It’s one of those particular technology soundbites that can mean nothing or can signal a lot. Some techs use it when their original idea is clearly spent and they have nothing new to replace it with. But others apply the term to describe a shift after the fact, to try and capture the essence of a change that has resulted in something that is entirely unique.
The latter seems to be the proper application of the term for Vancouver-based RewardStream (TSXV:REW). For a long time, the company was a modestly successful if uninspiring player in the loyalty solutions space. But in 2014, something changed. Rob Goehring, a marketing lifer with big brand experience saw an opportunity for it to move away from its legacy business into a SaaS model that would employ a whole new type of business. Goehring saw trends in marketing, mobile devices and social media that were converging and recognized the opportunity to capitalize on nascent but fast growing referral marketing industry.
Goehring quickly enlisted the help of a management team that boasted experience with companies such as TIO Networks, Contigo, Vision Critical and OpenText and set about replacing legacy revenue with scalable, higher margin offerings. Cantech Letter sat down with Goehring to talk about the company’s positive pivot.
Rob, can you tell us about the history of RewardStream and where it was at when you came in?
RewardStream was originally founded in 1999 as a marketing technology company specializing in loyalty solutions. For the first 12 years the company was solely focused on building custom loyalty programs for large brands, utilizing a common core technology platform. During that time, the company launched many award-winning loyalty programs for financial service, telecommunications and consumer packaged goods brands around the world. Along the way, the company built out one of the industry’s first referral marketing programs for a U.S. wireless carrier. As social media marketing, mobile devices and automated marketing tools grew exponentially, the opportunity for referral marketing began to emerge and RewardStream began to productize the referral marketing solution. During that time, the market for loyalty programs had matured and consolidated around a small number of major players that dominated the landscape. When I joined the company in 2014, RewardStream had a number of loyalty clients running custom versions of our software, along with a number of enterprise referral marketing clients. Given the trends in marketing, mobile devices and social media, we recognized the opportunity to capitalize on the referral marketing segment and focus our efforts on the emerging and fast growing referral marketing industry.
What do you feel is your expertise and why is it the right set of skills for RewardStream?
My education and experience have been focused in marketing, product strategy, and growing early stage companies. When I joined RewardStream the company had an excellent referral marketing platform that had been adopted by some very large, brand name companies. There was a very clear opportunity to take the foundation of the business and begin to grow the client base, while developing a new go-to-market strategy that would accelerate the growth of the business. In order to do that, we had to make changes to the legacy part of the business and recruit a new management team that had experience in growing businesses in the Software-as-a-Service (SaaS) market. I am fortunate to have a solid network of some of the best people in Vancouver, several of whom have now joined the company and are contributing extensively the growth of the business.
The business plan has been to transition to a pure Software as a Service (SaaS) model that delivers more stable recurring revenue, higher gross margins, and opens up to scalable markets…
Your management team has quite a lot of experience with companies most of our readers know. What do you think they collectively bring to the table?
We are very proud of the accomplishments of our team, ranging from experience with companies like TIO Networks, Contractually, PayByPhone, Contigo, Vision Critical, OpenText and more. As a management team we have deep experience in operations, technology, product strategy, marketing, sales and finance – all of the elements required to grow the business. Many of the team members have worked together in previous companies, and as such we have been able to establish immediate trust, as well as the right culture focused on growth. Each member of the team brings a level of professionalism and expertise that will help us scale the business.
RewardStream has been around for a long time and still has no revenue. Why will that change and when?
RewardStream finished off Fiscal 2016 with $1.65 million CDN in top line revenue. While this was equivalent to 2015, what is exciting for the business is that 2016 was the last year of transition for us, as we have historically had a mix of one time, recurring and consulting revenue from both the loyalty products as well as the referral business. Our legacy loyalty product line was more heavily dependent upon consulting service revenue, and required ongoing maintenance that increased our costs of operations and reduced our gross margins. The business plan has been to transition to a pure Software as a Service (SaaS) model that delivers more stable recurring revenue, higher gross margins, and opens up to scalable markets. Since beginning this transition we walked away from legacy revenue, replaced that revenue with new revenue from our referral platform, and have already increased gross margins from 39% to close to 60% in the last two years alone. While we continue to serve and grow our enterprise client base, we are now positioned to expand into the small and medium sized business market, open up new distribution channels, and support a much broader expansion opportunity.
The biggest problem for marketers today is to drive new leads that result in new customer acquisition, and one of the major challenges for consumers is sifting through the noise of marketing and advertising to find products that are truly of interest to them…
Let’s talk about some of the recent deals you have done and the platforms you have integrated with. What about your integration with Shopify’s platform, what do you expect from that?
