Daily deals have exploded into a $4 billion industry almost overnight because there’s no shortage of merchants who would like to lure online customers into their real-world establishments. But the industry has hit turbulence because it’s struggling to find a model that works for both merchants and the intermediaries setting up the deals systems.
Enter Wrapp , a Swedish startup created by the former CTO of Spotify and the founder of Rebtel, the world’s largest independent VoIP company. The company’s next-generation voucher business--which is based on gift cards--may finally have come up with a solution that works for both merchants and the technology intermediaries.
Wrapp, a mobile app that lets people send gift cards to friends, is not a deals company. But it is using discounts to deliver customers--especially the specific demographics individual merchants want--into brick-and-mortar stores.
The app launched in Sweden two weeks ago, and though Wrapp executives won’t release specific performance numbers (of downloads, for example, or numbers of gift cards bought), it does point to two proof points. The app quickly became the number-one social app in Sweden. And, says Hjalmer Winbladh, the Rebtel founder and now Wrapp CEO, within a week of launching, 50 major Swedish brands were banging on the company’s door demanding to be included in the system. (Wrapp launched with just 12 merchants, including apparel stores and the Swedish equivalents of Home Depot and Crate & Barrel.)
“We were afraid merchants wouldn’t get it,” Winbladh tells Fast Company. “We’re pleasantly surprised at how willing they are to do it.”
The company launched earlier this year and includes cofounder Andreas Ehn, formerly of Spotify, spearheading the technical side, and Carl Fritjofsson, a former advisor to Groupon Sweden, heading up operations. Fabian Mansson, the former CEO of Eddie Bauer and of H&M, is an advisor.
Ehn and Winbladh have just started reaching out to merchants in the United States and England, and they say they hope to launch a version of the service in this country before Christmas.
Here’s how Wrapp works. Merchants can specify the type of gift card they want to offer--just a typical gift card where the customer specifies the value, or one that comes with an amount of “free cash” (determined by the merchant), like, for example, $10 for a women’s boutique.
The merchant also gets to decide who they’d like to target, by limiting the card to recipients who fit a certain demographic, like, for example, women 25-35 in the boutique example above.
“Retailers know exactly who their target audience is--their favorite customers to get in the store,” Winbladh says.
Now, let’s say your friend Laura’s 32nd birthday is coming up. You decide to get her a gift card. You open up your Wrapp app and click on Laura’s picture. (The app populates the app with your friends from Facebook--that’s how Wrapp solves the problem of knowing a recipient’s demographic attributes.)
Wrapp displays all the gift cards that someone with Laura’s demographic characteristics is eligible for. One from a shoe store, for example, that’s offering $5 in free cash. One from a major department store that’s offering $15. And one from the boutique. You select the boutique card and, because it’s Laura’s birthday, you add another $40 to the card. Then you send it to Laura (Wrapp uses SMS). Laura gets the link, downloads the app, gets the gift card, and heads off to the store to redeem it.
In this way, Windbladh says, everyone’s happy: You got Laura the gift card you wanted to get her anyway--but more easily and cheaply than if you’d gotten a conventional gift card. The boutique is happy because someone from their target demographic is walking through their doors. And Wrapp is happy because they, too, are making money.
Plus, since you jacked up the value of the card, the store has already brought in money on the deal. That doesn't always happen with daily deal vouchers, where some customers never spend more than the voucher amount itself. And if Laura buys something that costs more than $50, the store will bring in even more.
“Think about it as an AdWords system” in that the merchant gets to select the customer they want to target, Winbladh says. But it’s a system in which the merchant “only incurs the cost when the customer is actually at the register.”
Winbladh declines specify the size of the opportunity presented by a model like Wrapp, saying it’s hard to make such assessments when you’re introducing a model that’s never existed before.
But Wrapp notes that gift cards are a $100 billion business in the U.S. and, according to the National Retailers Association, they’ve been the most requested gift in this country for four years running.
Wrapp also has a social dimension to it, which Windbladh thinks will be even more attractive to merchants. People can notify Facebook friends about the gift card they just bought and invite them to join in. In the above example, you could post to Facebook about the card you got Laura, and her other friends could toss more money onto the card, further increasing the amount Laura gets for her gift and giving her friends an easy way to get her a present.
The group aspect clearly makes sense for gifts that already would have been group-ified, like the card to a baby store for expectant parents that you and your far-flung friends were planning to get anyway.
But Windbladh thinks that the capability will inaugurate a much wider gift-giving culture that would have you, for example, tossing in a few bucks on a card for someone you otherwise might not have been thinking about getting a present for, simply because it would now be an incredibly simple thing to do.
Also, since you can essentially give a card for free (if you hadn’t added any money to Laura’s card, for example, you still would have been able to give her a $10 gift certificate at no cost to you), Windbladh believes people will start using Wrapp to send thank-you’s and little gifts of recognition to friends in ways they don’t necessarily do today.
And merchants are willing to pony up the cash for those gifts--and essentially give away money, as they now do with daily deals--Windbladh says, because, at its core, Wrapp helps solve a key problem that the deals business continues to struggle: How to use discounts to bring in not just any old bargain hunter, but the specific customers individual merchants are looking for.
“A lot of brick-and-mortar retailers feel increasingly threatened by e-commerce,” Winbladh says. “They see that e-commerce has great tools to draw people to their online stores and then convert them into paying customers, while the brick-and-mortar stores are stuck with dying newspapers, direct marketing which puts something in your mailbox that you never look at, and TV, which is very expensive and has no targeting capabilities.”
“We asked them, ‘If we can help you get your favorite customers into the store and actually purchasing something, are you willing to share acquisition costs?’” Winbladh says. “Of course, everyone was very keen.”
Read also: The Future Of The Present 
[Image: Flickr user stevendepolo ]