how mobile apps can disrupt the bar...

How Mobile Apps Can Disrupt the Bar Experience of the 21st Century: A Landscape Report

This work was created in an open classroom environment as part of a program within the Sutardja Center for Entrepreneurship & Technology and led by Prof. Ikhlaq Sidhu at UC Berkeley. There should be no proprietary information contained in this paper. No information contained in this paper is intended to affect or influence public relations with any firm affiliated with any of the authors. The views represented are those of the authors alone and do not reflect those of the University of California Berkeley.

Tim Day, Martin Maas, Liyu Wang (University of California, Berkeley) Final Report for MTI IEOR-290, Spring 2016

1 IntroductionSincetheintroductionoftheiPhonein2007,mobileapplications(or“apps”)havedisrupteda substantial number of industries, including exercise (FitBit), mobile payments (VenMo,Apple Pay), communication (WhatsApp, Snapchat), and transportation (Uber, Lyft). Otherareasareseeingchangethroughmobileappsaswell,suchasgrocerystoredelivery(Insta-cart).Webelievethatthistrendwillcontinueintootheruntouchedindustries.

One such example is the Bar andNightclub Industry. This space has seen relatively littlechangeoverthepast100yearsandwehypothesizethatthereisalargeuntappedpotentialformobileappstobringaboutchangeinthisarea.Thegoalofthisindustrylandscapeanal-ysis is todefine thecurrentplayersandtheir interactions,evaluateways inwhichmobileappscanaffectthislandscapeandidentifychallengesfortheiradoption.Wealsohighlightcurrentcompaniesinthisspaceandproposenewopportunitiestobeatthiscompetition.

2 TheCurrentBarIndustryLandscapeThecentralplayerintheBar&NightclubIndustryisthebar,whichwedefineasanyestab-lishmentthatprimarilyservesalcoholicbeveragesforimmediateconsumption,likelywithlimitedfoodservice.Thereareover65,000barsintheU.S.andtheseestablishmentswerevisitedbyupto30millionpeoplepermonthin2014[1].Theoverallmarketsizeis$23bil-lionperyearwithanaddition$3.5billionperyearspentonalcoholadvertisements[2].

Tavernsmakeup the largestshareof themarket (32%),whilenightclubs(8.6%)come inwiththesmallestfraction[3].Revenueisgeneratedbysellingdrinksandfoodtocustomers,whichcanbehighlyaffectedbyfactorssuchasgeneralconsumerspending, theconsumerconfidenceindex,andthehealthyeatingindex[4].Theindustryhaslowprofitmarginsthatmake it susceptible to any adverse changes in demand and also has high product turna-roundwhichrequirescarefulinventorymanagement(sincealargefractionoftheinventorydecreasesinqualityovertime).Customersonaverageorder2.3drinkspervisitwithmentypically orderingmore drinks thanwomen [3]. From interviewing customers, we foundthattheywanttohaveagoodexperience,savemoney,notbestronglyimpactedbytheor-deringprocess,andenjoydrinkstheylike.

IntheU.S.,alcohol issold ina three-tiersystemwhichconsistsofmanufacturers,distribu-tors,andretailers (a.k.a., thebars).Legally,manufacturersmustsell theirproductswhole-saletodistributorsandonlyretailinstitutionsareabletoselltocustomersdirectly.Therearearound3,000independentbeerdistributors intheU.S. [5]andthis largenumberpro-videsanadvantagetosmallmanufacturers,allowingtheirproductstobesoldalongsidebigplayerssuchasAnheuser-Busch inthesameretailestablishment[5].Mostdistributorsandbarsarelocal,independentbusinesses.Thisispartlyduetovaryingstateandcountyliquorlaws, whichmakes forming chains difficult. Distributors send out local salesmen to barswhere theybothdiscuss thewantsof theownerandobserve thebuyingbehaviorof cus-tomers.Theyarealsoincentivizedbymanufacturerstopushparticularproductsandoftenworkoncommission.Theythenmakerecommendationsandarrangesalestotheretailer.

ThereisalargevariationbothintermsofsizeandtypesofalcoholmanufacturersintheU.S.Most fallunder the largeumbrellasofbreweries,distilleries,andwineries. In theU.S., thelargest brewery isAnheuser-BuschInBev (Budweiser,Michelob, Stella Artois, Shock Top),the largest distillery isDiageo (Johnnie Walker, Crown Royal, Smirnoff), and the largestwineryisE&JGallo(SonomaCounty-basedwines).Thisportionoftheindustryhasbecome

more fragmented over timewith the rise in popularity of bothmicrobreweries and localdrinkmanufacturers [6].This has strengthened the role of distributors as curators of theexpanding manufacturing market and diluted the market share of the traditional majorplayers.Manufacturersbothadvertiseandincentivizedistributorsinordertopushspecificproducts.Andalthoughtheycannotlegallyselltoretailers,manufacturersstilladvertisetotheminordertopushproducts.

