4 of 4) WishPot Wishpot is a social shopping service that lets you collect and share information about items you find online and in stores. By creating a common space in which users can browse, recommend products, get advice, and find new items they’re interested in, Wishpot seeks to simplify shopping. Wishpot is free, and offers a service nearly identical to the social shopping site Kaboodle. The company allows users to post interesting items in “Wish Lists” that can either be made public or private, where details like product image, price, and other personal notes can be added. New or interesting items can be added to Wishpot from any online source by clicking a browser button that can be downloaded from the company’s website. Interestingly, Wishpot also lets you add items to the site by sending a text message or picture from your mobile phone when shopping in an actual store. The site also boasts a product search across thousands of stores powered by Shopping.com with which you can search products, prices, and reviews. Founded in 2006, the company is backed by angel investors including Adrian Hanauer of Curious Office Partners. Funding: Unknown amount of Angel + $1MM Series A ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- thredUP thredUP is an online community of parents who swap used clothes as their children grow up. Say that you have a three-year-old who is growing fast. Fast forward two years to age five, and he doesn’t fit any of his old clothes. You sign up for thredUP and they send you (for free) several USPS boxes. You group your child’s old clothes into boxes organized by season, size, outfit, etc. and post descriptions on the thredUP social forum. You are looking for clothes that will fit your five-year-old, so you can find someone who is offering a box of clothes you are looking for. Once you have decided, you make a swap with thredUP: they send you the box of clothes that you need, and you send them your box of clothes so that another parent with a three-year-old can get it. You pay $15.95 total for the exchange ($5 price plus $10.95 shipping), and you receive a box of clothes that is worth considerably more than that price. How does thredUP make money? 1) They sell the envelopes at 48% gross margins; 2) By Q1-2010, they will offer premium services so that members can get even more precise with their thredUP preferences; 3) By Q3-2010, they will sell targeted advertising based on the robust data and usage patterns of their users. Funding: $8.62MM total Source: The Companies; CrunchBase 15

47. Keeping followers engaged and ensuring that they come back every day to participate on the platform

48. Helping companies push innovative offers to end consumers

49. Creating conversion/advertising platforms that are socially drivenThe following companies are pioneers of Social Solutions: Involver Involver is the web’s most trusted social marketing platform, supporting 250,000 brands and agencies who manage audiences of more than 500,000,000 fans. Involver provides marketers with everything they need to create rich experiences across the social web. Involver SML is the World’s first markup language for social media, enabling front-end developers to create rich social experiences. Our Audience Management Platform is the most effective way for agencies and their clients to publish, monitor, measure, and manage social media content across multiple social networks from one central dashboard. Funding: $1.4MM Series + $1.6MM Series B + $8MM Series C ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Affinion Group Affinion Group is the global leader in the designing, marketing and servicing of comprehensive customer engagement and loyalty solutions that enhance and extend the relationship of millions of consumers with many of the largest and most respected companies in the world. Funding: Unknown

50. Social Solutions (2 of 4) ShopIgniter ShopIgniter is a rapidly growing, social E-Commerce software company. ShopIgniter helps companies of any size activate their customer networks to extend their reach and generate revenue through social E-Commerce efforts. ShopIgniter provides the sCommerce (social commerce) Suite of flexible products that include a Social Promotion Engine to power shareable coupons, referral and loyalty incentives, private and flash sales, group promotions and social ratings and reviews; a fully transactional Facebook Store; and a cloud-based sCommerce Platform; all of which can power a stand-alone eCommerce business or be integrated with existing E-Commerce systems. With over a hundred customers such as Nike Golf, CafePress, Portland Trail Blazers, Kembrel and growing, ShopIgniter meets the social eCommerce needs of a variety of companies including retailers, brand manufacturers and their interactive agencies. Funding: $3MM Series A + $8MM Series B ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Shopit Shopit is an e-commerce service that enables the sharing, publishing, and selling of products and information on multiple platforms online. Products and services can be directly linked, from Shopit to any site, including popular destination properties like MySpace, Facebook, Bebo, Friendster, Blogger, LiveJournal, Xanga and many more. In November 2007 Shopit established a partnership with NetVibes, and as of June 2008, a Shopit mini-application has allowed AIM users to buy and sell goods right from the AIM Buddy List. Funding: $2.5MM Series B ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 8thBridge Merchants partner with 8thBridge to create a social shopping experience for their customers on Facebook and ecommerce sites. Customers engage merchants on their own terms in a shopping experience that is portable, personalized, and participatory. Funding: $5MM Series A + $10MM Series B Source: The Companies; CrunchBase 17

