Innovator: Shopkick's Cyriac Roeding Reinvents Retail

This story appears in the March 2011 issue of Entrepreneur. Subscribe »

The idea first came to Cyriac Roeding in 1994. The German-born business and engineering graduate student was studying Japanese management theory at Tokyo's Sophia University. "Everywhere I went, I saw people walking around with these clunky machines they called 'mobile phones,'" Roeding says. "I said, 'Wow, that's the next big thing.'"

The seed was planted, but the true form and scope of the idea remained elusive for more than a decade. In the meantime, Roeding pursued other successes. He founded a mobile marketing firm called 12snap. He served as executive vice president of CBS Mobile, where his interactive entertainment concepts were strong enough to win an Emmy Award nomination.

Still, the big kahuna--the eureka moment, the one that captured lightning in a bottle--refused to reveal itself.

"I have been looking for an idea that has the potential to become a really large company in mobile for 11 years," Roeding says. "When I started 12snap in 1999, it was during the dark ages of mobile, when text messaging was still a geeky thing even in Europe. For years I've been trying out different mobile-use cases, looking for the one with a chance to become huge."

Roeding left CBS Mobile in 2008 and traveled the world for nearly two months. Everywhere he went, from New Zealand to Nepal, he saw people on mobile phones. With each successive stop, the idea took shape.

"I wanted to develop a service where mobile meets the real world," Roeding says. "Your cell phone is the only interactive medium you carry with you in a noninteractive physical environment, and that changes everything. It makes the offline world an interactive experience."

The idea finally achieved critical mass in September 2008, when Roeding arrived at his new gig as entrepreneur-in-residence with Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers. After poring over thousands of business plans submitted to KPCB's iFund (a $200 million investment initiative created to ignite software developer interest in Apple's then-fledgling iPhone) and finding nothing that crystallized his vision, he shifted his perspective from identifying a solution to pinpointing a problem.

"The number-one challenge facing every retailer in America is getting people through the door," Roeding says. "Conversion rates in the physical world are so much better than online--between 0.5 percent to 3 percent in the virtual world, and between 20 percent to 95 percent in the real world. So if foot traffic is so important, then why hasn't anyone rewarded people for visiting stores? The answer is simple: It's because nobody knows you came through the door."

So Roeding set to work on a smartphone-optimized rewards program offering customers discounts and promotions simply for entering retail stores--a model he describes as "the physical-world equivalent of an online click." Meetings with big-box retailer executives followed. "They all loved the idea," he recalls. "It was crazy. I still didn't have a company, the technology, a team or even any funding. I only had a PowerPoint presentation."

The idea--or shopkick, as it's now formally known--launched last August, buoyed by $20 million in funding from KPCB, as well as venture firm Greylock Partners and Linked-In founder Reid Hoffman (also an investor in Facebook and Zynga). The startup's eponymous mobile application delivers "kickbucks" rewards to all registered iPhone and Android users who enter a participating retail location. Kickbucks can be collected and redeemed across any partner store and turned into gift cards, discounts, song downloads, movie tickets, Facebook Credits or even charitable donations. As of late last year, shopkick spanned 1,100 individual U.S. retail outlets and 100 shopping centers with partners such as Best Buy, Macy's, Target, Sports Authority, Crate & Barrel and mall operator Simon Property Group.

"Shopkick transfers the online business model to the real world," says Roeding, CEO of the Palo Alto, Calif.-based company. "We're tackling a huge market with a big problem, and we're offering them a solution that works."

Roeding speaks about ideas in a deeply reverential, almost spiritual, tone. "I love building companies," he says. "I've always said that if the right people and the right idea pop up, I will drop everything to start a company. That's why I came to the U.S. I wanted to build something."

Roeding's entrepreneurial aspirations took a left turn when he landed in the entertainment industry, taking the helm of CBS Corp.'s fledgling mobile entertainment unit in 2005.

"At that time Disney had 270 people in its mobile department and CBS had zero," he recalls. "I met with [CBS executives] Nancy Tellem and Leslie Moonves and asked, 'Why are you talking to me? I'm an entrepreneur. I'm not a big-company person,'" he says. "And Les said, 'Because I want to turn this company into a company of entrepreneurs.'"