3 PotentialAreasofChangeInducedbyMobileAppsMobileAppshavethepotentialtoinducechangeininteractionsbetweenanyoftheplayersinthebarindustrylandscape.Infact,wehaveseenatleastoneinstanceofacompanytar-geting the interactionbetweendistributorsandbarsby continuouslymeasuringbeerkeglevelstodeterminewhennewsuppliesneedtobeordered(DigitalPour[7]).However,thehighestlevelsactivitywesawwereinchangingtheinteractionsbetweenbarsandtheircus-tomersthroughmobileapps.Wethereforefocusonthisspace.

Through brainstorming, analyzing existing companies and interviewingworkers and cus-tomersatbars,we identified the followingareas inwhichwesee the largestpotential formobileappstochangetheinteractionbetweenbarsandtheircustomers:

1. TabManagement: Manage and pay your bar tab with a smartphone rather thanmanually,includingtheabilitytosplititwithothers.Acloselyrelatedfeatureisor-deringdrinksfromyourphoneratherthanatthebar.

2. DrinkRecommendations: A feature that tells youwhich drink you should buy at aparticularbarbasedonyourpersonaltasteprofile(i.e.,“Pandorafordrinks”).

3. CreateyourownCocktail:Designyourowncocktailonyourphoneandhaveitmadebythebar.Theappcanguideyouincreatingthecocktailtoensureyouwilllikeit.

4. SocialSharing:Shareyour favoritedrinksatabarwithothers.Weoriginallyenvi-sionedthatthiscouldlinkintothe“createyourowncocktail”feature,allowinguserstosharetheirownrecipeswithothersandtovoteforothers’cocktails.

5. Virtual ID: Instead of showing your physical ID to gain access to the bar, yoursmartphonecouldbeusedtoverifythatyouare21yearsorolder.

3.1 MethodologyTo investigate the feasibilityof these features,westartedwithanonlinesurveytounder-standthecustomers’perspective(AppendixA).Thishelpedusgaugeboththelikelyadop-tionoffeaturesbyusersaswellaslikelyimplicationsforbusinessesoperatinginthisarea.Oursurveyhad58responsesoverall;respondentswere41%female,91%ofthemwerebe-tween21-30yearsoldand86%ofthemvisitbarsatleast1-5timespermonth.62%ofre-spondentswerefromtheBayArea,witheveryoneelsebeingfromplacesasdiverseastheUK,GermanyandFinland.

Basedontheinitialsurvey,wedesignedaninteractivemock-upofamobileappwithsomeof featuresmost likely tobeacceptedbyusers(Figure1).Thisgaveusastartingpoint totalk toworkers and customers at bars and gainmore specific insights.We visitedPacificCoastBrewing/PCB(Oakland), Pappy’s (Berkeley), Somar (Oakland),HomeofChickenandWaffle(WalnutCreek),Bin26(Boston)andtalkedtoBackBarUSA inLasVegas.Quotesinthisreportareparaphrasedinformationgiventousduringtheseinterviews.

Inadditiontoourowninterviews,wegainedvaluableinsightsfromunderstandingthesto-ryofFlowtab [8],astartupthatworkedona tabmanagement/drinkorderingmobileappandfoldedin2013.Thefounderspublishedtheirexperiencesandmaterials(suchastheirpitchdeck,proposalsandadetailedtimeline),providingagoldmineofinsights.

Wenowdiscusseachofourfeaturesinturnandsummarizeourconclusionsbasedonwhatwe learned about their potential for adoption in the current bar industry landscape.Wethenhighlightbusinessopportunitiesandchallengestheyresultin.

3.2 TabManagementThewaycustomerscurrentlymanagetheirtabisinconvenientandinsecure.Uponarrivalatthebar,theyhandtheircreditcardtothebartenderandthenorderusingtheirname.Uponleaving,theyaskthebartendertoclosethetabandpaythebill.Thiscanbeinefficient,espe-ciallyinbusybars:askingforthecurrentamountonthetabandclosingitleadstolongwaittimesandcausesoverheadsforbartendersandcustomers(aswelearnedduringoneofourinterviews).The system is also insecure, sinceother customers canoverhearanameandputdrinksonthattab.Finally,usingpenandpapertopaythefinalbillcanbetedious.

A smartphone app may substantially improve this experience by allowing customers tomanageandpay their tabbyphone.This couldalsomake it easier to split a tabamongagroup.Wethereforehypothesizedthisfeaturewouldbepopularwithcustomers.

