Happy New year every one… We’ll post our 2013 prediction later on this week or next.
Last week, Bloomspot, the Daily Deal provider in the US focused on more upscale market, announced that JPMorgan Chase & Co. agreed to acquire it for a rumored $35 million. Certainly a surprise. As such, four questions pop into our heads:
- Why did Bloomspot Sell
- Why did a bank like JP Morgan Chase buy a Daily Deal provider like Bloomspot
- What the ….? Only $35 Million! We though Bloomspot was doing quite well and did in fact raise about $40 million. So why the lower number?
- How does this impact the Canadian Daily Deals Industry?
Let’s dig into each question below.
Why did Bloomspot Sell:
This one is straight forward: They had to. Given current market conditions (Demand for daily deals has softened in the US. As well, Groupon’s continued trouble on the stock market certainly does not help the industry at all. In addition, Living Social announced employee cuts) the opportunity to join a much larger company such as JP Morgan Chase and minimize investor losses was Bloomspot’s best bet. If investment funds were available for Bloomspot to continue growing then they would have taken those. The fact is, those funds are simply not available given the loss of appetite the investment community has for the Deals market.
Why did JP Morgan Chase buy Bloomspot?
J.P. Morgan is the largest U.S. credit-card lender and a major processor of card transactions for merchants. Owning Bloomspot’s technology, staff and process would enable it to offer relevant deals to their millions of customers a lot more efficiently than joining with a third-party vendor as other banks have done. Owning Bloomspot will also allow JP Morgan to generate new sources of revenue by tailoring deals to cardholders based on spending patterns. The bank can certainly use its massive internal data on spending patterns to develop loyalty programs across its customer base and to develop more effective retailer programs. All this is added value for JP Morgan chase customers and at a $35 million price tag, that is a bargain for JP Morgan.
Why the low $35 million price tag?
Truly, I have no idea why this price was agreed to but as the CEO of Bloomspoot put it, (I am paraphrasing) “…given current market conditions, this is the best offer we could have gotten for our investors…”
How does this impact the Canadian Deals Market?
In the US, there are several banks and credit card companies that run deal programs.
- MasterCard announced it was buying Truaxis Inc., which delivers offers to consumers through online banking sites and mobile applications. Mastercard also runs the successful Priceless Deals program.
- American Express sends offers through mobile applications, and has struck deals over the last two years with Foursquare Inc., Facebook and Twitter Inc.
- Bank of America recently rolled out BankAmeriDeals that allows customers to get cash-back rewards.
- Capital One Financial bought Bundle Corp., which makes merchant recommendations based on spending and local-directory data.
Visa has Visaperks, Mastercard has the Priceless program, Scotia and cineplex team up to offer movie rewards through the SCENE card and several banks have their own rewards programs. However, to our knowledge, no Financial institution in Canada has teamed up with or purchased a Daily Deals service in Canada. Should they? absolutely. In the absence of liquidity and other mergers in Canada, looking to the financial industry as key partners in the Deals space is a very sound strategy. Here are just some scenarios:
- Take Quebec for instance, the obvious is for a leading bank in Quebec to partner with the leading deals program, Tuango. However, the more strategic opportunity would be for a bank that does NOT have a leading position in Quebec to approach Tuango and their 1 million consumer database and drive loyalty through that partnership. I can think of a few financial institutions that would be interested in that conversation.
- Banks are all competing with each other for consumer loyalty. One sure fire way of getting Canadian consumer attention is by offering perks, rewards or other in the form of deals. A bank offering deals as a reward for getting and using their credit card over another competing bank will deliver more consumers. Should this bank buy larger deal providers such as Teambuy or Wagjag or should they partner with them? Should they buy smaller providers to get the technology and ensure a less expensive acquisition price?
- Which banks are more focused on 20 year olds? On students. Well, then these banks should partner with The Student Price Card and also a Daily Deal provider that has a larger 20 year old consumer base. Perhaps Teambuy.
The Financial industry and the “Deals” industry are a natural fit. Look for far more conversations between them in 2013. We will do our part to kick start these conversations. If you are a Deal provider or a Financial institution, let us know how we can help.