Roeding left CBS Mobile after three years at the top. Along the way, he pioneered a mobile video news-alert program, produced mobile games based on the network's prime-time hits and masterminded original made-for-mobile content across the three largest U.S. wireless carrier networks. Roeding also inked an early location-based mobile advertising partnership with Loopt, a still-growing mobile social networking startup that predates up-and-comers like Foursquare and Gowalla by several years.

At first glance, it may appear shopkick is yet another variation on the location-specific check-in paradigm championed by those firms, but Roeding cautions that the app is not a social networking tool.

"Our vision is to transform shopping into a personal, rewarding and fun experience for everyone," he says. "Shopkick is an app that is built around the act of going out and shopping. It's not about going out and letting your friends know where you are."

And unlike other location-enabled applications, shopkick doesn't rely on GPS triangulation. "If you want to reward someone for walking in your store, you cannot use GPS," Roeding says. "It's way too inaccurate. There's an error radius of about 500 yards, meaning I still don't know if you're inside the store, out in the parking lot or across the street at a competitor."

Shopkick instead incorporates a patent-pending device located in each participating store. The box, which costs retailers less than $100 and is roughly the dimensions of a paperback novel, plugs into any power outlet, emitting an audio signal that's undetectable to the human ear but automatically picked up by a smartphone's internal microphone. Because the signal's range is limited to the perimeter of the store, users must physically enter the location to earn kickbucks. And as Roeding points out, because detection occurs via the mobile device, consumers retain control over the privacy of their presence information.

Retailers determine how many kickbucks a shopper receives for entering their business. Roeding says each walk-in can earn as many as 100 kickbucks, with 875 kickbucks earning a $25 restaurant gift certificate, for example. Retailers can leverage the shopkick app to deliver special offers, like a discount on specific merchandise.

The concept also extends beyond retail: In partnership with brands including Kraft Foods and Procter & Gamble, shopkick offers smaller rewards for scanning product barcodes, which extends the network to about 230,000 additional stores nationwide.

Shopkick receives a small commission fee for each kickbuck a customer earns. "It's essentially a cost-per-click equivalent, only we charge cost-per-visit," Roeding says. If a shopper makes a purchase after using the app, shopkick claims a percentage of that transaction as well.

Not only is the shopkick model different from services like Foursquare, its users are different.

"Eighty percent of Foursquare users are male and 70 percent are between the ages of 19 and 35," Roeding says. By contrast, he notes, "55 percent of our users are female. Forty-nine percent of all users are aged 25 to 39, and 13 percent are 40 or older. Only 6.5 percent are 13 to 17. It's the perfect shopper demographic."

Retailers credit shopkick with kicking their customer traffic into a different gear. Sporting goods chain Sports Authority has rolled it out to more than 100 of its U.S. locations. In late 2010 the chain doubled--and in some cases even tripled--kickbucks rewards to determine the potential effect on walk-ins. The promotion ultimately increased shopkick user walk-in growth 50 percent to 70 percent.

"You have to innovate in retail to be relevant," says Jeff Schumacher, Sports Authority's chief marketing officer. "We looked at other applications, but we felt shopkick's strategy was the best fit. Their focus is on driving frequency, and in retail, frequency is a powerful metric. Anything that incents the customer to come into the store more often is a win-win for us."

Schumacher declines to reveal how many Sports Authority customers actively use the shopkick application, but says the company is "quite pleased" with it. "We're trialing shopkick in our major markets, which is where we see the greatest density of smartphones," he says. "Our customers love it. Some of them are even asking for it in markets where we don't have it. Feedback has been very positive."

Shopkick's rapid growth corresponds with surging consumer interest in leveraging mobile technology to shop smarter (see sidebar on Page 33). Shoppers relying on mobile solutions to search for price and product information, check merchandise availability, compare prices at nearby stores, browse product reviews and even purchase goods accounted for $127 billion in consumer spending during the 2010 holiday season--which represents 28 percent of the $447 billion the National Retail Federation forecasts U.S. consumers spent over the period--according to a survey conducted by research firm IDC.

"We're seeing a fundamental shift in how consumers are accessing information at the point of purchase," says Cathy Halligan, senior vice president of marketing and sales at PowerReviews, a company in San Francisco that provides social commerce solutions (including customer reviews) to retailers and brands. "Consumers now have access to product information while they're standing in the store. They've never had that before. It's a game-changer."