Thisintuitionwasconfirmedbyoursurvey:81%ofrespondentssaidtheywouldbelikelyorvery likelytousesucha featureand43%said itwould likelyorvery likelyaffect theirchoiceofbar.Thisindicatesthatthereisgeneralinterestinsuchafeatureandthatthereispotentially an incentive for bars to offer such a system to get more customers. We alsolearned thata tab splitting featurewould likelybeused, as99%of respondents said thattheymostcommonlygotobarstomeetwithfriends.

Our bartender interviews confirmedour customer survey from the bars’ perspective.Welearned that “customersgetveryworriedabout their tabsandaskabout them,especiallywhenit isbusy”and“bartendersspendtoomuchtimecheckingandmanagingtabs,whiletheywouldprefer tospendall their timepouringdrinks”(Somar).This indicatesthatour

Potential App Functionality

CocktailCreation

ManageYour Tab

SocialSharing

RecommendDrinks

Figure1:Ourmock-upofaninitialmobileapp,designedusingtheJustinmindprototypingplatform.Thefeaturesdemonstratedare(left-to-right):tabmanagement,drinkrecommendations,drinkcreationandsocialsharing.

surveyresultsarenotafalsepositiveandthatmanagingthetabisarealpainpointforcus-tomers.Italsoindicatesthatbarslosetimeandmoneyfromtabmanagement,andthereforehaveamonetaryincentivetoaddresstheproblem.Thisindicatesabusinessopportunity.

3.3 DrinkRecommendationsOur survey indicates that for69%of customers, thequality of thedrinks is important orveryimportant.Thissuggestsanopportunitytoimprovethebarexperiencebyhelpingcus-tomers select the drinks they like the most. It is therefore unsurprising that our surveyyieldedthat62%ofrespondentswouldbelikelyorverylikelytouseadrinkrecommenda-tionfeatureand40%saidtheywouldbelikelyorverylikelytochooseabarbasedonit.

Wealsoconfirmedthatcustomersaresusceptibletobeinfluencedintheirdrinkchoice.Inresponsetoasurveyquestionaskingcustomershowtheymaketheirdrinkchoice,70%in-dicated that theychoose theirdrink inaway that is amenable tooutside influence (“ran-dom”,“thebar’sspecialty”or“whatothersorder”).WeconfirmedthespreadwesawinoursurveybytalkingtocustomersatPappy’s.

Thefactthatcustomersarewillingtobeinfluencedintheirdrinkchoicerepresentsabusi-nessopportunity,asdifferentplayersinthebarlandscapehaveaninterestinaffectingcus-tomers’drinkchoices.

First,barsthemselveshavemotivationsforinfluencingtheircustomers’drinkchoice.Dur-ingour interviews,we learned thatbars “want toget customers [drinks] they like” (PCB)butthat“customersoftendon’tknowwhattheywant”(Somar).Helpingbarstoservecus-tomersthedrinktheyaremostlikelytolikeaddstotheirbusiness.Further,drinkshavedif-ferentprofitmarginsanditmaybebeneficialforabartopushdrinkswithhighermargins.

Theothergroupsthatbenefitsfrominfluencingdrinkchoicesaredrinkmanufacturersanddistributors.Theycurrentlyachievethisgoalthroughdrinkadvertising,amarketthatwas$3.5B in 2014 [2].We confirmed the importance of thismarket by talking to bartenders,learningthat“[they]havesalesrepresentativesfromdrinkcompaniesallthetime”(PCB).

Wealso talked toworkers fromBackBarUSA, amarketing company thatpushes specificdrinksatLasVegasbars.BackBarUSAispaidbybothbarsanddrinkmanufacturerstoen-ticecustomerstobuyspecificdrinks,throughincentivessuchasfreepintglasses.Thiscon-firms that both bars and drinkmanufacturers arewilling to spendmoney on influencingtheircustomers’drinkdecisions.

Drinkrecommendationsthereforeareachancetoservethismarketwhileatthesametimegivingcustomersabetterexperience,somethingboththemandthebarswant.

3.4 CreateyourownCocktailInourbarinterviews,wefoundoutthatthisfeaturewouldlikelyberejectedbybartendersandbars.Welearnedthat“bartenderstakeprideintheirwork”andthat“cocktailsareanart”(PCB).Asaresult,bartenderswouldlikelyreject(oratleastdislike)beingtoldwhattodo.Wealsofoundoutthat“bartendersaretrainedtodothecorecocktailmenuverywellandefficiently”andthat“onceyougooutsidethecoremenu,cocktailsarelessgood”,takelongertomakeandaremoreexpensiveforthebar.Wealsoheardconcernsthat“customersdon’tknowhowtomakeagoodcocktail”(Somar),eventhoughwebelievethiscanbealle-

viatedbylettingtheappassisttheuser(similartohowtheRockBandvideogamedoesnotrequireyoutoactuallyplayaninstrument).