51. Social Solutions (3 of 4) Milyoni Enabling eCommerce on social networks and member communities, Milyoni transforms online advertising from merely driving traffic to truly driving revenue and genuinely monetizes Social Networking. Milyoni leverages the power of social networks to expand retailers’ reach online, by enabling a fully transactional store anywhere on the internet. Funding: $3MM Series A ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ShopVisible ShopVisible is an on-demand ecommerce solution provider that delivers tools and services designed to streamline and advance retailers’ online businesses. From initial design or re-design to multi-channel strategies, proven search engine optimization implementation, content management, CRM, shipping, back office systems and analytics, ShopVisible provides unified management of the entire e-tail ecosystem, offering the flexibility and insight to meet even the most complex business needs. ShopVisible ensures speed to market, security and constant innovation. Funding: $823K Seed ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Fluid Fluid creates engaging online retail experiences that drive conversion, customer satisfaction and brand loyalty. Founded in 1990, Fluid has a customer list that includes major online retailers such as Reebok, Lucky Brand Jeans, Diapers.com, Warner Entertainment and The North Face, among others. Funding: Unknown ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Payvment Payvment is a leading provider of social network powered eCommerce on Facebook. Funding: $250K Angel + $1.5MM Series A + $6MM Series B Source: The Companies; CrunchBase 18

52. Social Solutions (4 of 4) ShopTab ShopTab provides customer-facing, content-rich marketplaces for major brands to sell products on Facebook to their fans and followers. Funding: Unknown -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Adgregate Markets Adgregate Markets is the leading provider of secure advertising and social commerce solutions. ShopFans turns social shopping on Facebook from conversations into conversions and is the only secure social commerce solutions in the market. More IR Top 500 companies and big brands use ShopFans than any other Facebook commerce provider. ShopAds guide prospective customers from the point of discovery to the point of purchase entirely within innovative online and mobile ads. Adgregate is a privately held company based in the San Francisco Bay Area and is venture-backed by leading investors. Adgregate has received numerous industry awards for its innovative advertising technology, including ad:tech’s White Hot Company, Techcrunch50 Finalist, and AlwaysOn OnMedia 100 Winner, recognizing the top private companies in digital media and advertising. Funding: Unknown ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- MailChimp MailChimp is an email marketing service with over 500,000 users. They provide an easy way for users to send email newsletters, manage subscriber lists, and track campaign performance. MailChimp takes a variety of basic and advanced features (like templates, list segmentation, a/b testing, geo-targeting and ROI tracking) and makes them accessible to everyday users with automation and a competitive price. Their platform uses an open API and encourages other systems and web applications to integrate with its email-marketing engine. Currently they offer integrations with systems such as PayPal, Google Analytics, Shopify, Magento, Salesforce, and several others. They are adding over 30,000 new users and 4,000 new paying customers each month. Since starting freemium 12 months ago, the number of paying customers has increased over 150% and profit has increased over 650%. Their profit has increased mainly because our cost of acquisition has been dropping. It decreased 8% in just the last quarter to under $100. They are delivering roughly 700 million emails per month. Funding: None (bootstrapped) Source: The Companies; CrunchBase 19

53. It’s About Understanding 20 Attensity profiled its clients and listed their reasons for employing some of Attensity’s social solutions. The results showed that the companies wanted data more than they did money out of their social platforms. The social web is clearly the next frontier for commerce, but for now it serves as the best way for a company to extract valuable data and metrics on its user base. “If I had to guess, social commerce is the next area to really blow up.” - Mark Zuckerberg, August 2010 Before widespread social monetization becomes available, it’s about understanding. Attensity customer profiles “We need to understand emerging issues and opportunities” “We need to understand customer perceptions of our merger and understand issues in passenger processing” “We want to uncover customer insights and identify customer issues early” “We need to analyze and understand our NPS detractor and promoter issues and analyze customer sentiment” “We want to have a better understanding of our customers’ needs and wants” “We got a better understanding of our customer/market reaction and a reliable measurement of our voice” Source: Attensity; Mark Zuckerberg (we will forgive his split infinitive)

