Seth Priebatsch believes puzzles and challenges have the power to change human behavior. A lot of very smart tech investors believe Priebatsch and his Cambridge company have the power to change the world.
In the fall of 2007, Seth Priebatsch headed off to Princeton and, a few weeks after arriving on campus, learned about the school‚Äôs annual business-plan contest. Before Priebatsch even entered, he likes to boast, he knew he would win it.
There was good reason for his optimism. Priebatsch was 12 years old when he started his first company, Giftopedia.com, a price-comparison website that helped users locate good deals. (He found the site‚Äôs programmers while on a family vacation to India.) At least twice while at school, he had to run out of class to deal with server outages. ‚ÄúI explained to my teachers calmly that I really had to leave and take care of this,‚ÄĚ he recalls. Priebatsch sold off most of the company when he was 15, and the Web address when he was 17. Then, as a high school senior, he launched his second startup, PostcardTech. This one created and distributed promotional CDs for universities and tourist destinations. He rented out a factory in China ‚ÄĒ which is ‚Äúway easier than it sounds,‚ÄĚ he says. ‚ÄúDo a bit of research, get the right numbers, fire up Skype, dial.‚ÄĚ (He still owns PostcardTech, though he has no involvement in running it.)
For the Princeton competition, he decided on a proposal for a company that would use text messages to lead mobile-phone-based scavenger hunts. After hashing out the idea with a professor, Priebatsch drew up his plan. And, as he‚Äôd predicted, he won. When the $5,000 prize came in the form of a giant poster check, Priebatsch ran to the nearest Bank of America and made a big scene of trying to jam the check into an ATM. It was a grand time, he says, until ‚Äúthey called the police and we had to leave.‚ÄĚ
Three years later, Priebatsch‚Äôs freshman-year business plan has blossomed into arguably the most-talked-about young tech company in the country, the Cambridge-based SCVNGR. These days, Priebatsch, who is 22, is as well known for his engineering wizardry as his, um, youthful energy. He rides a scooter around his office. He unloads Nerf guns on his unsuspecting employees. He always wears orange sunglasses and, like a cartoon character, dresses himself in the same outfit every day: an orange shirt (an ode to Princeton, and without a doubt a branding ploy as well).
He is often barefoot, too. He greets friends barefoot. He greets journalists barefoot. He even greets clients barefoot. That‚Äôs the type of thing you get to do when you drop out of one of the best schools in the country after just one year to start a company that quickly scores VC funding from high-roller investors like Highland Capital Partners and Google, and today is estimated to be valued at $100 million. You also get to call yourself ‚ÄúChief Ninja‚ÄĚ instead of CEO. And you apparently get to use vowels only when you want: SCVNGR is pronounced ‚ÄúScavenger.‚ÄĚ Finally, you get to deliver one of the keynote addresses at the 2011 South by Southwest tech conference ‚ÄĒ the same keynote given three years earlier by another Ivy League dropout, Facebook founder Mark Zuckerberg.
Priebatsch‚Äôs company produces smartphone apps designed to draw people to businesses and then build consumer loyalty. Basically, the SCVNGR app is meant to engage users in games and challenges ‚ÄĒ at, say, a local bar ‚ÄĒ that earn customers discounts and freebies. The idea is that app users will eventually become regulars at the bar.