The single positive feedbackwe heardwas that “anything that helps users get a cocktailthey like is good” (Somar). However, overall, it appears that many bartenders and barswouldlikelyrejectthisfeaturewhileitisnotclearhowpopularitwouldbewithusers.

3.5 SocialSharingBasedonthecurrentlandscape,itisevidentthatSocialMediaisimportforbars.Withinthebars&restaurantindustryasawhole,80%ofestablishmentsclaimtheyareactiveorveryactiveonSocialMedia[9],with50%expectingtoincreasetheirsocialmediapresenceinthenearfuture.Assuch,thisrepresentsanimportantmarket.

However, bars and restaurants operate their social media profiles on existing platformssuch asTripAdvisor,Yelp,Facebook,Foursquare or Instagram. It is therefore unsurprisingthatcompaniesinthisspacefocusontheseexistingplatforms.OneexampleisSproutSocial,acompanythathelpsbusinesses(includingbars)managetheironlinepresence.

Assuch,buildingastandalonesocialexperienceforbarsappearstobeanuphillbattle(onethathasoftenfailed:takeApple’sPingSocialNetworkasanexample[10]).Assuch,amorepromisingstrategymaybetofocusonintegrationintoexistingsocialmediaplatformsandusesocialsharingasasecondaryfeature.

3.6 VirtualIDPutting any legal questions aside, our customer survey showed that 57% of respondentswouldbe likelyorvery likelytousethis feature.However, foronly22%itwouldactuallyhave an impact on their choice of bar, which shows that this result is a false positive intermsofvaluethatitactuallyaddsforusers.Assuch,replacingIDdocumentswithamobileappitisunlikelytobeasuccessfulprimaryfeature.

3.7 SummaryInconclusion,ourresearchindicatesthattabmanagementanddrinkrecommendationsarethemost likely features tobeadopted in thenear future.Bothappear tobepopularwithcustomersandhaveastrongbusinesscasebehindthem.

4 ChallengesforMobileAppsintheBarSpaceWhileweidentifiedtabmanagementanddrinkrecommendationsasthemost likelyareasfor smartphone apps to change the bar experience, none of them have seen widespreadadoptionyet.TheonlysignificantplayerinthisspaceisacompanycalledTabbedOut,whoseadoptionweestimatetobebelow2%1

Wethereforetriedtounderstandwhythistransitionhasnothappenedyet.Wefocusspecif-icallyontabmanagement,as it is the featurewiththehighestpopularity fromoursurveyandhasseenthemostcommercialactivitysofar.

1TabbedOutclaimstobesupportedby10,000barsandrestaurants,outofatotalofover630,000[19],assumingaroughlyconstantsplitbetweenbarsandrestaurants.

4.1 CustomerAdoptionAsweshowinSection5,manycompanieshaveattemptedtoenterthisspace,butnonehastakenoverasubstantialshareofthemarket.Infact,oneofthebarsweinterviewedtoldusthatthey“getsomeonepitchingthisideaeverythreemonths”(PCB).

Anotherbarweinterviewedhadeventriedatabmanagementsystemthemselvesatsomepoint,butcustomersdidnotuseit.Thiswaspuzzlingtothebar--theytoldusthatthesys-tem“wasverypopular”and“shouldhaveworked”,butintheend“nobodyusedit”(Somar).Theythereforeceasedusingthesystem,eventhoughthecompanygavethembettertermsforpaymentsthantheirexistingpaymentprocessor.

Thisraisesthequestionwhycustomersdidnotusetheapp.Onepossibleexplanationwouldhavebeensocial reasons, suchasa stigmaassociatedwithusingaphone to interactwiththe bar.However, this is refuted by our survey. According to our results,whether or notsomeone uses a smartphone app to interactwith the bar does not significantly influenceothers’viewofthem,andbarssupportingsuchappsareactuallyseenpositively.

Wethereforehypothesizethattheproblemis ingettingcustomerstousethesystem.Onepossibilityisthefrictionofinstallinganapporthatthebenefitofusingtheapptocheckorpayone’staboccursatalaterpointintimethanthedecisiontouseit(whichismadewhenopeningatab).However,morevalidationisrequiredtoconfirmorrefutethishypothesis.

