Andrew Barnes’ “Digging Deeper” series is based in Silicon Valley and focuses on startups and key innovators and how they are disrupting digital payments and commerce.
TrialPay, a VC funded Silicon Valley success story, is in the business of transactional advertising by putting offers around payments. With tens of millions of transactions for merchants, TrialPay believes that the most valuable place to interact with the consumer is along the payment path before, during, or after they’re done paying.
Andrew sat down with Alex Rampell, CEO & Co-founder of TrialPay to talk about the evolving intersection of advertising and payments, the emergence of mobile, and his advice to other entrepreneurs on distribution strategies.
Andrew Barnes: Great to sit down with you today Alex. As we start this off can you tell me what’s happening in 2014 with TrialPay?
Alex Rampell: Well, let’s start from the top. TrialPay, as you know, is really in the business of transactional advertising. We put offers around payments. We think that the payment path of either before you pay, while you’re paying, or after you’re paying is the most valuable place that you can interact with the consumer.
We generate tens of millions of transactions for merchants and we often do that with no discounts.
We thought the biggest opportunity for us is taking our processes to the offline world. We did deals with all the major credit card networks, Visa, MasterCard, American Express, a bunch of acquirers and some issuers. We did this so that we could figure out when you were using a credit card offline, and continue to do it on the TrialPay landscape. We’d say, “All right, you’re playing Angry Birds. You don’t want to pay for Angry Birds. Get it for free if you do X,” which was the traditional TrialPay model since 2006.
Is this where your building and eventual sale of Yub comes in?
Yes, the X could be to go shop at Starbucks or go shop at Burger King or go buy clothes in person at Old Navy. We started doing that and branched that off into something called Yub, which was acquired at the beginning of 2014 by Coupons.com. Coupons.com is just about to go public in a couple of weeks. That’s pretty exciting.
The good news there is that we always wanted the offline-tracking infrastructure to exist. We never wanted to build the business of Yub, we just wanted it to just exist. Since it didn’t exist, we had to build it. That was a lot of what happened in 2013. We spun it off because it wasn’t really core to the TrialPay business model.
Going forward, how are you innovating your core business model?
AR: A lot of what TrialPay is doing right now is taking the core model, which is you pay by trying something else, or while you’re paying you try something else, and extending it to mobile. When TrialPay first started in 2006, our very first client was WinZip, a $29.99 product that lets you decompress files on your PC. The market that we really targeted back in ’06 and ’07 was this shareware market of downloadable software utilities.
Think about how many things you downloaded to your PC back in ’06 or ’05 or ’07 compared to how many things you’ve downloaded on your iPhone or on your Android device or smartphone in general. Apps are so much bigger now. The business model that we have is just perfect for this. Just look at a company like King.com, which did $1.8 billion of revenue last year. It’s the biggest success in gaming right now, more so than Zynga ever was, more so than Supercell. It’s just one company with one game called Candy Crush, which is a popular game. It’s a billion dollar game.
How did they make those billion dollars? They make those billion dollars from just 4% of the people that play that game. Ninety-six percent of people don’t pay today, won’t pay tomorrow, didn’t pay yesterday, and never pay, but those same people will buy something at Burger King, including the 4% of people that do pay. It’s a very inefficient transaction. I just paid $20 for more powerups in Candy Crush, but I don’t know where I’m going to eat dinner tonight. That’s the perfect opportunity for the Olive Garden to give me an offer because I just paid. I’m female. I’m 28 years old and I live one mile away from an Olive Garden restaurant. Perfect. That’s really what we do.
And that involves a focus on mobile?
Yes, our big focus for 2014 is mobile, mobile, mobile. We are a little bit late to that game, but it’s actually the perfect model for what we do because I’m very, very excited about just more payments happening on mobile devices and our ability to influence those payments and serve as an alternative payment platform for many of those companies.
What about your market and client focus, what is changing about the market?
The core business model stays the same, but we keep finding these new markets. Sometimes a new market means the old market goes away because this is somewhat disruptive. Parts of our business stayed very constant. We work with a lot of online merchants like Fandango and Shutterfly, but we also work with Ghirardelli Chocolate.
