Posted May 8, 2012

The Net has unleashed unprecedented price transparency across both online and offline worlds.  Comparison shopping engines offer convenient price comparison for goods across online retailers, helping consumers easily discover who has the lowest prices online.  People are “show-rooming” (i.e., visiting real-world stores to physically evaluate products), but then using their smartphones to research the lowest price and often buying the item online.  And daily deal sites bring transparency to deep discounts offered by local offline retailers, helping to lure bargain-conscious shoppers attracted to bargain basement prices.

Competing simply on price is a really tough road for the vast majority of merchants.  There can only be one low cost provider in any market, and price competition can result in Darwinian struggles for survival.  A few decades ago, big box merchants like Walmart used their cost and selection advantage to severely undercut mom and pop merchants and forever change Main Street.  Some of you may remember the movie “You’ve Got Mail”, where Tom Hanks’ big box bookstore put Meg Ryan’s quaint bookshop out of business.  Well, a sequel must be brewing because Internet retailers like Amazon are using their cost and price advantage to crush those same big box bookstores…and music stores…and computer and electronic stores.  Most of the once highly competitive physical chains in these verticals are history, and the few remaining holdouts like Barnes & Noble and Best Buy are desperately fighting a pretty inevitable extinction.

Merchants are desperate to find ways to compete outside of direct price competition.  Enter the loyalty program.  All sorts of retailers have loyalty programs, be they the nearly ubiquitous punch card from your local sandwich shop or more elaborate programs from large offline and online retailers.  Some of you may recall the famous Seinfeld episode about George’s enormous wallet, which was filled with loyalty cards from half the retailers in Manhattan.

A set of new companies is seeking to bring digital efficiency to the loyalty programs of offline merchants, leveraging a combination of the Net, mobile devices and data analytics.  Instead of carrying a wad of cards from individual retailers, people carry one card or one smartphone app that can be used at multiple participating merchants.  Instead of manually tracking visits, merchants rely on smartphones and tablets to digitally record the visits.  And instead of merely redeeming paper cards, merchants tap this digital information to really understand their customer behavior and the identity of their best customers.

Andreessen Horowitz is proud to announce our most recent investment in one of the market leaders in the emerging loyalty space: Belly.  We elected to invest in Belly for the following reasons:

1. They have a talented and committed management team, led by Founder and CEO Logan LaHive.

2. Belly has built an elegant product that fully leverages emerging trends in mobility.  Every merchant has a consumer-facing iPad at their cash wrap that actively promotes their rewards through Belly, and in the mechanism through which consumers check in.  And consumers can check in at Belly using either a smartphone app or a physical card. Belly also brings an approach to loyalty that goes well beyond simple “buy x times and get y”.  They work closely with every merchant to develop rewards tailored to that merchant’s unique attributes, integrating many non-financial rewards that bring out the personality of the business.  A couple of my favorites include “name your own Slurpee” at 7-Eleven in Chicago, “cut the line” at Southport Grocery, and ”win an ice cream date with Jerry (yes, that Jerry!) from Ben & Jerry’s in Washington, D.C.”.

3. Belly is attacking the market aggressively and has already signed up over 1,400 merchants and 200,000 consumers since launching last August.  This is not particularly surprising as their original funding came from Brad Keywell and Eric Lefkofsky at Lightbank, whose investment Groupon acquired merchants at a blistering pace.  We are psyched to work with Brad and Eric on Belly.

4. We believe having a large, connected network of merchants and consumers affords interesting opportunities beyond loyalty programs down the road.

I’m proud to join Belly’s board and will be actively working with the Belly team on a rewards program for achieving their key milestones.  My current favorite: The team gets to pie our own Mr. Andreessen after adding their 10,000th merchant (an option I have yet to share with Marc—we’ll soon see if he reads my blog posts!).