As of October, nearly 61 million U.S. consumers owned smartphones, up 14 percent from the preceding three-month period and translating to one out of every four American wireless subscribers in all, researcher comScore reports. And as smartphone penetration grows, the opportunity for startups like shopkick flourishes.

"We made the decision to focus only on smartphones--it makes the most sense," Roeding says. "There will be 150 million smartphone users across the U.S. by the end of [2011], and consumers who can afford to shop are overrepresented in that group."

His idea is growing, too. Shopkick is extending its platform into the small-business sector: At press time, the firm was planning to launch its SMB retail trials in the first quarter of 2011.

"We're very excited about moving into the small-business world," Roeding says. "You could never join a national program as a local player before. It just didn't work. But with kickbucks, the playing field is level."

He also plans to expand the core capabilities of the shopkick model. In conjunction with the annual Black Friday shopping frenzy, the company recently unveiled The 12 Days of Kickmas, a sweepstakes giving walk-in users a shot at winning one of a dozen daily prize packages, including a grand prize of 4.25 million kickbucks. Other initiatives are in the pipeline, and as shopkick grows and improves, retailer offers should become more sophisticated as well, with kickbucks awards and promotions eventually targeting consumers according to age, gender, geography, shopping frequency or purchase history.

"Shopkick is about shopping, and not anything else," Roeding says. "There are all kinds of things that shopping entails, and we want to improve all of them. It's about making the in-store experience amazing. It's not a tool. This is your world."

Shop Talk

Shoppers on smartphones are nothing new, but there's a growing possibility they're no longer simply talking or texting. An increasing number of consumers are relying on their mobile devices to check product availability, identify nearby bargains and read reviews, too. Fifty-nine percent of adult mobile subscribers in the U.S. said they planned to use their handsets for shopping and event organizing during the 2010 holiday season--up 25 percent from 2009--according to a consumer study published late last year by the Mobile Marketing Association and Luth Research. Respondents cited searching for local stores selling a desired gift item and comparing prices as their most common mobile behaviors.

"The fundamentals of commerce have not changed--I still want to buy the product I want at the price I want, it's got to be in stock and I want fast checkout and fast delivery," says Cathy Halligan, senior vice president of marketing and sales at PowerReviews, a San Francisco company that provides social commerce solutions (including customer reviews) to retailers and brands.

"What has changed is the access to information. We've seen a 500 percent year-over-year increase in consumers using mobile devices to access product information. They used to look for that information through the desktop, but that's very limiting. After all, you don't carry your PC with you to the supermarket," she says.

Brands large and small are capitalizing on the trend, rolling out applications designed to enhance the mobile shopping experience. Check these out:

• Price Check by Amazon. This free comparison shopping tool enables iPhone users to check in-store product prices against items available on the web. Price Check gives consumers the option to scan a product barcode, snap a photo of the merchandise or speak/type its brand name to instantly receive prices from Amazon and rival online merchants. The app sorts prices from lowest to highest, incorporating Amazon shipping discounts when available. Price Check encompasses millions of products across a variety of categories, as well as mobile access to shopping features like customer reviews and product information sharing via Twitter, Facebook, text message or e-mail link.
  
  
• Google Shopper. Available exclusively for smartphones running Google's own Android mobile operating system, Google Shopper lets consumers capture product information via their device camera. The application recognizes cover art on books, CDs, DVDs and video games, as well as most barcodes. In addition, users can speak the name of the product they're looking to purchase. In response, Google Shopper supplies product recommendations, pricing comparisons and identifies local stores where the item is in stock, complete with contact information and driving directions. The app also saves each user's search history, guaranteeing product and price information even when the Android device is out of network range.
   
• NexTag Mobile. Online shopping comparison site NexTag offers mobile solutions for iPhone, Android and BlackBerry smartphones, touting features like price comparisons spanning thousands of merchants, image recognition-based search, seller ratings and a wish list that users can share with friends and family. NexTag Mobile also offers a full complement of GPS-enabled tools, giving consumers the option of mapping the distance from their ZIP code or current location to a local merchant selling a scanned product. --J.A.