4.2 InterferingwithBarWorkflowDuringour interviews,we learned thatbarshavemajor concerns about anything that af-fectstheirworkflow.Wefoundoutthatifasystemadds“eventhesmallestbitofoverhead”(PCB),theywouldnotuseit.

Specifically,ourappmock-upusedQRcodestoquicklycommunicatetobartenderswhichdrinkstoorder.Accordingtoatleastonebartender,thisis“abadidea”(Somar),asscanningbarcodestakesuptoomuchtime.

It therefore appears that any successfulmobile app in this spacewould have to be com-pletelytransparenttothebar’soperation,mostlikelybydirectlyintegratingintothePoint-of-Sale(POS)systemthebarisusing.Fortunately,mostPOSsystemsmakeiteasytointe-gratethird-partyapplicationsandFlowtabmadetheirintegrationsforawiderangeofsys-temspublic,henceprovidingagoodstartingpointfornewcompaniesenteringthisspace.TabbedOuthasalsodemonstratedthebenefitsofdirectlypartneringwithPOSproviders.

4.3 BusinessModelThefinalchallengeishowtogeneraterevenue.Thisappearstobethechallengethatcausedmanypreviouscompaniestofail,includingFlowtab.

Based on the relatively low probability that customerswould choose a bar based on theavailability of amobile app, it seemsunlikely that theywouldpay for it.Any attempts tohavethecustomerpayfortheapparethereforeunlikelytowork(Flowtab,triedthisinitial-lyandquicklychangedstrategyafteritdidnotwork).

Anothermodelwouldbetobetochargethebar,eitherforusingtheapporforanalyticsde-rived from the use of the app.While several companies hadmoderate success with thismodel(e.g.,TabbedOut),itleadstoahighbaracquisitioncostandrequiresalargeandcost-

lysalesteam.Flowtabdescribedtheacquisitioncostas$1,500-2,500perbarandtheirpub-lishedproposalsareatestamenttothecomplexityofsigningonanewbarandworkingouttheconditions.Thisindicatesthatmakingmoneybysigningupbarsisdifficult.

Analternativemodelwouldbetomaketheappfreeforbarsandenablethemto install itthemselves(onewaytoincreaseadoptionwouldbetogenerateanincentiveforbartendersto install it, for exampleby setting thedefault tipof the apphigher thanwhat customersusuallytip).Inthiscase,nosalesteamwouldbeneededandtheadoptioncouldbeachievedthroughword-of-mouth. Thismodelwasusedby an app calledCoaster in 2013 [11], buttheytrieditshortlybeforerunningoutofmoneyandthereforenevergottraction.

If the tabmanagement app itself is free,moneywould have to come fromother sources.Thisiswheredrinkrecommendationscouldcomeinasasecondaryfeature.Sincetheyrep-resentanopportunitytoinfluencecustomers’drinkdecisions,theycanpotentiallygenerateadvertisingrevenuefromdrinkmanufacturersanddistributors.Anotherpotentialrevenuestreamcouldbesellingdatacollectedfromtheapptodataaggregators(detaileddatasetsarepotentiallyworth$1.72/quarter/user,accordingtoonevaluation[12]).

4.4 SummaryFindingsolutionstothethreechallengeslaidoutinthissectioniscrucialforbeingsuccess-ful in this area.Wewill next present companies that are active in this space, analyze thestrategiesthattheychoseandpredictwhichofthemweseeasmostlikelytosucceed.

5 ExistingCompaniesintheSpaceAnumberof companiesdevelopingbar-relatedapplicationshaveexisted in theU.S. since2009 (Figure 2). These apps deliver functions from drink ordering and paymentwith orwithouttabmanagementtodrinkrecommendation,socialsharingofdrinks,anddrinkmix-ingrecipes.Althoughsomeofthefunctions(likepaymentandsocialsharing)arealsocov-eredbymoregeneralapplicationssuchasVenmo,OneScan,Facebook,Yelp,etc.,welisthereonlytheapplicationsfocusedonbars,withthebiggestidentifiedplayerattheend.

Figure2:CompetitorDiagram

Drink recommendation

2.1M

39M

0.85M

Mixologist(apaidapp)andMixology(itsfreecounterpart)allowuserstosearchforcocktailrecipes.Bothfeatureadatabaseofabout8,000recipesand1,300ingredients.Thedatabaseissearchablebycategoryoringredients,whichallowsuserstopickcocktailsbasedontheingredientstheyalreadyhave.Userscanalsoadddrinkstoafavoriteslist,entercustomrec-ipesorusetheapptofindnearbyliquorstoresandbars.Bothappswerelaunchedin2009.