55. Facebook takes 30% of developers’ revenue

56. Playfish, Playdom, and Zynga have all signed five-year agreements to use Facebook Credits

57. Additional sales driven by Credit donations (use credits to give to charities) and Credits gift cards sold by retailers

58. Retailers can offer micro-rewards in Credits instead of real cash for following brands or sharing contentIntersection with Location-Based Services (LBS) and Daily Deals spaces Adding a truly social layer to Gilt Groupe and the rest of the private buying companies, for example, would give them an added element of virality that is currently missing. One could make the argument that even Groupon is not truly social, for it has yet to introduce elements that let people work together directly with their friends. Groupon could create a feature much like Google+’s Circles that could target specific circles of friends who have histories of doing certain things together by integrating with LBS data. For example, if you and the same 9 friends always check into the same basketball gym on Friday nights, it could start pushing you exclusive Groupons for nearby bars and restaurants. 21

59. 22 Contents Offline vs. Online Social Mobile Daily Deals Location-Based Subscription-Based Conclusions

61. 48% have read consumer-written reviews on their smartphones

62. 49% have downloaded an app used for in-store shopping (real-time discounts, scanning, etc.)

64. 23% scan images of products to gather more information before purchasing

68. Google Wallet and other mobile payment systems will drive NFC innovationsSource: Kantar Media, Online Shopper Intelligence Survey; Forrester Research 24

69. In-Store Apps are Lacking 1. Coupon Sherpa Coupon Sherpa is a free app that saves you money by letting you digitally search for, save, and use coupons for a wide variety of products. Coupon Sherpa lets you search their database of current coupons by store or by item category. For example, if you’re in the market for new running shoes, you can search the shoe category to find which local stores have coupons available. Once you’ve located the coupon, you save it to your favorites, go to the store and pick out your shoes. When you’re ready to pay, the cashier will either type in a special coupon code or actually scan the coupon on your phone. The Coupon Sherpa app is also available for the iTouch and was one of Apple’s employee favorites. 2. Yowza! Similar to Coupon Sherpa, Yowza! is another free app that allows you to find coupons for stores in your area. Unlike Coupon Sherpa, however, Yowza! coupons are uniquely created for Yowza! users and the company has a team that specifically finds partnerships with companies across the country in order to create new deals regularly. The coupons you access are based on your location and the app is setup to notify you when new coupons for stores in your area are available. The selection of coupons available in the Roswell/metro Atlanta area can be hit or miss, but their merchant list is growing so it’s good to check regularly. 3. Save Benjis Unlike Yowza or Coupon Sherpa, Save Benjis doesn’t save you money by offering you discounts. Instead, Save Benjis saves you money by helping you figure out if you’re getting the best possible price on the item you want to buy. To use Save Benjis, you open the app and scan the bar code of the item you’re interested in buying. The app will pull up a list of stores and prices for that specific product and you can compare all the prices to make sure you are getting the best one. Theoretically, you could use this for grocery shopping as well as miscellaneous shopping but in terms of time management, this app is best for those single but potentially expensive purchases: new tires, video games, electronics, etc. 4. Coupon Sherpa There’s no more need for a coupon book as long as you have an iPhone. Coupon Sherpa is an iPhone app that is exactly as it sounds – a program filled with coupons. Coupon Sherpa does the dirty work of looking through coupons on the Internet and bringing them to you. You can create a list of favorite stores, email coupons to friends, and coupons can even be scanned by optical scanners. It’s not the coupon motherload, but you’re sure to save some money. Another bonus: Coupon Sherpa is currently free. Source: Ben Parr, Mashable; Shauntelle Hamlet, Roswell Patch 25

