In the fall of 2007, Seth Priebatsch was a freshman at Princeton University. A year later, he dropped out. By 2011, he was head of a company valued at nine figures.
Seth Priebatsch, founder of SCVNGR and LevelUp
The 23-year-old is the self-proclaimed "chief ninja" of SCVNGR, a real-world, location-based gaming system, and its new mobile payment service, LevelUp. Priebatsch's record of entrepreneurship stems back to high school, when he ran a print manufacturing startup called Postcard Tech. He cut his teeth turning out college applications while managing factory operations in Hong Kong and a distribution center in Boston.
At Princeton, Priebatsch turned his attention to another field: gaming. He says.
"I really started getting fascinated with how much I and everyone else in the engineering department enjoyed games, but I also enjoyed actually going outside."
Motivated to move game mechanics from their traditional hardware into the tangible world, Priebatsch enlisted the help of a professor to build a demo of a mobile gaming platform to which anyone could contribute. The demo won the school's business plan competition and earned Priebatsch an invite to DreamIt Ventures' Philadelphia incubator.
There, he began fortifying the system, which he dubbed Scvngr.
"It's a reality-based mobile game," he explains. Players check in at locations and undertake challenges--puzzles to solve, location-based photos to snap--for points that lead to awards. Players, companies and institutions can add their own locations and challenges to the system, so it is "built by people like you … You unlock awards and access those places, whether it's half off your coffee at abusiness or something cool at the Smithsonian Institute."
With his increased commitment to his new business, Priebatsch decided to put Princeton on hold. He says.
"People think that running a startup while in school is actually an option and a recipe for success, and it's just not. If you want to be a big startup while you're in school, you'll either end up failing as a startup and failing at school or doing OK at school but the startup is going to, for lack of better terms, be on ‘forced hold' until the time that you graduate or decide to go at it full time."
Priebatsch moved his project to Boston and attracted investors from several sources:
- $35,000 - In June 2008, secured seed capital investment from Dreamit Ventures.
- $750,000 - In August 2009, secured a first round investment from Highland Capital Partners.
- $4 million - In December 2009, secured a second round investment from Google Ventures, Dreamit Ventures and Highland Capital Partners.
- $15 million - In January 11, 2011, secured a third round investment led by Balderton Capital, Google Ventures and Highland Capital Partners at a valuation of $100 million.
- $19.8 million - Total venture capital raised to date.
Scvngr has attracted 2 million users and 5,000 large enterprises since its launch.
With the new funding, Priebatsch turned his sights to the LevelUp mobile project. He originally conceived it as a location-based daily deal platform but soon scrapped that idea in favor of a QR code payment service for the iPhone and Android, distinguishable from other such services by its built-in loyalty programs. By signing up and downloading a free app, users get a unique code they link to a credit or debit card and carry on their phone; when they scan the code at participating retailers, they earn credit that can be redeemed during future visits. LevelUp attracted 100,000 users in a 12-week pilot and is now available in Boston, New York, Philadelphia and San Francisco.
Flush with his blooming success, Priebatsch has no regrets about his decision to leave school and focus on business. He says.
"The choice to drop out isn't actually as big a choice as it sounds. If Scvngr had not worked, I would have been able to go back a year later or a semester later. And the absolute worst-case scenario would have been to have spent a year on an incredible experience learning a huge amount of stuff and really taking a huge risk."
COMMENTARY: SCVNGR launched LevelUp a new type of interchange cost-free mobile payment system that incorporates a daily deals loyalty program component on March 9, 2011 in Boston, Massachusetts.
On November 14, 2011, TechCrunch TV's Andrew Keen interviewed Seth Priebatsch, Chief Ninja for SCVNGR about LevelUp, its new mobile "interchange zero" payment service and daily deals loyalty business model, and Seth believes that SCVNGR could disrupt the current credit card payment system and give daily deals sites like Groupon and Living Social a run for their money, with the potential to do $50 billion in business.
Click Image To View TechCrunch interview of SCVNGR'S Seth Priebatsch
The goal of LevelUp, says SCVNGR CEO Seth Priebatsch, is to offer the immediate distribution and new customers afforded by the daily deal sites, while simultaneously maintaining the long-term engagement that location-based games are usually better at. Priebatsch says that the big deal sites will often lead to a “one-and-doner” phenomenon, where businesses attract a flood of new customers eager to get in on a deal, and then watch as those customers never come back. LevelUp wants to fix that.
Checkout SCVNGR'S YouTube promotional video for LevelUp:
There are two ways to save money using LevelUp
- Daily Credits - LevelUp participating merchants offer daily credits of $3, $5, $10 or more to spend on whatever you want everytime you visit that merchant. To use it, just pay with LevelUp. If you didn't use the daily credits, use the next time you visit. If you spend more than the credit, pay the rest with LevelUp.
