Zixxo's CEO Talks the Start Up Process and Disrupting the Coupon Space
(This is the 7m 45s version (1,800 words). For the weary-eyed, attention-crunched, and the unappreciative of gratuitous brilliance I'll have a 1m 30s version out soon ;)

Coupons. I use the postcard coupon that Valvoline sends me for 5 bucks off my oil change, but that's about it. I don't get the newspaper, and have never been a coupon clipper.

Thanks to Zixxo, I've had the chance to dig into *another* industry I know nothing about (most recently it was the print Yellow Pages...), and further, to really crunch on what a coupon means in the relationship between buyer and seller.

Zixxo's a 3 year old company that enables users to search for and subscribe to coupons in RSS. They got buzz in April (links at end of article) for being a coupon distributor, publisher, destination site, and enabling users to rate coupons and companies.

Zixxo's Mike Hogan pinged me recently to see if I'd be interested in learning more.

I asked my standard "why should we (the industry) give a crap about you" questions - what's your background, who's written about you, who's going to be writing about you.

His background was very compelling - he

"worked for Novell in Corporate Development where I did a partnership with IBM for co-branded distribution, I created the directory strategy and licensed the directory to IBM, SUN, HP, Fujitsu and others. Then I ran Business Development and Strategy at Poet Software. I got the company into XML, wrote the first business white paper on XML ever in 1997 (before it was a standard), led the company into B2B eCommerce and we took Poet through IPO. Then I opened Japan for the company."

He told me to check his site for current write ups, and said Michael Arrington had showed strong interest. So I pretty much shut my mouth and whipped out some interview questions.

I'm no Brian Smith, so I'll leave it to *him* to say where Zixxo fits into shopping search historically.

Zixxo, to me though, fits into the shopping search space in the way that Jellyfish does, by putting shoppers and sellers into more direct and meaningful contact.

In fact, all I could keep thinking as I reread Mike's interview this morning was "Zixxo + Jellyfish" ;)

Mike Hogan's answers below not only show Zixxo's compelling business model, but shed some light on the start up process in general.

BIG THANKS to Mike for his prompt and illuminating responses, which he sent back to me from his vacation, and I did NOT post during my vacation.

***Hogan's Background***
what experiences in your professional background have you found yourself drawing on the most heavily in zixxo?
I do everything but code. On the drive yesterday, I was writing a patent application.

Starting a company you do things in phases.

Phase 1: product definition, business model, product management stuff.

Phase 2: Outbound marketing and PR.

Phase 3: Business development and sales and fund-raising…soon international market development.

Basically I use everything I've learned but I do so in phases.

how did you become interested in this space?
Long story, but I was a big XML guy and thought we could add more structure to free classifieds (think Craigslist where you could search for cars based upon tags like make, model, year, mileage, etc.).

But how to make money in local… hey how about coupons. Then we realized that free classifieds are, well free, and everyone was doing them and Craig was huge so why not focus on where we are unique.

So we became the AdWords/AdSense of coupons.

***Zixxo's origins, the team itself, starting up***
where did the name zixxo come from?
We wanted a new word so we could create the brand.

At the time the major Internet brands were Yahoo, Google, Kazaa. They all had 2 syllables and double letters. A study a while back said that double letters are very memorable and the double X's the most memorable. The company that funded that study became Exxon ;)

So we wanted 2 syllables and double X's. We also like the "Z" because it is the least used, and therefore most memorable/odd letter. Then we could get all of the local and foreign domain names…winner!

How long have you had zixxo, and what does your team currently look like?
We've been working on ZiXXo for 3 years. My team looks ugly (led by me). But seriously, we have a design/development guy, three core developers, an operations/NOC guy and me handling everything else.

How did this team form? What does your geographical location have to do with your team that has formed?
It formed based upon past working relationships. We all worked at Poet Software together, except 2 developers who came through a relationship with one of our team. Geography had nothing to do with it, quality had everything to do with it. One developer is in NJ, the rest are spread around the Bay Area.

what has been harder thus far with zixxo than you anticipated?
Funding. It appears that once one company in the segment is successful, it is easy to get the second and third ones funded. But get an original company funded is tough. I'm also very focused on building a great service and funding takes a lot of time.

what has been easier?
Evolving the product. Our team is great and when I have an idea, they really jump on it and build it, often times when I'm still just discussing an idea…boom it's built.

***coupon industry***
please describe/explain the coupon industry. (is the yellow pages industry analogous?)
Please see our media center facts and stats.