70. Profile: Point-of-Sale Mastery What: An innovative fast casual restaurant business created by Flip Video founder and entrepreneur Jonathan Kaplan. Concept: THE MELT is a new fast casual restaurant business that utilizes farm fresh products, all-natural ingredients and innovative cooking technology to create and deliver high-quality food at affordable prices. Created to be a fun, memorable dining experience, THE MELT blends gourmet taste into everyday classics with irresistible grilled cheese sandwiches, seasonally fresh soups, and delightfully balanced “combos”. THE MELT uniquely leverages the power of technology to provide its guests the ultimate flexibility for ordering and picking up made-to-order meals. Locations: - 115 New Montgomery, San Francisco, CA 94105 - 1 Embarcadero Center, San Francisco, CA 94110 - 345 Spear Street Suite 125, San Francisco, CA 94111 - Stanford Shopping Center, Palo Alto 94304 - New locations coming soon with plans to expand to 500 MELT locations in the next five years. Opening Dates: August 2011 – December 2011 Service: THE MELT is open for lunch, dinner, and late night. Website, Facebook, Twitter: www.themelt.com | Facebook | @The_Melt Founder/Chairperson: Jonathan Kaplan, Fish Six Restaurant Corp Food: THE MELT offers grilled cheese sandwiches artfully paired with seasonally fresh soups to create unexpected combos. The sandwiches are prepared on European Designed Grills that balance two specialized tasks – toasting the crust and melting the cheese. The chefs pinch the bread to form air pockets for the cheese to melt into and the Melts are finished with grated Parmesan cheese and exclusive seasoning blends to draw out the all-natural distinctiveness of the cheese and bread. Soups are aerated prior to service for combinations of flavors and textures that until now have been reserved for traditional fine dining. Order Technology: THE MELT uses mobile technology that allows customers to remotely place a meal order from their computer or mobile phone and pick it up at any MELT location, always hot and ready, anytime. When ordered via the mobile application, the customer will receive a QR code on their smartphone that can be scanned at any restaurant location, allowing them to pay through their phones, skip the line, and pick up their freshly made order within minutes. Source: The company 26

71. 27 Contents Offline vs. Online Social Mobile Daily Deals Location-Based Subscription-Based Conclusions

72. The Local Deals Landscape Source: Quantcast; comScore 28

74. Partnerships with credit card companies – issue will be whether they will be willing to use customers’ buying histories to push offers (invasion of privacy would be a huge concern)

75. PoS optimization with QR code coupons instead of printed-out coupons

76. Added technology layer to track conversion, acquisition, etc. (Groupon still pushes offers by email without significant targeting)

77. Truly social group buying through Facebook Open Graph

78. Full integration with mobile and geo-location – wouldn’t you rather receive a spa offer when you are walking by the spa on a Saturday afternoon than when you are checking your email before bed on a Tuesday night?

79. Mobile: Groupon is testing Groupon Now and LivingSocial is testing Instant Deals in a few cities, offering instant mobile deals instead of email-based delayed ones

80. Facebook and foursquare are taking a different approach – both recently partnered with American Express

81. Google is taking yet a different approach with Google Wallet and NFC payment

82. The big problem to solve will be getting customers to come back a second time: a September 2010 study at Rice University’s Jesse H. Jones School of Business showed that 33% of merchants lost money through Groupon deals (they had expected long-term customer acquisition, but none of the people visited a second time)

83. Competing with Groupon will be difficult for smaller companies – although the space has no enormous barriers to entry, it is hard to differentiate and compete with Groupon’s ability to cross-promote new services with its superior user base. Breaking into other countries is also nearly impossible given that Groupon and LivingSocial have gobbled up daily deals companies internationallySource: Jesse H. Jones School of Business, Rice University 29