Priebatsch spends nearly every waking moment thinking about SCVNGR, and rarely leaves his office near Kendall Square. When I go to meet him there, he bursts out from behind a wall ‚ÄĒ ‚ÄúHey!‚ÄĚ ‚ÄĒ and strides toward me much too quickly, as if he‚Äôs competing in the Olympic power walk. Leading me on a tour of the office, Priebatsch shows me the spot under his desk where he routinely unfurls a sleeping bag at night. He doesn‚Äôt have an apartment, so he spends his evenings at either SCVNGR or his parents‚Äô house in the Back Bay, where he sleeps in his childhood bedroom, complete with glow-in-the-dark stars on the ceiling. For a man who gets people at bars to play games, he does not have much of a social life. His father, Norman, says he‚Äôs not sure what Seth‚Äôs up to on those nights he doesn‚Äôt make it home, but ‚Äúall I can tell you is, it ain‚Äôt with a girlfriend.‚ÄĚ The son, though, shrugs it off, noting in his faint South African accent (Norman is from South Africa) that female companionship ‚Äúlessens efficiency.‚ÄĚ
Priebatsch‚Äôs single-mindedness stems from his absolute conviction, shared by many others, that what SCVNGR is building will do nothing less than change society‚Äôs behavior. He starts to unpack this thought as he shows me SCVNGR‚Äôs main conference room. It‚Äôs an airy space, with openings at the corners of each of the four bamboo-paneled walls and a round table in the middle. A shiny black globe, tilted on its axis, sits at the center of the table. Priebatsch thinks SCVNGR can grow to be a billion-dollar company, and seems to be only half-joking when he says the conference room ‚Äúis used to plot world domination.‚ÄĚ Indeed, Priebatsch is on a very specific mission. He will not stop, he says, until SCVNGR ‚Äúbuilds a game layer on top of the world.‚ÄĚ
So just what is a game layer, and why does the world need one on top of it? Priebatsch explains that the past 10 years have been dominated by social media providing people with a way to have the social interactions they already want. Facebook, for example, makes it easier to connect with your Aunt Edna in Kentucky or keep up with your college buddies. The next iteration of social media, Priebatsch believes, isn‚Äôt about helping people do what they want ‚ÄĒ it‚Äôs about influencing them to do what you want.
So how do you do that? Priebatsch has devoured the academic literature on game mechanics, identifying individual dynamics that can affect behavior. Some are as simple as what he calls the ‚Äúappointment dynamic,‚ÄĚ which involves giving people a reward for being in the right place at the right time, such as with a happy hour. Others are more complex, like the ‚Äúvariable interval rewards schedule‚ÄĚ dynamic, which holds that rewarding people on an irregular basis will keep them working at a more consistent rate than rewarding them on a fixed schedule. The game-dynamics theory boils down to this: A little extra motivation can influence your behavior in ways that perhaps you don‚Äôt even realize. Leveraging those dynamics properly, Priebatsch believes, can do everything from improve education to help solve global warming.
For the moment, though, SCVNGR is focused on driving commerce. Let‚Äôs say I‚Äôm walking down Mass. Ave. and open up the SCVNGR app on my smartphone. The app figures out where I am and displays all the nearby dining deals. B.Good, for instance, would pop up as one option, and, if I selected it, the app would display several games I could play there to earn points toward discounts and free stuff. Just checking in ‚ÄĒ announcing to other SCVNGR users that I‚Äôm at B.Good ‚ÄĒ earns me one point. Checking in while with another SCVNGR user gets me two. It goes deeper from there: If I locate an employee named Jimmy and take a picture with him, that‚Äôs five points. Making up a name for a burger gets me two. Earning 25 total points earns me a free burger. If I want, I can even design my own games for other users to play. And if I‚Äôm doing that, then B.Good hopes it‚Äôs got a new regular.
Major corporations and institutions also contract with SCVNGR to design custom games. Jewelry stores have partnered with the company to lead couples on races to find diamond rings hidden in cities. The U.S. Navy, Warner Bros., Coca-Cola, the Patriots, the Celtics, and MIT are among SCVNGR‚Äôs 1,500-plus clients. The top ones pay the company $250,000 to $500,000 per year. (Full disclosure: This magazine‚Äôs marketing department has a SCVNGR challenge. I‚Äôve never played it and can‚Äôt say whether it‚Äôs any good.)