- Daily Deals - These are daily deals comparable to Groupon (say, $10 for $20 worth of sushi), using a website, mobile applications and a regular email newsletter to contact customers. This initial deal is called “Level 1″ and is available for seven days. Anyone can purchase and redeem the deal, the same way anyone can redeem a Groupon.
LevelUp has three different levels. Merchants keep 100% of revenues from a Level 1 daily deal, but they keep 75% of revenues from Level 2 and 3 daily deals. LevelUp keeps the other 25%. This is much better than Groupon, which keeps 50% on all daily deals of its participating merchants
Customers will also be able to see even better deals — dubbed Level 2 and Level 3 — which are only available to repeat customers. So, a new student at a rock-climbing club might be able to take their first lesson at a special rate of $50 for $100 worth of classes. But then a followup lesson might be even less expensive (say, $35 for $100).
Here's LevelUp's plan to create traction with participating merchants:
- Revenue Split Sweetener - Priebatsch is well aware that LevelUp is currently missing one key ingredient that other deal sites have: distribution. SCVNGR will not be adding its existing user-base to LevelUp, and the other daily deal sites already have millions of subscribers to their daily emails. So LevelUp is sweeting the deal. On Groupon, a business has to give Groupon 50% of the revenue generated by their deal — LevelUp is allowing businesses to keep 100% of the revenue generated by their ‘Level 1′ deals (they’ll take 25% of the proceeds from deals at Levels 2 and 3). Priebatsch says that under this system, LevelUp will only get paid if it brings repeat customers back to businesses.
- Advertising Blitz - It’s running $1 million advertising blitzes in both Boston and Philadelphia (the two pilot cities for the service).
- Social Cause Tie-Ins - Some of the initial businesses participating in LevelUp will be donating 25% of revenue from their Level 1 deals to partner organizations, like the American Heart Association and Susan G. Komen for the Cure. These partner organizations may also begin to promote LevelUp, because the more people who use it, the more donations they’ll receive.
LevelUp has an interesting and potentially compelling offering for businesses, especially since they can effectively use it for free for their initial deals. But it obviously has its work cut out to achieve distribution, and there are a couple other kinks that might crop up. First, businesses will have to get comfortable giving out very steep discounts for Levels 2 and 3 (Priebatsch explains that any margins lost here should easily be recouped from the Level 1 customers, because many Level 1 customers probably won’t wind up making it to Level 2 or 3).
Another possible issue is sticker shock — if a customer is getting super cheap discounts for their first three visits to a business, the price jump for the fourth visit could be a rude awakening. Priebatsch says that the company has done a lot of research on this issue, and that after three visits customers have often established a loyalty to the business, even with the price jump.
It’s worth noting that this isn’t the only product SCVNGR has aside from its core location game. The company got its start as a scavenger-hunt generator used by colleges for student orientation and businesses for team building.
I found it interesting that SCVNGR makes money off of LevelUp by charging merchants $55.00 per month for managing their daily deals loyalty programs after they have been using the LevelUp payment system and three-tier daily deals loyalty program for three months. This assumes that during the three months prior, that the merchant has experienced a positive ROI from repeat customers (see the LevelUp promotional video).
Seth told TechCrunch's Keen:
Seth claims SCVNGR has 5,000 merchants, so its probable that most of the revenue being generated is from SCVNGR's location-based mobile game loyalty programs. It's probably too soon for LevelUp to generate any substantial revenues when you only have 650 participating merchants in four major cities.
On May 9, 2011, SCVNGR announced that it had signed a deal with American Express to use their credit card to pay for Amex discount deals using LevelUp. The deal is similar to the one that Amex signed with foursquare, the location-based social network leader.
I just wrote an email to LevelUp to obtain clarification on their daily credits, daily deals and need for a credit or debit card and security code. I am a bit queezy about the latter due to hackers breaking into their systems.
Still, I find LevelUp's "interchange zero" mobile payment system quite unique and disruptive, but it's a bit risky to give away interchange fees and a split of daily deals revenues at level 1 in the hopes of signing a merchant for its daily deals loyalty programs longer term. That's where the money lost in level one will be recouped, assuming that the loayalty programs are very successful in generating exponential repeat customers.
As we already know from Groupon, the daily deals market is very labor intensive, requiring armies of marketing and sales people developing and selling daily deals programs. Groupon has something like 12,000 employees, of which probably two-thirds are marketing and sales. SCVNGR only has 120 employees. That's a far cry of what the company will need in order to expand nationally and then internationally to generate Seth's vision of $50 billion in annual revenues. Just saying.
Courtesy of an article dated January 23, 2012 appearing in Entrepreneur and an article dated March 10, 2011 appearing in TechCrunch
I have great time when they gave me loyalty award. :)
Posted by: technical writing jobs | 01/25/2012 at 06:28 AM