84. Six Companies Pushing Mobile 1. BiteHunter: BiteHunter, a search engine for dining deals, unveiled their new mobile app for iPhone, iPad and iTouch earlier this month. The new app gives users across the country the ability to view offers on a map or as a list and filters the offers according to cuisine price, distance, type of deal and more. The free app provides restaurant information, related deals, reviews, photos and menus for each location and users are also able to share deals, redeem deals and even reserve tables via the BiteHunter mobile app. 2. Dealavue: Dealavue, based in Chicago, believes so strongly in the future of mobile deals that they are currently putting their main focus on their mobile apps as opposed to the website. Dealavue is available for the iPhone with an Android app on the way. 3. 8coupons: In May 8coupons announced the launch of their mobile app for the iPhone. The app is equipped with an Augmented Reality view which allows users to see exactly where the deals are available while walking down the street. 8coupons calls it iDeals. Deals can be filtered by category or you can choose to view all the deals available from your favorite site. 4. Scoopon: Scoopon is reported to be the first group buying site in Australia to launch an iPhone application. The app displays the deal of the day along with a clear description, the time left available to purchase the deal and a buy button making it easy for users to purchase deals right from their iPhones. 5. Spott: Spott.com teamed with San Diego-based social media technology and services firm, Parallel 6, allowing Spott to offer deals on a custom branded mobile app using Parallel 6’s Captive Reach technology. Spott subscribers can easily track and pinpoint deals based on location and the offers are instantly redeemable. Users can also share deals with their friends. 6. The Dealmap: Local and daily deal aggregator, The Dealmap, launched mobile apps for the Apple iPhone and Google Android last year. By April of this year they were reporting that one million consumers had downloaded the two apps. Users can view deals on their mobile devices and see a local map pinpointing exactly where the deals are located. Source: dailydealmedia.com 30

85. 31 Contents Offline vs. Online Social Mobile Daily Deals Location-Based Subscription-Based Conclusions

87. Gamification leads to 2-10x improvement

88. Adding a friend bar led to 15MM monthly actives vs. 1MM originally on Zynga Poker (14MM increase)*

89. Adding a friend bar also led to 70MM monthly actives vs. 2MM originally on Farmville (68MM increase)*

90. Incented invites vs. normal invites: 25% increase in installs

91. 10x return from providing a “touchable box” in the first 10 seconds of interaction

92. 90% bounce reduction from letting people “win first, win fast” and feel smart/special

93. 4-10x return from viral social design

94. Playspan survey of 2010 e-commerce customers:

95. 13% reported buying virtual goods in the last 12 months

96. The mean of digital goods purchasing was up 14% from $87 in 2009 to $99 in 2010

97. The median of digital goods purchasing was $50 in 2010, up 67% from $30 in 2009

98. iPhone owners had the heaviest concentration of digital goods buyers, moving from 28% of overall digital goods customers in 2009 to 43% of overall digital goods customers in 2010

99. Virtual worlds held the second highest concentration, with 41% of regular visitors having purchased digital goods

100. Of weekly handheld and mobile gamers, 33% and 32% respectively had bought digital goods

101. 21% of those who bought digital goods said that they planned to spend more on digital goods in the next 12 months

102. 16% of digital goods buyers said that they had used Facebook Credits

103. Jane McGonigal’s findings in Reality is Broken:

104. The average kid will have played 10,000 hours of games (the magic number, according to Malcolm Gladwell in Outliers) by age 21

105. Video games have improved kids’ real-time processing, decision-making abilities, etc. more than we give them credit for

106. We are raising a new generation of “gamified” kids, so there is money to be made in embracing gamesSource: Bing Gordon; Playspan; Frank N. Magid Associates, Inc.; Jane McGonigal, Reality is Broken; Malcolm Gladwell, Blink *the increase was real but Gordon may have failed to give enough credit to growth that would have occurred even without the friend bar 32

108. 16,700,000 United States mobile users used location-based check-in services in March 2011

109. 12,700,000 (76.3%) of those users have smartphones

110. Check-in users showed a “high propensity” for mobile media consumption, accessing retail sites and shopping guides, and owning tablet devices (more so than the average smartphone users)

111. Check-ins by Smartphone Platform:The Leaders: Source: comScore, MobiLens; Compete; CrunchBase *Whrrl’s founders left to work for Groupon; the company now encourages users to switch to Bizzy 33

113. Front-end users get 50% off at all participating merchants

115. Loyalty badges, etc. like Yelp and foursquare are currently dominating

118. With valuable data on customers’ shopping and purchasing histories, LBS companies can offer merchants improved targeting34

119. 35 Contents Offline vs. Online Social Mobile Daily Deals Location-Based Subscription-Based Conclusions

121. Satisfaction of a difficult need: Netflix worked because driving to Blockbuster every week unsure of the selection and stock, not to mention waiting in line, late fees, and driving the movie all the way back, was a pain in the ass. They offered a better selection, no late fees, a seamless queue-building system, and a warm interface that took the hassle out of renting movies. Plus, movie buffs could watch all they wanted without having to pay huge amounts of money for 20ish movies per month.