The SCVNGR app has been downloaded more than a million times, and Priebatsch reports that revenue is increasing at a rate of about 20 percent per month. Tom Hopcroft, president of the Mass Technology Leadership Council, a sort of chamber of commerce for the tech set, says that what Priebatsch is doing is ‚Äúa really clever idea. I don‚Äôt know if the gaming layer is the next big thing, but he‚Äôs certainly a presence.‚ÄĚ
Indeed, for all the business‚Äôs promise, SCVNGR and its Chief Ninja face ever-larger problems. Ted Morgan is the CEO of Skyhook Wireless, a company that makes the technology by which mobile phones locate themselves. Skyhook is a third-party operative for many operators in the daily-deal tech sector. He says that for SCVNGR to really grow its business, it needs a large ad campaign. And it won‚Äôt have that until ‚Äúit has 5 to 10 million downloads.‚ÄĚ Complicating matters is the fate of the social-media/daily-deal sector itself. It is, many analysts believe, effectively sitting in the middle of an economic bubble. Umair Haque, director of the Havas Media Lab, wrote in the Harvard Business Review last year that any connection created over social media is weak and artificial, and not prone to prove a lasting relationship for either party. What‚Äôs worse, the quickly converging daily-deal space is overloaded with industry leader Groupon; wannabes such as Gowalla, LivingSocial, BuyWithMe, and ScoutMob; and initial forays into the market by behemoths Facebook and Google. All of these companies are dying to cash in with deals that are likely too good to be true: A recent study from Rice University found that 32 percent of Groupon‚Äôs vendors lost money and 40 percent of them said they wouldn‚Äôt partner with Groupon again. Even investors in mighty Facebook dumped more than $1 billion in shares off the secondary market in April, for fear that the company, and the sector it spawned, is overvalued. The consensus in the tech world is that if and when the bubble bursts, only a few of the current players will survive.
All of this uncertainty raises a very big question for SCVNGR: Can Seth Priebatsch, a guy who barely leaves the office and goes shopping only when he needs an orange T-shirt, get everyone else to spend their money the way he wants them to?
I’ve actually known Priebatsch for a long time. I was a classmate of his sister, Daniella, in middle school and high school, and Seth was just four years behind us. I rarely (if ever) spoke with him, but we spent two years on the same Noble and Greenough campus in Dedham. I remember three things about Priebatsch: He ran pretty much everywhere; because of this, everybody at the school knew who he was; and the older kids called him ‚ÄúPip.‚ÄĚ (A former cross-country teammate of his explains: ‚ÄúWe were looking for something that said young British chimney sweep.‚ÄĚ The subtleties of the English and South African accents were apparently lost on the group.)
Pip was an excellent student at Nobles, perhaps because his parents had been pushing him hard (‚Äúencouraging‚ÄĚ him, in their words) since birth. Norman, a biotech entrepreneur, says his son was reading by age three or four, and that he taught the youngster to read pages upside down as a challenge. Moving past the standard children‚Äôs fare ‚ÄĒ which Norman found boring ‚ÄĒ the two tackled biographies, history, and other advanced subjects. Seth developed a particular fondness for the stories of Hannibal of Carthage and the French Revolution. In the Priebatsch household, TV was a no-no.
The family traveled extensively. There were trips to England, France, Italy, Israel, Spain, India, Japan, Thailand, and Australia, plus annual treks to Norman‚Äôs native South Africa. On each journey, the children had to keep journals chronicling in ‚Äúexcruciating detail,‚ÄĚ as Priebatsch puts it, what they‚Äôd seen and done. ‚ÄúIt was like ‚ÄėOh my God, I‚Äôm in Australia and instead of being on the beach, I‚Äôm doing
6 to 10 hours of writing.‚Äô‚ÄĚ
But in the Priebatsch family, good behavior brought rewards. ‚ÄúWe had this cheesy star system,‚ÄĚ Priebatsch says, explaining how his parents awarded him credits for cleaning his room or doing homework, and yanked them away for fighting with his sister. ‚ÄúI lost a fair amount of stars that way,‚ÄĚ he says. When he earned enough, though, his parents gave him the money to buy a toy. From an early age, then, Priebatsch learned that game structure could be an effective way to influence behavior. His mother, Suzanne, a financial adviser at Smith Barney, used to take the kids to the Museum of Fine Arts. ‚ÄúAnd in order to keep them entertained, we did mini scavenger hunts,‚ÄĚ she says.
