With the bulk of the traditional ecommerce landscape already divided up among the largest of Web giants, the title for king of the mobile commerce hill is up for grabs. Scrappy Y-Combinator alumni PayDragon has designs on claiming that crown and it’s employing some seriously unconventional methods to make it happen.
When it launched in Summer 2011, PayDragon told investors that it planned to offer the easiest solution for consumers to buy any offline product from their mobile devices. The Los Angeles-based company started by attacking the low-hanging fruit of restaurant takeout, allowing diners on the go to pre-order and prepay for their food from partner restaurants and then skip the line upon pickup.
Today, the young company is taking things to a whole new level by enabling one-click ordering and free two-day home-delivery on all manner of non-perishable household items.
“We’re starting by offering items that can be found in your bathroom cabinet, your laundry room, and your pantry,” says co-founder Hamilton Chan. “We’re starting with 5,000 items, but expanding our product database will be the easiest part of our business.”
Chan’s goal is to get users comfortable with the idea of ordering everyday necessities whenever they think about it, regardless of where they’re located. Run out of toothpaste or Cheerios? Just scan the UPC code or lookup the product by name while standing in the kitchen or the bathroom. With a single click, the product will be on the user’s doorstep in two days or less.
Items on PayDragon are sold at everyday retail prices – there are no markups. There’s no minimum orders or tricks either. Because users skip a trip to the store, it’s actually a more capital and time efficient solution.
On PayDragon’s end, the economics are less clear. The company bundles orders to save on shipping where possible, but is willing to lose money on individual transactions in the short term, in order to grow its user base and brand awareness. This great land grab strategy is directly out of the Jeff Bezos playbook and is the epitome of swinging for the fences.
Chan says that his company is regularly seeing multiple follow on purchases made within the 10 minutes of one another among early users. “I’m not sure if this is a good thing or a bad one, but we’ve had several of our beta users tell us ‘It’s a little scary how easy it is to buy things,’” the CEO says in a #NotSoHumbleBrag.
In the big balls move of the decade, PayDragon is actually planning to out-convenience Amazon without even a fraction of the infrastructure. The one-click ordering is a key part of this strategy. Anyone who’s used the Amazon mobile app knows that it can be a victim of its own breadth and that the process from discovery to checkout is more cumbersome than necessary.
“The big challenge we see is making people comfortable purchasing things from mobile phones,” says Chan. “The big ‘Berlin Wall of tech’ that’s going to fall in 2012 is true mobile commerce. No one has built the iTunes for the real world. It’s easy to buy a movie or a song or a book with one click, but not detergent or toilet paper…until now.”
Shockingly, in the early phase, PayDragon will physically purchase ordered items from pharmacies, grocery stores, and big-box retailers, and then ship them out to customers around the country. It built its 5,000 item brand-name product database manually, verifying the availability and price of each in local stores. The startup plans to apply the same strategy for fulfillment, at lease initially.
It’s an enormously inefficient system that will have to be abolished if the company achieves any kind of scale. Chan is well aware of this fact, and tells me that discussions are already underway with major retailers and wholesalers to arrange drop-shipping fulfillment. Should the company get to the point where it’s seeing significant traffic and transaction volumes, the next step will be to pursue channel opportunities like promoting specific brand products through upsells, ad-ons, and the like.
Unlike other popular commerce and service apps like TaskRabbit, Uber, and others, PayDragon isn’t starting out as a geographically limited service (within the US, at least). Users from around the country can download the app and receive the same product selection and free two-day shipping guarantee.
Part of the stickiness-factor Chan has built into the new PayDragon product is its gamification and rewards program. Users will receive points for each purchase. Points are only loosely tied to the dollar amount spent, varying slightly (and randomly) within defined ranges, the goal being to make things “interesting.” After users reach certain levels of accumulated points, they will receive permanent discounts of 1.5 to 5.0 percent on all future purchases.
It’s nothing earth shattering, and many a startup have hung their hat on a gamification strategy that failed to produce, but Chan is confident that the added “fun” combined with the utter convenience will keep users coming back.
The redesigned PayDragon didn’t stop with gamification. The app dug deeper into the startup buzzword lexicon to come up with social sharing incentives. Users can share purchases by Facebook, Twitter, email, and text. This strategy, despite its unoriginality, might actually have some legs.
Recipients will receive a description of the item and a barcode that can be scanned with the PayDragon app to purchase instantly. Users who sign up using a referral code receive a $2 credit for their first purchase. When they make that first purchase, the friend who referred them gets a $2 credit of their own. The first 200 readers who enter the referral code “PandoDaily” upon checkout will get this same $2 credit.
In July of this year, the company announced $1.35 million in seed financing from prominent names that believe in this ambitious vision, including Rustic Canyon Ventures, Ron Conway’s SV Angel, Yuri Milner, and Mark Schwartz.
Whether the company can redefine consumer behavior and can manage manage to avoid going bankrupt along the way is yet to be seen. One thing’s for sure. No one will accuse PayDragon of setting its sights too low.