122. High product consumption: Shoes, handbags, and makeup are examples of products that work well in the subscription model because they are consumed in large quantities and people (mostly women) always seem to want them. Men are less likely to sign up for subscription services centered on shopping items because they make purchases only when they “need” something.

125. Going to the store to get essentials is cheaper and takes only 20 minutes; furthermore, men can buy all of these things cheaper online; furthermore, many men may not be buying these things themselves.

126. Amazon has an auto-renew feature, so they can just make a list of these things and have it automatically sent

128. Their t-shirts would need to be so much better than normal ironic t-shirts that the high price would justify buying their shirts instead of the more readily available and cheaper shirts found at American Apparel, etc. Source: The companies, CrunchBase

130. ZeroCater has relationships with 100 or so restaurants in the Bay Area, and since they order in bulk, they can get better pricing and even get restaurants that don't offer delivery to give them food to go. Since the orders are so large, restaurants will make the food better and faster so they can keep a valuable customer. They can also create "pre-set orders" for the offices that consistently order the same things. All of these advantages create a money-saver and time-saver for ZeroCater, so they are able to mark up the price of their time and spending to make a profit.

131. Thus, they price their weekly/monthly subscription (you can sign up for any amount of time/number of meals) such that they are always making a profit (albeit a low-margin profit, considering the labor-intensive nature of the model - driving/gas, pickup, delivery).

132. The key is that they offer a significant advantage for offices (receptionists probably spend 20 hours per week ordering and picking up lunches) and get discounts from the restaurants for the several aforementioned reasons.

133. Currently bootstrapped and trying to fundraise

134. 4 employees total

135. Why they will succeed: They fill a real need for offices that want to have better food for a similar price and save time in making the switch. Their margins don’t seem to have killer potential, but they will probably be able to raise their prices once more companies realize the tremendous value that ZeroCater adds to any office environment.

136. What may be a problem: It’s all about how fast they can dominate the Bay Area and expand into other cities if they want to have home run potential. Imitators will likely be able to spawn relatively quickly (although establishing relationships with restaurants may be hard).Source: The company, CrunchBase, LinkedIn

138. Has relationships with flower sellers around the world as well as a staff of floral experts, so they can get the freshest, most attractive flower combinations to offer as “bouquets of the week/month” to their customers

139. Customers choose between themes (i.e. Exotic, Classic, etc.) and receive a beautiful, fresh bundle of flowers

140. H.BLOOM can offer competitive pricing by working directly with the growers, thus eliminating intermediary overhead expenses – they are much cheaper than the average floral shop’s flower-of-the-month deals

141. All of their bundles are exactly the same size, and with your first order they give you a free standard vase, so you never have to worry about finding the right vase – the flowers are pre-tied and you just drop them in the vase every time

142. Received $1.1MM angel money in early 2010 from an undisclosed source and $2.2 in Series A funding from Battery Ventures in Nov. 2010

143. Currently have 12 employees

144. Why they will succeed: The flower market is a $30 billion opportunity and they offer the best flower arrangements you can buy. They are cheaper than anyone else doing the same thing, and imitation will be difficult considering the international relationships required.

145. What may be a problem: They do eliminate overhead expenses, but the challenge will be keeping good margins while expanding into other cities. Competition won’t be in abundance, though – flower stores offer monthly delivery for $55 while H.BLOOM’s is around $25.Source: The company, CrunchBase, LinkedIn 40

146. 41 Contents Offline vs. Online Social Mobile Daily Deals Location-Based Subscription-Based Conclusions

148. Near-field communications development and the rise of credit cards over cash will drive point-of-sale optimization and mobile payment systems that have social potential (depends on privacy issues)

149. The Social Graph will begin to give way to the Interest Graph as marketers move away from wanting merely to understand customers to wanting to monetize large user groups effectively

150. Online platforms for offline commerce will drive daily deals and location-based services and 020

151. Private buying companies like Gilt will have to get social fast, or else their business model will end in absurd competition for the unpredictable “leftover inventory space” among companies that are all offering the same value to merchants

152. Subscription-based services will emerge for high-margin, high-demand products and will commoditize unused inventory (unfilled seats in cars, storage space in personal garages, etc.)

154. Getaround (P2P car rental)