I don’t think anybody is going to disrupt the chocolate business model anytime soon. Those are our most constant-based merchants. The other ones – it really is amazing, you’ll have somebody like King.com, it comes out of nowhere and literally in one year they make more than ten times the revenue of the prior year. I think they did $120 million in 2012. Then they went to $1.8 billion in 2013. The key is to have a portfolio of these companies that you work with, which is what we’ve tried to build.
Tell me, why is TrialPay important to payment professionals?
Here’s what I would say. It’s always more valuable to connect the buyer and the seller than to connect the bank account of the buyer with the bank account of the seller. It’s the very first thing that has to happen. Like you want a pair of pants, you don’t start by saying, “How do I pay for this pair of pants?” You start by saying, “I want a pair of pants.”
The reason why Google is one of the most three most valuable companies on earth right now, and has a $400 billion plus market valuation, is because they’re very good at connecting buyers and sellers. You Google “pants,” they’ll show you all these ads and all of those merchants are competing to pay Google more money. Literally, they’re arguing with each other in a bidding process, “Oh, you’re going to pay $4, well I’m going to pay $10, I’m going to pay $12.” That has never happened. People sue Visa because they think they’re charging too much money, and it costs Visa billions of dollars. Why? Because Visa, MasterCard, American Express, I think they’re great companies, but they are connecting the bank accounts of buyers and sellers.
The consumer has already said, “I’m going to buy my pants from this merchant” and yet the merchant still has to eat the cost of 3% or 2%. Why? That’s what the merchants ask. It’s always more valuable to generate more revenue than to service this cost center which is basically what credit card transaction fees are.
What is the advertising and payments mix, and where do you fall and what is the future?
We are somewhere between advertising and payments. We introduce buyers to sellers and sellers to buyers. We do that when people buy things, not when they search for things. The fact that you’re buying a movie ticket at Fandango, that’s a very, very rich piece of information. We don’t know who your friends are in that context. We don’t know where you’re located, per se, when we have a transaction. There are indicating marks since certain purchases have certain demographics.
I would say that with payments in general, my belief is that fees will continue a progression towards zero because merchants hate paying the fees. The key thing is merchants want more traffic. They want more customers and customers want deals, and payments serve to close the loop because none of this would happen without payments.
If people couldn’t pay for things, there’ll be no advertising because why would I advertise if I were not going to get any customers? Payments and advertising are intrinsically linked and we build the bridge between the two.
You took $40 million back in 2012 from some institutions. As you go and evangelize that intersection between payments and advertising, tell me a little bit about your funding. Are you cash flow positive? What’s the next plan of fundraising, if at all?
Yes. We raised a bunch of money back in 2011 because we just figured… It’s a painful process to raise money – always. It takes a lot of time. It distracts from the core, which is building a business that’s hopefully very valuable. We raised more than we needed back in 2011 and we’ll just use that to build out the engineering team, the sales team.
It’s not like, “Okay, we got $40 million, therefore, we will spend it in this way.” We were doing something at a small scale. With anything else, in many cases, you have to be ahead of where you are, so we hire people to the short-term detriment of profitability.
We’re about breakeven right now. As with any business that is looking at high growth areas, we could be very profitable pretty easily if we reduce the staff down to one person or decided we’re not going to try to grow into Europe or not have a big office in Berlin. Our view is that this mobile market in particular is massive as more and more mobile payments occur. The rise of digital payments is going to be very rapid and we want to be a part of as many of those conversations and clients as possible. Hopefully, there’s a chance to massively increase the footprint of our business.
Tell me the lessons you’ve learned as a founder. What would you say to other entrepreneurs in this space?
AR: One thing that I’ve realized is that I did not have a great appreciation for how valuable it is to be the basic commodity pipe.
I thought about TrialPay as, “Here’s something that works very, very well that can increase revenue for merchants.” It’s one component of payments. It wasn’t a full stack; it sits on top of the stack just like TiVo. Without Comcast, TiVo has no point for a consumer. The problem is that Comcast might come out with their own not-super-good DVR, which they did, which crashes a lot or the user interface isn’t very good and they don’t really have an incentive to improve it because they’re Comcast, and what are you going to do, like put a satellite dish on your roof and switch to DirectTV? You probably don’t want to do that. You may also get your internet from them, your phone, and even your security system from them now.