Untappdisasocialnetworkforbeerenthusiasts.Itallowsuserstocheckintobars,tagbeersandsharethemwithotherusers.Userscanalsorateandsharepicturesoftheirbeers,earnbadgesandhavetheapprecommendbeersbasedonapersonaltasteprofile.Untappdinte-grateswithTwitter,FacebookandFoursquare,whichallowsittosharebeersandcheck-instoothersocialnetworksandpull in locations fromFoursquare.Untappdwas launched inOctober2010andgrewto1millionusersbyJanuary2014.InJanuary2016,itwasacquiredbyNextGlass(seebelow).

Flowtab(whichwementionedinSection3)wasamobileappthatprovidesbarsandnight-clubsandwithamobiledrinkorderingandpaymentservice.Itwaslaunchedin2011andfolded in2013.Thecompanynotablyshared theirexperiencesonline,providingauniquepost-mortemanalysisoftheriseandfallofastartup.

DrinkspirationwasanappbyAbsolutVodkathat featuredover500drinkrecipesandcanrecommenddrinksbasedontheuser’stasteprofile.Itwaslaunchedin2012anditspresentstatusisunknown.

CoasterwasamobileappsimilartoFlowtabthatallowedcustomerstoorderdrinksandpaytheirtabusingtheirphones.Itlaunchedin2012andwasdiscontinuedin2013.

BareyeisanotherappsimilartoFlowtab,withthedifferencethatitsfocuswasonbrowsingdrinkmenusonthephone.Whileitwaspossibletopayforpurchasesfromwithintheapp,thesepurchasesstillhadtoberedeemedwiththeactualbartender.Bareyewasfoundedin2010andhasraised$850K[13].

WillCall is unique in that it specifically targets livemusic venues.Manyestablishments inthisspacemakemostoftheirmoneyfromalcoholsalesandWillCall’sgoalistosimplifyor-deringandtabmanagementatsuchlocations.ItstechnologyallowsaniPadoperatedbythevenuetopinganapponthecustomer’ssmartphoneoverBluetoothLowEnergy.Thecus-tomerthenconfirmstheprompttoopenatab,whichtheycanthenpayfromtheirphone.Thecompanywasfoundedin2010,andissofarsupportedbyvenuesinLosAngeles,NewYorkandSanFrancisco.WillCallraised$2.1MinfundingbeforebeingacquiredbyTicketflyinAugust2014.Ticketfly,inreturn,wasacquiredbyPandoraMediain2015[14].

NextGlassisadrinkrecommendationsappthatmaintainsatasteprofilefortheirusersandmatchesdrinksfromadatabaseagainstthisprofile.Customerscanusetheirsmartphone’scameratoscanthelabelofdrinksandtheappwilltellthemwhethertheywillloveorhatethedrink.Theappfocusesonbeersandwinesandcantelluserswhenabrewery,wineryorbaraddsanewdrinkthatmightappealtothem.NextGlasslaunchedinNovember2014.

5.1 OneMajorPlayer:TabbedOutTabbedOut isourlargest identifiedplayerintheareaofappsfortabmanagement.Itsmo-bileappallowscustomers tomanageandpay theirbar tabusing theirphone.TabbedOutalsooffersatool(Periscope)tobarsthatallowsthemtoanalyzecustomerpreferencesandcreatecustomofferstosendtotheircustomers.Thecompanywasfoundedin2009inAus-

tin,TX,makingitoneoftheearliestentrantsinthemarket.Theyhaveraised$41Minfund-ingsofar,followinga$23.5MSeriesC[15].

Intermsofcustomerrelationships,TabbedOutwasoneofthefirsttorealizetheimportanceof concentration for customer acquisition. They had their firstmajor release at the 2010South-by-Southwest(SXSW)festivalinAustin,makingitavailableat35locations[16].Whatfollowedwasrapidgrowth,resultingin200supportedrestaurantsandbarsin90citiesatthe time of their Series A (inMay 2011). In 2012, TabbedOut entered into a partnershipwith T.G.I. Friday’s,which brought in an additional 800 locations, resulting in 1,100 sup-ported restaurants and bars by April 2013. This number was brought to over 10,000 amonthlaterthroughstrategicpartnershipswithPOSsystemproviders[17].

The keypartners of TabbedOut arePOS systemproviders includingAloha,DigitalDining,Dinerware,FocusPOS,Future,Harbortouch, JumpwareandMicros[16].Bypartneringwiththesecompanies,TabbedOuthasbeenabletodirectlyintegrateintothePOSsystemsusedbyvenues,makingthemavailableatalargenumberoflocationswithoutanyexplicitworkforacquisitionorsetup.Atthesametime,integrationintothePOSreducesfrictionfortherestaurantorbar.TabbedOuthasalsopushedforpartneringwithvenuesbyintegratingitsfeatures intothevenues’ownapps, firstbypartneringwithT.G.I.Friday’sandthenbyre-leasingasoftwaredevelopmentkittoenablevenuestodothisintegrationthemselves.