So by the time Priebatsch got to Nobles, in seventh grade, he had an unconventional appreciation of the world. English teacher Richard Baker says that in his 40 years at the school, he‚Äôs never taught anybody else quite like Priebatsch. ‚ÄúHe‚Äôs unique,‚ÄĚ Baker says, ‚Äúin the sense of energy, in the sense of entrepreneurial interest and skill.‚ÄĚ
The problem was, Priebatsch knew that. Of some of his teachers he says: ‚ÄúTheir domain expertise was weak at best. Their teaching style was acceptable but not exceptional by any means. And I‚Äôm sure I was difficult to them.‚ÄĚ
Throughout high school, Priebatsch always seemed to be putting another business plan into action ‚ÄĒ and not all of them of the high-tech variety. Influenced by a story in the book Freakonomics in which a guy made a bundle selling bagels on the honor system, Priebatsch decided to open an ‚Äúunderground snack bar‚ÄĚ at Nobles. First, he rented out three lockers in a prime location. ‚ÄúI would just hang out,‚ÄĚ he recalls, ‚Äúand when people would open their locker I‚Äôd be like, ‚ÄėHey, you‚Äôve got a really nice locker. If I give you 50 bucks, can I have your locker for the month?‚Äô‚ÄĚ He then stocked them: One locker was for chips, another for candy, and the third was packed with ice for cold drinks. Next, he e-mailed the locker combos to his friends, telling them to just pay for what they took. He says he made $200 on the first day and $600 on the second. On the third he was called into the provost‚Äôs office and told to shut it down.
After high school, Priebatsch headed off to Princeton. But he didn‚Äôt stay long. The summer after he won the school‚Äôs business-plan contest, a tech incubator in Philadelphia called DreamIt Ventures offered him office space and guidance ‚ÄĒ and $35,000 ‚ÄĒ to come and further develop his plan. Michael Hagan, a veteran of two startups, worked at DreamIt as a strategist, helping young entrepreneurs find their way. He says that when Priebatsch first explained his vision for building a game layer on top of the world, ‚ÄúI thought it was so nuts ‚ÄĒ that it had such balls that you couldn‚Äôt help but get excited about it.‚ÄĚ The two began working to grow SCVNGR, and by the end of the summer had reeled in about $80,000 in revenue.
With the business doing well, Priebatsch decided to drop out of Princeton. This did not thrill his mother. Suzanne Priebatsch was walking down Newbury Street when she got the call from her son. ‚ÄúMy instinct was to fall upon the ground and flail,‚ÄĚ she says, ‚Äúbut it was a rough sidewalk.‚ÄĚ
When the 19-year-old Priebatsch moved the company to his hometown of Boston, Hagan, a Philadelphia native then in his late twenties, followed. He became SCVNGR‚Äôs ‚ÄúChief Rockstar‚ÄĚ (that‚Äôs COO to the rest of us), and moved into Priebatsch‚Äôs parents‚Äô house for a few months until he found a place of his own. That was not Norman and Suzanne‚Äôs only contribution to the company: They plowed in $60,000 (still considerably cheaper than three more years of Princeton), making them two of their son‚Äôs biggest early investors.
SCVNGR‚Äôs big break came one Saturday morning in the fall of 2008, when Priebatsch received an e-mail from Peter Bell of Highland Capital. Highland, which has invested billions in companies over the years, is one of the most respected venture capital firms in the industry. Bell had read a story about SCVNGR on the website Mass High Tech and was so impressed that he did something he rarely does: cold-call an entrepreneur. It was as if a Red Sox scout had, without warning, suddenly showed up at a youth baseball game.