The biggest problem for marketers today is to drive new leads that result in new customer acquisition, and one of the major challenges for consumers is sifting through the noise of marketing and advertising to find products that are truly of interest to them. Referrals solve the problem for the marketers by enabling consumers to become the sales advocate for the brand, while also helping consumers identify products they want that have the recommendation from a friend. As a result, we are seeing an ongoing expansion and adoption of referral marketing tools in many segments, particularly in E-Commerce. Most of the millions of online e-commerce businesses around the world utilize an e-commerce platform like Shopify, Magento or WooCommerce to host their online store. Our integrations into these platforms make it extremely simple and cost-effective for an online store of any size to launch a branded referral program, while also opening up very large market opportunities for RewardStream. In fact, these three key platforms alone give us access to over 2 million online businesses that could utilize our software, while making it extremely easy for these businesses to benefit from our platform. Our integrations enable these business owners to simply install our “plug-in” into their ecommerce platform, much like installing an app onto your iPhone or Android phone. As we continue to roll out our marketing programs to these platforms, we expect to begin penetrating these markets through the e-Commerce platforms and related distribution channels. In short, integration into Shopify, as well as other platforms, brings distribution, low cost customer acquisition and scalability to RewardStream. Mostly importantly, over time, the integrations into these platforms help us provide more product interest, purchase intent and consumer behavior data to our clients, which in turn helps them grow their business by utilizing our system.
What about your partnerships with Double Your Dating and Scholar’s Choice? Is there a common thread running through those? Are you trying to build out the top of the sales funnel with these deals?
These two deals are good representations of how referrals can be effective for different types of online businesses. The common thread is that both businesses have a strong online presence, with a target audience that shares similar interests and existing, naturally occurring referrals. They have both seen the power of referrals and how happy customers are willing to become advocates for the company. With our program both organizations are looking to automate and scale their referrals both to acquire new customers as well as reward existing customers for the referrals. Most happy consumers are willing to refer a business, yet few actually make a referral simply because the business has no program in place. Our platform makes it easy for a business to launch a branded program that not only captures existing referrals, but also automates and nurtures the process while tracking the referral all the way through to a valid purchase, demonstrating clear return on investment in the platform. As we continue to evolve our product to expand into new markets, these are both good examples of online businesses that have existing customer bases that have a pent up interest in referring the company’s products and services that had been untapped to date. In each of these cases, the businesses represent organizations that are in the millions or tens of millions of dollars of revenue that are seeking to grow through word of mouth and referrals.
Most people like to be considered trustworthy and reliable to their peers, friends and family. As a result, the possibility of appearing to spam friends with unwanted offers can have a negative impact on an individual’s reputation amongst their peer group and prevents people from sending unwanted referral messages…
How does RewardStream keep the purity of the referral from a friend? By that I mean is there a risk that people start referring things they don’t really believe in and that turns the channel into noise?
While there are always some number of “bad actors” in any market, in general, social norms and what psychologists call “reputational risk” protect against this type of behavior occurring. Most people like to be considered trustworthy and reliable to their peers, friends and family. As a result, the possibility of appearing to spam friends with unwanted offers can have a negative impact on an individual’s reputation amongst their peer group and prevents people from sending unwanted referral messages. Across all of our programs, and millions of referrals sent and received, we generally only see a very small handful of people exhibiting referring behavior that we would consider bad. Most of the time, direct complaints from the receiving party to the friend makes this problem disappear, and on top of that, our system has some automated functions and reports that actually detect and prevent this type of behavior. For example, our programs can be configured to limit the number and amount of rewards that can be issued or received by an advocate making a referral in a given time period, or simply to limit or prevent referrals from being sent. Most importantly, the majority of our programs require that a referrer be a valid customer that has made a purchase prior to allowing them to make a referral. This is where our enterprise integrations into back office systems, and our integrations into e-Commerce platforms like Shopify allow us to limit or prevent these actions from occurring, according to the rules set by the client.
What/Who are you competing against?
The competitive landscape in the referral market is interesting, as this is an early, growing market. We compete with companies like Extole, Ambassador and Referral Saasquatch either directly or indirectly in different verticals. We are also competing with other marketing tools that help with customer acquisition, and sometimes with internally built referral solutions. The benefit we are seeing, both in our real world experience and in market research data, is that companies that use an automated, SaaS referral system like ours find their referral program to be their best source of customer acquisition. In addition, these companies are finding that customers acquired through referrals are the lowest cost of acquisition relative to other channels. As that data continues to spread, we are finding adoption of our product to be faster, and the markets are opening up.
What about all the data you collect? Is there a product you have in mind that will be derived from that?
Not to give away too much yet, but yes. We are in a unique position of having a tremendous amount of demographic, psychographic and economic purchase data for our clients and consumers. We take the privacy of our client and consumer data very seriously, and see an opportunity to leverage this data in ways that make finding and purchasing products easier, faster and more rewarding for consumers.
Is there a “typical” RewardStream customer or say a vertical that would benefit most from your offerings?
Today we are leaders in the telecommunications space, and continuing to grow both in financial services and e-Commerce segments. What often defines the “typical” customer include traits that cut across many business segments. For example, our programs perform the best with products or services that have strong customer affinity – we often say that even the best referral program can’t make up for a poor customer experience. So, a good product is number one. Beyond that, products, services, or stores that have regular, repeat purchases or a subscription service do very well, as do products where there is a contract (think cell phone companies), or some other element of “risk” associated with the purchase, where a recommendation from a friend helps reduce that purchase risk.
What kinds of things do you want to accomplish in the next year?
For RewardStream, 2017 is about expanding our distribution and reach, and beginning to leverage our growth channels with the likes of Shopify and other platforms. We are continuing to open up new markets that we would like to expand further into financial services and e-Commerce where we see tremendous untapped growth opportunities.
Disclosure: RewardStream is an annual client of Cantech Letter