Going Around the Wall: Foursquare and AMEX

I once had a manager who used to yell to “go through the wall!!” when we hit challenges.  That’s often the right advice, but it’s not always the best way to expend your resources.  When you’re a startup with limited resources,  it’s far more effective to go around some walls.

Over the past few years, companies have been lining up to take shots at the discount space for obvious reasons: it’s a large addressable market and there’s high demand from marketers of all sizes to use social and Internet services to drive in-store traffic.  Discount listing services like Groupon and Living Social have just started delivering on that promise, and other startups are jumping into the fray.

The problem with bringing the real world and the Internet together is that there are often huge walls preventing integration.  For example, Groupon handles its sales to retailers through a massive salesforce of over 3,500.  To implement the transaction, Groupon has to manage the sale online and handle payouts to its partners.   This process is cumbersome and complex.  If a startup isn’t built around being an financial intermediary between retailers and customers, it can be a big, expensive wall to get through if you want to play in the space.

To add complexity to the issue, a lot of big retailers aren’t interested in having Groupon handle their transactions as an intermediary.  They’d prefer to to use their own POS systems to manage their transactions, but no one has figured out an effective way to distribute online coupons.  Everyone that I’ve spoken to in CPG marketing prefers free-standing-inserts (FSIs) because the redemption rates are predictable and there are a fixed amount in the world.  Moving these offers to online delivery systems always present complexities that the customer and the marketer seem to want to avoid.  If you want to offer discounts automatically through a smartphone application,  POS integration is required and a lot of systems (at casual dining restaurants, for example) aren’t set up to scan barcodes.  Headaches and complexities abound.

With those challenges in mind, the folks at Foursquare continue to impress with their ability to move around walls instead of trying to go through them.  Their recent deal with AMEX removes the transaction processing challenge from their equation.  With this deal, there are no barcode/POS integration challenges and no online transactions for Foursquare to manage.  The cashier at the store doesn’t even need to know about the discount and the customer doesn’t have to walk around with coupons in their pocket.  There’s no online coupon to download and print out and the redemption of the discounts is easily tracked.  Customers simply sync their AMEX card with their Foursquare account and start saving.

I think this deal represents truly innovative thinking on the part of AMEX and Foursquare, and should serve as a model to startups on how to go around walls.

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