You would think they have traction and tons of merchants on board. They don't.
Do a location search. Zoom out the map on http://www.fivestarscard.com/locations
There are only locations in Silicon Valley, Los Angeles and literally a smattering of other places.
Then there is this statement:
"Since officially launching in 2011, FiveStars has signed up 400,000 customers across 11 states; those customers have purchased 3.5 million items and are on track to spend more than $50 million at participating locations this year — those same customers are earning about $100,000 in free rewards every month."
But when speaking of the competitor, Level Up and Belly, it says this:
"A similar service, called LevelUp, claims to have about 200,000 active users, who are spending some $2 million a month on its network. And Chicago-based Belly, which has an iPad solution, recently claimed to have 1,400 merchants and more than 200,000 active users."
Why is Five Stars numbers referred to differently than the others whose numbers are "claimed" throwing doubt on those numbers. Aren't the Five Stars numbers also "claimed". Or are we to believe they were independently verified?
And lastly, from the Press release (repeated on allthingsd) "FiveStars cards are currently available at leading retailers and local merchants across the country."
Not true. It's not available "across the country" and "leading retailers" is certainly a stretch.
I'm thinking punchd, Belly, LevelUp, Plink, not to mention offerings from Groupon, foursquare... They may be able to profitably acquire businesses now, but isn't it a coinflip as to who will win in the long-term?
Most of the startups you mentioned are trying to retrofit the loyalty card paradigm to smartphones. I'm not sure that's the right approach - time will tell.
It looks like FiveStar simply works with a business' existing POS / magnetic scanner - and is enhanced by social / mobile. I think that's a smarter, more frictionless approach.
The winner in this space will be the one that's easiest for a business to integrate. Both on a technical level via integrating with POS systems but on a human interaction level: if you're Starbucks you can't tell 17,000 stores that they have to faff with iPhones every time a customer wants to stamp their card.
One thing though about Level up. It sits right on the counter and is a big ad for Level up. The reason I know about Level Up (don't use it just mentioning) is that I walked into the local coffee shop one day (in the middle of nowhere) and it was sitting plop on the counter with a smartphone lighted up in a cool color. It totally got my attention. So there is at least some value to that hardware in that it gets you "counter space" to promote Level Up.. That's not the same as a door label or cash register label (which is flat and doesn't really stand out much) which Five Stars will probably use. Of course nothing to prevent them from offering a gizmo to do a similar thing if they want (are you listening Five Stars?)
One of the more ill-informed questions I've heard in awhile. Do you have any idea how much energy, persistence and brains go in to creating a successful, winning service?
EDIT: This might have been an old job ad that was reposted, as it claims the company has 8 employees, while AllThingsD states they now have 55.
It leads to this job ad: http://news.ycombinator.com/item?id=4332117
I actually like the punch card system better anyway. Besides the fact that I'm not adding yet another thing leak my identity all over the place, it is kind of more fun to have a visual representation, via the punches.
1) Readily available angel financing makes it hard to rise above the noise of similar startups and results in fratricide.
2) The only way to escape the pack of other startups becomes to raise more money than one's competitors in order to outspend them on marketing, PR, hiring, product, etc. It's hard to be capital efficient when there's a winner-take-most competition, given the network effects.
3) Obviously, selling to small restaurants and retailers is a difficult, expensive proposition. Easier than it was a decide ago, no question. But still a costly slog. Most startups (and there aren't many) that have managed to acquire a large number of them as customers have spent a LOT of time and/or money doing it.
EDIT: The list above is in addition to the ones mentioned below.
