500friends raises $5 million to focus on “omnichannel.” Really, though

By Richard Nieva , written on March 12, 2013

From The News Desk


For a retailer, it’s easy to pay lip service to the church of omnichannel – the buzzword among merchants that emphasizes syncing up their operations among all platforms, from physical to digital.

But it’s harder to pinpoint what exactly that looks like. The loyalty and marketing company 500friends is hoping to find out. The company announced today that it has raised $5 million in a Series B round led by Intel Capital, Fung Capital and Crosslink Capital. The new funding will go into expanding its efforts to help customers achieve Zen among all their platforms.

First, some background on 500friends. The Y-Combinator company describes itself as a “next gen loyalty service,” and the goal is: in a world where another retailer will never out-discount Amazon, 500friends uses loyalty to try to get the most out of a customer. The company does that by using things like predictive analytics to market to a customer specifically.

For example, if you have an existing customer at a fashion retailer, you don’t want to spam her with coupons, says CEO Justin Yoshimura. Instead, you want to give her exclusive access to a specific fashion line, or invite her to a VIP-only event, or let her meet designers at Fashion Week, he says. Clients include US Auto Parts, and L’Oreal.

Specifically, pumping up its omnichannel capabilities means building out the research and development team, building out its mobile software development kit, expanding its sales and marketing team, and building a platform that supports Android devices. Right now the service is only on iOS.

The most refreshing thing about the company’s foray into omnichannel solutions is that it admits there are setbacks – which means its actually trying. “We’re dealing with traditional major retailers,” says Yoshimura. “There’s a lot of education and hard work involved.”

For example, 500friends has tried some unorthodox things to drive customers to brick and mortar locations while still keeping them engaged on mobile. One of the more creative things the company has done is to create a treasure hunt for customers to find things in stores. 500friends did a test run at an apparel company, and while he says customers were engaged, Yoshimura admits it’s a process because things like treasure hunts aren’t exactly par for the course at big companies. And showrooming is clearly a problem for physical retailers, but the company is trying to combat that with things like price matching – which has become more of a common practice recently.

There are a number of companies that are digitizing the loyalty space, like Belly and fellow YC grads Fivestars. But while those companies focus on smaller businesses, 500friends targets mid- to enterprise-sized companies. Alliance Data is a more traditional competitor. Regardless, the company has its work cut out for it if it will bring all of a retailer’s platforms to a nice equilibrium, especially if Marc Andreessen is right and physical retail is on its way to death.

Yoshimura understands the risk, maybe all too well. His parents kicked him out of his house when he was younger after he dropped out of high school to focus on an online marketplace he started that sold mobile phones – mostly old Razrs and Nokias. And just like with some of those older devices, he knows there’s a patience that has to come with fixing retail: “These things aren’t just plug and play,” he says.