Soon after, Priebatsch delivered a pitch to the Highland board at the company‚Äôs Lexington headquarters. Highland eventually gave SCVNGR $750,000 in funding. In typical form, Priebatsch inserted a clause into the deal saying that the cash had to be delivered to him on a poster-size check, even bigger than the one he‚Äôd received from Princeton. This time, instead of jamming it into an ATM, he hung it up in the office.
By the end of its first fiscal year, SCVNGR had cleared more than $1 million in revenue. By its second year, Rich Miner ‚ÄĒ one of the men who invented Google‚Äôs Android operating system ‚ÄĒ had invested $4 million of Google‚Äôs money in SCVNGR. And by the end of its third year, 2010, the company had moved to Kendall Square ‚ÄĒ and had raised $15 million more in VC funding.
SCVNGR now employs 54 people, with plans this summer to add 60 more interns to help it scale up quickly. Each one will be armed, Hagan says, with the standard-issue Maverick REV-6 Nerf gun. That type of quirk, of course, is all part of the Priebatsch brand. It‚Äôs the same reason he always wears orange and loves talking about lugging around 19 cell phones and the cacophony that erupts whenever he gets a call. (All the phones are so he can be certain the SCVNGR app is operating properly across all platforms.) He has merged himself and SCVNGR into a single, hyperenergetic entity. ‚ÄúThere‚Äôs an element of myth-building in Seth, in that while the things he says are true, there‚Äôs also a sophisticated sense of image-building,‚ÄĚ says Baker, his high school English teacher.
When Priebatsch took the stage for his South by Southwest keynote address, wearing his trademark shades, orange polo shirt, and jeans, expectations were high ‚ÄĒ because he‚Äôd raised them. ‚ÄúThere‚Äôs one thing that will blow everyone‚Äôs mind,‚ÄĚ he had told the website Mashable.com before his speech. ‚ÄúThe concept is brand new and if it works it will be one of the most epic things that has ever been done.‚ÄĚ
That thing was a game he‚Äôd designed for the audience of roughly 3,000. Each person was given a randomly colored sheet of paper. At the end of his speech, he instructed the crowd to trade sheets so that everyone in each row held the same color paper. If they could do it in less than two minutes, he‚Äôd donate $10,000 to the National Wildlife Foundation. The audience did it. Priebatsch was pumped: ‚ÄúThat‚Äôs freakin‚Äô awesome!‚ÄĚ he exclaimed, going on about how the game illustrated that people who don‚Äôt know one another can come together for a common purpose. The crowd was less excited: There was polite clapping and a few whoops, but the reaction seemed roughly that of a school group that had just been forced to play an educational game.
Then again, maybe they were already in a skeptical frame of mind. Earlier in the speech, Priebatsch had argued that his game layer could be used to overcome such intractable problems as climate change and the nation‚Äôs struggling schools. Games, he insisted, are the tools of a reformist revolution. And there lies the fundamental disconnect with Priebatsch. He talks with messianic fervor about how game mechanics can help solve the world‚Äôs ills‚Ä¶but so far he‚Äôs only offering cheap deals on burgers.
And getting those cheap burgers isn‚Äôt even any fun. I‚Äôm as ambivalent about the SCVNGR app as the crowd was about Priebatsch‚Äôs paper-trading game. I‚Äôm just not inclined to go to a bar and pull out my phone to take a picture of my food, or take the time to answer inane questions, all in the name of getting two points toward a free drink. Other people seem to like it ‚ÄĒ the app‚Äôs average rating at the iTunes store is three out of five stars ‚ÄĒ but I feel too self-conscious playing it. I wonder what that girl across the caf√© or at the end of the bar would think of me going around like a doofus, trying to get my photo taken with an employee. Besides, many of the challenges on SCVNGR are very basic and, frankly, not that exciting. One game for the Toscanini‚Äôs ice cream shop, for instance, just asks you what your favorite flavor is. Not exactly a brain-bender. You can almost feel yourself being manipulated by SCVNGR‚Äôs partners.
