Deal Radar 2009: Extrabux

Extrabux.com is a comparison shopping website that combines discounts from coupons and cash back to give shoppers the lowest price for any product. The site aims to save shoppers money on everyday purchases by enabling them to search for a product and view all the stores selling that product, along with the final price. The site integrates online coupons, cash-back rebates, and tax and shipping costs to show the lowest possible prices on over 30 million products from over 1,500 top online retailers.

The comparison shopping space is a $3.1 billion market (calculated by extrapolating Shopzilla’s revenues across other engines based on traffic numbers.) Over $22 billion is spent through comparison shopping engines each year.

Extrabux was founded by two friends, Jeff Nobbs and Noah Auerhahn, during their freshman year at the University of Southern California. The original site was officially launched in June 2006 and served strictly as a cash-back and coupon website. Initially, the site achieved limited growth as both founders remained full-time students. But during their senior year, Nobbs and Auerhahn won the 2008 USC Business Plan Competition, took home $25,000, and went on to raise an additional $160,000 for the site.  They then focused on building the site into one of the only online shopping destinations with comparison shopping, coupons, and cash back. Ploughing back the revenue from the original site into its expanded version, Nobbs and Auerhahn were able to hire a four-person development team to construct the site’s new comparison shopping engine.

Through the development phase, the founders leveraged their relationships with retailers to inquire about their desires and frustrations. Similarly, they used online surveys and one-on-one interviews with their more than 20,000 members to ask online consumers the same questions. Through these surveys they were able to discover that online shoppers were frustrated with visiting multiple sites to research coupons and other discounts, compare prices, calculate shipping and taxes, and come up with the final price, while retailers on the other hand, were frustrated by many of the marketing channels available online.

At present, Extrabux has an interim CEO, Robert Nascenzi. Nascenzi is the former CEO of Claritas, a $100 million marketing information services company.  Most recently, he founded ElementOne, a consumer scoring services company and served as COO of TARGUSinfo upon its merger with ElementOne.

Thus far, funding has been through the award, private investors, and an angel round. Strong cash flows from the cash-back and coupon website have also contributed to Extrabux’s growth. In October 2008, the company had raised $160,000 from private investors. In April 2009, Extrabux raised another $90,000 from private investors with Rick Parada, former director of operations at MeziMedia, as the lead investor. In August of this year, the company raised $130,000 in a round negotiated with the Maverick Angels and private investors.  Currently the company is working to fill the remainder of a $350,000 convertible note negotiated with the Maverick Angels. Extrabux is also in talks with several VCs to raise a $1.5 million round to fund its marketing efforts and add to its management team.

The company’s main competitors are leading comparison shopping engines (CSEs) such as NexTag, with 16% market share; BizRate with 12% market share, ShopZilla with 8% share; and others such as Smarter.com, PriceGrabber, and Pronto, all with a market share of 7% or less. Microsoft’s Bing.com is the only CSE that integrates cash back and discounts; but it does not list tax and shipping prices and does not show applicable online coupons. Extrabux lists all three of these pieces of information.

The other part of its competition comes from the vertical search engines, many that we have covered here – TheFind, Retrevo, Wize, etc. In fact, part of the problem I see with Extrabux is that they do NOT have a vertical focus, and it will be quite difficult in my opinion to raise money for a horizontal comparison shopping site. However, if they can do what they want to do without raising money, bootstrap from hereon, and develop some understanding of which verticals are getting them traction, I think they can continue to build a small, profitable business. My main problem with this business idea is that it is a Web 1.0 idea in a Web 3.0 era. A bit late to the game, and needs to be morphed strategically.

According to the company, ninety-eight percent of all online sales are made at the top 2,000 online retailers. Extrabux currently has agreements with over 60% of these retailers. It charges retailers a percentage of each sale it generates, whereas traditional CSEs operate on the cost-per-click model.  Extrabux believes that its cost-per-sale model enables it to deliver the highest discounts to customers. In a review of the top 30 products purchased online, prices at Extrabux were noted to be on average 4-9% lower than on other CSEs. Online retailers choose a commission rate that fits within their profit margin, thereby ensuring a positive return on their advertising spend. By giving some of this commission to the purchasing customer as a cash back rebate, Extrabux utilizes this online retailer marketing method to save its customers money that traditional CSEs cannot compete with. Though the majority of CSEs use the cost-per-click model, only 17% of retailers say they prefer to pay by this method. Each time a comparison shopper clicks on a product in the search results, the online retailer must pay the CSE a minimum of $0.10 to $1 per click, depending on the product category (books, electronics, etc.)

Extrabux is aimed towards the 3 million online shoppers who are currently trying to use comparison shopping, coupons and cash back together but are struggling to do so. Its secondary market is made up of online shoppers who currently use a CSE to compare prices on products. In 2008, 76% of online shoppers in the United States (109 million people) used a CSE and over $22.7 billion was spent through CSEs.  Extrabux’s target demographic is slightly biased toward woman 24-54 years old. Recently, though, there has been an upswing in male shoppers, possibly due to the competitive consumer electronics market and recessionary budget restraints.

At present, Extrabux has over 20,000 members and has built agreements with 2,900 retailers. In the most recent fiscal year the company generated $180,000 in revenue and expects to become cash flow positive by the third quarter of 2010. The company was able to get early traction through search engine marketing (SEM), search engine optimization (SEO), and PR and by reaching out to bloggers and others involved in online shopping communities.

The company’s growth strategy includes driving sufficient traffic to its site to generate further revenue, not an easy task. It also plans to personalize the shopping experience so that it can target customers with specific products and services that they are likely to be interested in, thus lending to product discovery, also not an easy task. The company also hopes to build alternative revenue streams from its consumer purchase data.  Within the next five years, Extrabux expects to be acquired by a strategic or financial acquirer such as another CSE, a credit card company or bank, or a data analytics firm that may acquire Extrabux.com for its consumer purchase data.

Recommended Readings:
Web 3.0 & eBay
eBay’s Auction Woes

This segment is a part in the series : Deal Radar 2009