TabbedOut’smainrevenuestreamappearstocomefromchargingbarsamonthlyfeeof$99(waivedifnotenoughsalesaregeneratedthroughtheapp).TheyalsochargecommissionforoffersgeneratedusingPeriscope[18].

5.2 Whowillwinandlose,andwhy?Thedevelopmentoftheexistingcompaniessuggeststhatdrinkorderingandpaymentarethemostpromisingbusinessareasforbar-relatedapplications,matchingourfindingsfromSection 3. This is confirmed by the following factors: (1) Themajority of the companieswork inthearea;(2)Themajorityof thesurvivingcompaniesare inthearea;(3)TensofmillionsUSdollarshavebeen invested in thearea; (4)Thousandsofbars in theU.S.havebeeninvolved;and(5)PartnershipswithexistingPOScompanieshavebeenformed.

Fordrinkorderingandpaymentapps,itistooearlytoidentifythewinnersandlosers.Aftersixyearsofproductlaunching,themarketisstillemergingwithapenetrationrateweesti-matetobeabout2%.Itremainsunclearwhetherthecompaniesareprofitable,buttheonlymarketdominatorintheU.S.–TabbedOut–seemstobegainingtraction.Nomajoracquisi-tionhasoccurredyet,althoughanincreasingnumberofpartnershipswiththeestablishedPOSbusinessmayenablethisinthenearfuture.

TabbedOut’s tractionmaybeexplainedbythe fact that theyhavebeenmostsuccessful intargetingthechallengesweidentifiedinSection4.

First,theyusedamajoreventandalocalsetofbarsfortheirinitialacquisitionofusers.The2010SXSWfestivalsawahighnumberofsign-upsduetothepainoforderingandwaitingfordrinksata largeevent(thesameproblemtargetedbyWillCallVenueabove).Further-more, because the pilot bars were concentrated in the same area, it was possible forTabbedOuttorollouttheirproductatallofthematthesametime,whichincreasedthein-centiveforuserstosignup.Bydoingthis,theysolvedtheinitialcustomeradoptionproblem(Section4.1)andgainedenoughtractiontobuildupon,atleastwithinAustin.

Second, TabbedOut partnered with existing POS companies. Because TabbedOut startedearlier thanmany of their competitors, they had a head-start integrating and partneringwithPOSsystemproviders.Theystarteddoingsoin2012,whenothercompanieswerejustlaunching their appswithoutPOS support. Thismove significantly reduced thebarrier ofadoption forbarsbynot changing thebehaviororworkflowofbartenders andmanagers(overcomingtheproblemweidentifiedinSection4.2).

As such,TabbedOut is stronglypositioned to succeed in thismarket,but it isnotagiven.Whiletheyareaheadofallotherplayers intermsoftraction, fundingandpartnerships, itstillhastobeseenhowsuccessfultheirbusinessmodelisgoingtoforsustainedgrowthandhowwell customeradoptionwillbeonce theypushmoreaggressivelyoutside theAustinarea.Anotherquestioniswhetheraviablecompetitorwillemerge,andwhethertherewillbecompetitionfromPOSsystemsmanufacturersthemselves(suchasSquareorZiosk).

5.3 NewOpportunitiesOpportunitiesexist inbothdrinkorderingandpayment (i.e., tabmanagement)aswell asdrinkrecommendation.Fortabmanagement,opportunitiesexistinnewbusinessmodels–whileTabbedOutappearstohavesolvedmuchofthefrictionofadoptionforbarsandcus-tomers,thequestionremainswhetherbarsarewillingtopayforit(Section4.3).TheremaybeanopportunitytocompetewithTabbedOutbymakingtheappfreeforbarsandopeningupothersourcesofrevenue.Thisway,theadoptionbarrieralmostcompletelydisappears.

Newsourcesofrevenuecouldincludedrinkproducers,distributors,andevencommercialdata aggregators. The value proposition for drink producers and distributors would behighly targeted advertising, particularly if the app combines tabmanagementwith drinkrecommendationsandthereforeprovidesampleopportunitiestoinfluenceitsusers’drinkchoices.Fordataaggregators,thevaluepropositionwouldbeaccesstohighlydetaileddataofusers, includingwhere theydrink,what theydrink,withwhomtheydrink itandothermetricsthatcanhelpunderstandusers’drinkchoices.