Basically 88% of the coupons are national and delivered through the newspaper because using a 1% redemption fee it costs about 30¢ per redeemed coupon. Local couponing is far too expensive due to distribution costs (postage). Consider a simple postcard, presorted at a rate of 29¢ per piece. With a 1% redemption rate that means $29 per redeemed coupon. Hello Internet, goodbye costs. And you can do so much with coupons to drive favorable consumer behavior (not just 10% off) see here (you'll love this one!).

what do newspaper ad insert partnerships or conversations/contacts do you have?
We just came out of hiding with our syndicated coupon solution in late April. We are in talks with all of the large yellow pages folks and most search engine/portal folks. We are in talks with the big newspaper FSI folks (both the big guys in various degrees) and just starting to hear from the newspapers.

what industry do you think you'll be/are the most disruptive of?
Tough call. We could disrupt online advertising because coupons blur the line between content/ads. The coupons get integrated into the organic results, not the little used ad gutter. We totally disrupt local direct mail couponing.

With our API, coupons can be integrated into maps, yellow pages, blogs (a la affiliate links), everything! We could disrupt yellow pages, but really they reinforce print and online ads by reinforcing the success of those ads on a daily basis in the merchant's mind.

Basically, it sets up a sort of coopetition (to quote Ray Noorda) in most areas, except direct mail couponing.

***Zixxo now***
your current partnerships:
We don't have anything we can announce yet, but online/offline yellow pages and portals/search engines.

your sales force:
we use an affiliate model. You can register as an affiliate and see our tools…very comprehensive.

We provide all sorts of banners, email signature file, email content, text ads, articles, etc. Since we share revenue, all partners can act as affiliates.

your growth strategy in general:
grow big fast! ;)

We provide a white labeled version, so big companies can offer a solution "powered by ZiXXo" that looks like their own. This, in combination with our API and affiliate revenue sharing can really power our growth.

We also built the service to be internationalized and localized and we can't wait to go into Japan, China and Europe, where we have experience as a team.

Your API - is this operational now?
Yes.

What uses of your API have you seen thus far?
We just released it and announced it. People are playing with it now.

Who's expressed the most interest?
The big guys want to integrate coupons seamlessly into their search results (local) and maps.

what zipcodes have adopted the most quickly?
The Bay Area is the early adopter based on our location, support from folks like TechCrunch and the technophiles in the area.

have local or non-local adopted your model more quickly?
So far it is a mix. The webstores tend to be technically savvy and cutting-edge, but we get a nice mix.

***Zixxo in the future***
coupons on cell phones, by sms - what if I don't have a printer?
Absolutely! We're working some partnerships now.

partnerships:
merchantcircle.com: they reached out to us recently
yokel.com: not yet, unfortunately I'm in reaction mode now because of the large number of contacts.
naymz.com? same as above (not yet)

***API***
Discuss the API concept (not YOUR api, just the concept in general) briefly - I'd like to hear the concept described by someone with your experience in architecting and executing partnerships...

APIs are huge (just ask Microsoft). Once people integrate, they don't easily rip it out.

But generally speaking we want to be the service for coupons that all website and web applications use. But those companies want to own their customer relationships. Our model is very focused on enabling our partners to own the advertiser relationship (through white label or co-branded solutions) and the consumer relationship through seamless integration of coupons into their solution. The API makes everything seamless and avoids the "ownership" conflict.

It also allows our coupons to be in the content instead of relegated to the ad gutter.

What APIs in our industry have caught your attention, were inspirations for zixxo?
Flickr, Del.icio.us and Google Maps.

***the nature of the coupon***
what makes these coupons - why are they not simply ads?
By delivering consumer value through a promotion. We make it clear that they must offer some value. Then we enable consumers to rate the coupons (by value) so if your coupon offers no value, you'll get a low rating and people won't look at it. In that sense it is self-reinforcing to offer a good value.

Then our API allows sites to pull coupons based upon their rating among other things.

***RSS and consumers***
consumer rss adoption - who's driving it the best right now from the rss reader perspective? what reader is most popular with consumers using your coupons?
I don't know which reader is the king, but we have gotten raves for our ability to generate customized RSS feeds (or emails) by location, interest, keyword, coupon-type, etc.

Other recent coverage:
ZiXXo, Your 2.0 Coupons
A Conversation With ZiXXo
Attention, Local Retailers. ZiXXo is Here to Help You Sell More.
RSS Feeds Coupon Hunters
First thoughts on the ZiXXo API for local coupons

Follow up questions for Mike:
How have you paid yourself and your team for the last three years?

What is the nature of a coupon? What is it transactionally? When does it work? When does it not work? Who should have coupons who don't use them now? What are coupon creation best practices?

Users can search by coupon ratings - how will you prevent sellers from voting for themselves?

How do you incent ratings and votes by users?

How can an API/affiliate strategy really give you the penetration you need in the local market place?

Dear Reader leave your questions in the comments, should you have any.
Garrett French - MarketSmart Interactive | permalink | +marktd |