Distribution is incredibly important. You might have a leading innovation in payments, but if you’re reliant on five companies to distribute that innovation, even if it’s in their best interests, you should probably rethink your plans because they might not act rationally. They might have internal or political squabbles that don’t allow that to happen.
Now it starts to make sense.
Yes, now it starts to make sense. We’re bigger than all those guys combined but we don’t compete with them at all. They put out offers around card statements, but how many banks put offers in card statements? That is a TiVo type apparatus. It makes things in America better, it makes Capital One better, and it makes Citi better. You might be selling for three or four years to get yourself into there.
If they say no, I don’t know why they might say no, but who knows? Maybe they don’t like it; maybe somebody internally wants to build the same thing. It might not make any sense, but I think the lesson is you should try to control as much of your distribution as possible.
We actually learned this when we worked with Facebook. We did very, very well for a few years. Facebook games stopped growing and we couldn’t really do everything that we wanted to do. I mean Facebook is a great partner and we love working with them, but we were powerless. They were losing subscribers, if you will, and they were co-selling our TiVo. It just became all the more important, like how do we take control of our own destiny. Sure it’s great to be TiVo, but really think through how you get that distribution without being reliant on five partners.
From your experience are you advocating for saying, “Look, pick your channels in a way that mitigates your risk, AND go direct to the consumer?”
Yes, you should have both. Channel partnerships are fantastic. I mentioned Google as an example. How did Google start off? How did they get their distribution? Google did deals with AOL and Yahoo. Everybody thought, “Oh search is dead, search is stupid.”
Look at Google’s deal with AOL and Yahoo. The amazing thing about this, I would love to have been a fly on the wall there whatever it was, 12 years ago, 14, 15 years ago; when you used the Google search engine on AOL and Yahoo, you saw it was powered by Google. I don’t think they made that much money. In fact, I think Yahoo sued Google and got some chunk of Google’s stock because of patent violation or something, and also they got some stock because of this distribution deal. That really built Google into what it is today. They had a channel partnership with AOL and Yahoo. That’s how consumers by and large found Google. There’s also organic. I started using Google in college and Harvard didn’t make me use it. There was no channel partnership there. I just thought, “Oh, this search engine is better than HotBot.” Okay, I’ll try it out. Oh, it is a lot better. I’ll start using it. You had both methods.
There are other search engines that were pretty good as well. The channel partnership really, really helped them out in those early days because it helped to reach massive, massive numbers of users. As AOL became less powerful or less relevant or as Yahoo became a little bit less relevant, people just started to go to Google directly.
Switching gears….it’s Friday night, you’re out with your wife, and you want to grab something to eat. Where do you go in the area?
There’s a place called Oren’s Hummus in downtown Palo Alto. I’m a big fan.
Alex, this has been great. Thanks for sharing your thoughts.
You are very welcome Andrew. This has been fun.
Alex Rampell is the head of TrialPay, a leading transactional advertising and payments company serving digital goods and e-commerce clients such as Facebook, Zynga, and Netflix, with 100 employees and $80M in revenue. Previously, Alex co-founded FraudEliminator, which merged into SiteAdvisor and was acquired by McAfee for $75M in 2006. He is an active angel investor/advisor (Pinterest, Zong, Wooga, Hunch, Truaxis, OrderAhead, Twice, CardSpring, etc), served on the board of friend.ly (acquired by Facebook), Backstage Technologies (acquired by RealNetworks), and currently serves on the board of CashStar. He holds a Bachelor of Arts in Applied Mathematics and Computer Science from Harvard University, cum laude, where he also served as a Computer Science teaching fellow and played on the Varsity Squash team.
Andrew Barnes, Senior Executive Writer, Emerging Markets
Barnes is a self-confessed payments and commerce “geek” working in Silicon Valley and San Francisco. He utilizes c-level relationships in tech, startups, retail, and financial institutions to identify emerging market opportunities and analyze challenging business models. Barnes recently launched “Digging Deeper,” a published series focusing on startups and key innovators that are solving digital payments and mobile commerce problems worldwide. He has held executive business development positions in Asia with Sprint, Global One, and 2Roam Mobile, and is an Advisor to the Electronic Transactions Association (ETA). Barnes has an MBA from Waseda in Tokyo 早稲田大学大学院 and a BA from Penn State. He can be reached on Twitter @AndrewinSV and Linkedin.