When I told Priebatsch I didn‚Äôt really like the app, he understood my frustration. He could see how some people might not want to be playing a game all the time. ‚ÄúA large portion of people [who] were playing SCVNGR didn‚Äôt quite get it,‚ÄĚ he said.
He‚Äôs recently launched another app, which debuted in Boston and Philadelphia, called LevelUp. It‚Äôs designed to build customer loyalty in people like me, who aren‚Äôt quite as into games. It works like this: Boloco, say, offers a deal where you get $10 worth of food for $5. Acting on that deal unlocks another in which you get $25 worth for $10. After taking advantage of that deal, you can get $45 worth for $15. I like LevelUp because, although it utilizes Priebatsch‚Äôs game mechanics ‚ÄĒ the dual incentives of advancing levels and gaining rewards ‚ÄĒ it‚Äôs not actually a game. It‚Äôs a transaction. And one that Priebatsch thinks will work better for vendors than Groupon has. Groupon‚Äôs partners complain not only that the site‚Äôs deals don‚Äôt always lead to repeat visits, but also that the company typically takes a 50 percent cut of every offering it does with a client. Priebatsch says LevelUp and its tiered system of deals builds customer loyalty, and provides a better arrangement for vendors: It takes no cut on the first level of deals, meaning SCVNGR gets paid only if customers return for the second- and third-level bargains. And rather than 50 percent, the SCVNGR take is 25 percent.
Boloco CEO John Pepper told me he‚Äôs happy with SCVNGR and that he‚Äôd work with Priebatsch again. LevelUp also seemed to have its desired effect on me: After buying that first deal at Boloco, I found myself trying to convince a group of friends to go back so I could take advantage of the second-level deal. Priebatsch had won ‚ÄĒ I‚Äôd spent my money where he wanted me to.
It‚Äôs still early, but ‚Äúthe age demographic for LevelUp is twice as broad as it is for SCVNGR,‚ÄĚ Priebatsch says. The male-to-female ratio, he adds, is much more balanced as well.
Whether it‚Äôs burritos or the paper game from his keynote address, Priebatsch says he must start somewhere to realize his vision of changing the world. So he‚Äôll begin by flogging products; the do-gooderism is for later. ‚ÄúThere‚Äôs no way that the product that we‚Äôve built to date maps up with the theory of what I‚Äôm talking about,‚ÄĚ he acknowledges. ‚ÄúIt is a fraction of a shadow of what I think [the company] will be.‚ÄĚ If he can build the foundation for the game layer, he believes, then maybe he and others can start to use it as a tool to tackle bigger problems.
The point of all this seems to be that Priebatsch won‚Äôt let his own ideas ‚ÄĒ even the ones that have made him a millionaire on paper ‚ÄĒ limit him. He‚Äôs always looking for the next iteration of his vision, the next game.
Already, LevelUp has evolved. SCVNGR recently announced a major partnership with American Express, allowing LevelUp deals to be linked directly to AmEx credit cards ‚ÄĒ meaning that to activate the increasing levels of their deals, users will no longer have to print out receipts or show their phone screens to the guy at the register. That‚Äôs a smart idea that has so far escaped Priebatsch‚Äôs competition.
To survive, to be the one left standing when the bubble bursts, Priebatsch knows he must differentiate himself from rivals like Groupon, with its deep user base, and Foursquare, with its vaunted ‚Äúmayor‚ÄĚ status. Whatever the ultimate fate of SCVNGR, Highland Capital‚Äôs Peter Bell makes it clear that he didn‚Äôt invest in Priebatsch just because he liked the idea the company is built on. It was, Bell says, ‚Äúfrankly more a bet on Seth as an entrepreneur. The thesis was, This guy will do something very special.‚ÄĚ
Source URL: http://www.bostonmagazine.com/2011/05/game-boy-seth-priebatsch-scvngr-founder/