William Wolfram was 15 years old when he struck on his first successful venture, although as a business it was more of a hack than a carefully constructed enterprise. He would scour YouTube for popular user-generated videos and then offer to buy the accounts for $50 or $100. Because he was so young, his mom had to sign the checks. Then he would take over the accounts and insert affiliate links into the video descriptions. So every time someone watched a wakeboarding video, say, and then bought a wakeboard after following one of those links, he would pocket the referral fee.
Wolfram’s scheme generated half a million dollars worth of sales for affiliate partners, and a fair chunk of change for himself in referral fees. It wasn’t enough to earn him a fortune, but it was decent pocket money for a teenager. Wolfram, who lives in Helsinki, Finland, saved the money and used it to start his first serious company, DealDash, at the ripe old age of 16. That was just over three years ago.
Today, the little-known DealDash has nearly 1 million users, 67 employees, a deal with Best Buy, and last year it did $44 million in revenue, clocking up a profit of about $1 million. For the first three years of its last, DealDash has quadrupled its revenue every 12 months. And, naturally, it’s about to move to Minneapolis.
DealDash isn’t the sexiest of businesses. Essentially, it’s a twist on those shady penny auction sites, in which large groups of people bid for an amazing deal on a desirable product, such as an iPad. On such an “auction,” if 100 people bid $20 on an iPad, one of them will get the device at the bargain price but everyone else loses money. The site picks up the profit. It’s basically a lottery, and not one with good odds. In fact, Wolfram got the idea for DealDash about five years when he lost 50 Euros bidding for a Macbook on such a site. He wanted to make a risk-free version that was fairer to shoppers.
On DealDash, shoppers buy a bunch of credits, which typically go for between 10 and 13 cents each (the site says 60c, but there’s a rolling promotion that drops the price drastically). A shopper can then use each credit as a bid in an auction for a product. Every auction starts at $0.00 and each bid raises the price by 1 cent. There’s a countdown clock for each auction, but it gets reset every time a bid is placed. When the clock eventually runs out, the highest bidder wins the auction. The winner of the auction then gets to keep the item, which is usually 60 to 99 percent cheaper than retail. The losers can get all their bids back if they choose the “Buy It Now” option for the product, which is more or the less the same as what it would cost in a retail store. They only lose their bids if they choose not to buy anything.
Being in Helsinki, home of Rovio (“Angry Birds”) and Supercell (“Clash of Clans”), Wolfram was able to turn advisors in the gaming industry to figure out ways to make the site stickier. He added game mechanics to the site to keep people coming back and to stay engaged for longer. For instance, he added a progress bar on the site that fills up every time you become the highest bidder. When it hits full, you level up, meaning you are entitled to win more auctions each week. The default setting on sign-up is three products worth more than $200 each week. Wolfram says the gamified elements have helped increase engagement six-fold since the site launched, and that users now stay on the site for 57 minutes a time.
DealDash has many competitors, some of which are well-funded. Others have come and gone. Swoopo, for instance, had $14 million in funding, but it shut up shop in 2011. Then there was BigDeal, which raised $4.5 million from Mayfield, First Round, and Foundation. Also dead. Eric Schmidt’s Tomorrow Ventures backed oohilove, but that’s a goner too. Which leaves MadBid, backed by Skype founders Niklas Zennstrom and Janus Friis’ Atomico Ventures to the tune of $6 million, as one of DealDash’s strongest rivals.
Wolfram raised about $2 million for DealDash – again, his mom had to sign the paperwork – much of which came from two key investors, Rovio chairman Kaj Hed, and Carbonite CEO David Friend, who was introduced to Wolfram via one of DealDash’s board members. Wolfram says more than half of the company’s revenue comes from unspent bids, but that the “Buy It Now” feature is important to the business, even if it produces lower returns. DealDash collects referral fees on sales made through the “Buy It Now” button.
While that means the company makes a sacrifice on margins, it also keeps customers loyal. “We figured out a way to retain customers over time, thanks to the strong emphasis on ‘Buy It Now,’” says Wolfram. “Eventually customers stay with us and pay that difference back in loyalty”
DealDash attracts more than its fair share of complaints. Here, for instance, is a long list of people crying “scam!”. And Wolfram is frank about the criticisms. Over the Christmas period, for instance, the company oversold a lot of the auctioned products, which led to a long delay in deliveries. Many unhappy customers didn’t receive the items until after Christmas, which meant DealDash had to pay out a lot of refunds. “We really screwed up in that sense,” says Wolfram.
Wolfram, however, is sensitive to charges that the site scams people. He knew from the start that people would always question the authenticity behind usernames, and whether or not they are really people. The company has a policy that no employees or their family members can bid on the site. It is also audited by Pricewaterhouse Coopers. However, Wolfram does concede that there is something about the model to is too difficult to understand. “That’s something we have to address.” Part of the confusion likely comes from a feature called BidBuddy, which allows users to automatically place bids within the last seconds of the auction clock. To some shoppers, that might seem like an automated bot.
Now, DealDash is preparing to shift its operations to Minneapolis, Minnesota, near Best Buy’s headquarters. The site cut a deal with the retail giant about three months ago, sending a majority of the “Buy It Now” sales to the retailer. Another motivation for the move is that one of the company’s top programmers is based in the city and isn’t keen on moving to another city. Meanwhile, Wolfram plans to hire another 10 people for the US office, and hopes to raise the company headcount to about 100 by the end of the year.
In ordinary circumstances, the move might be cause to break out the champagne. But of course, Wolfram’s not old enough for that.
[Picture from Teemu Arina's Vimeo video]