6 ConclusionOurfindingsleadustotheconclusionthatthereisgoingtobealargeamountofactivityinmobileappsshapingthe interactionsbetweenbarsandtheircustomers.Weseedrinkor-deringandtabmanagementasthefirstareasofthischange,followedbydrinkrecommen-dations,likelycombinedwithsocialfeatures.

Webelievethatthisshiftleadstotremendousopportunitiesduetotheavailabilityofsever-al revenuestreams thatdirectly tap into largemarkets (a$3.5Bdrinkadvertisingmarketanda$23Balcoholsalesmarket).Atthesametime,makinguseoftheseopportunitiesre-quiressolvingseveralhardproblems,includinghowtobuildupacriticaluserbase,howtosignupbarsandfindingagoodbusinessmodel.

Thepay-offforsolvingtheseproblemsbetterthantheexistingplayerscouldbesignificant:sincethenatureofthemarketmakesitlikelythatonlyoneortwomajorplayerswillremainintheend,andsincethereisnodominantcompanyatthispoint,todayrepresentstheper-fectopportunitytotacklethismarket.

7 Bibliography[1] "Statista:Factsonthebars&nightclubindustryintheU.S.,"[Online].Available:

http://www.statista.com/topics/1752/bars-and-nightclubs/.[Accessed5May2016].[2] "Self-RegulationintheAlcoholIndustry,"FederalTradeCommission,2014.[3] "NightlifeAssociation(NCIAA):OurIndustry,"[Online].Available:

http://www.nciaa.com/content.aspx?page_id=22&club_id=160641&module_id=29898.[Accessed5May2016].

[4] "IBISWorld,"[Online].Available:http://www.ibisworld.com/.[5] "NBWA:WhoAreAmerica’sBeerDistributors?,"[Online].Available:

https://www.nbwa.org/about/what-beer-distributor.[Accessed5May2016].[6] "ParkStreet:USAlcoholicBeverageMarket(Overview),"[Online].Available:

http://www.parkstreet.com/alcoholic-beverage-market-overview/.[Accessed5May2016].

[7] "DigitalPour,"[Online].Available:http://digitalpour.com/.[8] "FlowTab,"[Online].Available:http://flowtab.com/.[Accessed5May2016].[9] "NationalRestaurantAssociation:2015RestaurantIndustryForecast,"5May2016.

[Online].Available:https://www.restaurant.org/Downloads/PDFs/News-Research/research/ForecastExecSummary2015-FINAL.pdf.

[10] Ping,"TechCrunch:TellYouASecret–EvenWithFacebookIntegration,PingWillStillBeADisaster,"[Online].Available:http://techcrunch.com/2010/09/30/itunes-ping-is-a-disaster/.[Accessed5May2016].

[11] "TechCrunch:CoasterLaunchesASelf-ServeiPadAppForBarsToAcceptMobilePaymentsForFree,"[Online].Available:http://techcrunch.com/2013/01/24/coaster-ipad-app-for-bars/.[Accessed5May2016].

[12] F.H.M.I.a.U.Worth?,5May2016.[Online].Available:http://www.forbes.com/sites/tristanlouis/2013/08/31/how-much-is-a-user-worth/#7593206e92a9.

[13] "CrunchBase:Bareye,"[Online].Available:https://www.crunchbase.com/organization/bareye.[Accessed5May2016].

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[15] "PRNewswire:TabbedOutGrowsSeriesCto$23.5M,"[Online].Available:http://www.prnewswire.com/news-releases/tabbedout-grows-series-c-to-235m-300191396.html.[Accessed5May2016].

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AppendixA:CustomerSurveyResultsThissectioncontainstherawdatafromoursurvey.Weremovedtheopenformquestions,whichwere“Yourage”,“Wheredoyoulive?”and“Whatcouldyourfavoritebardotomakeyoulikeitevenmore?”.Thefindingsofthosequestionsaresummarizedinthemainreport.

Male 34 58.6%

Female 24 41.4%

Other/Decline to state 0 0%

less than once a month 8 13.8%

15 times a month 30 51.7%

510 times a month 16 27.6%

more than 10 times a month 4 6.9%

Gender

How often do you go to bars?

What do you commonly go to a bar for?

41.4%

58.6%

13.8%

27.6%

51.7%

Meet with Friends 57 98.3%

Bar culture/atmosphere 22 37.9%

Attending concerts, pub quizzes, etc. 18 31%

Get drunk 23 39.7%

Dating 9 15.5%

Chill by yourself 6 10.3%

Watch sports 7 12.1%

Other 1 1.7%

Random 24 41.4%

Always order the same drink at every bar 5 8.6%

Order different drinks at different bars, but the same at the same bar 11 19%

Order/ask for the bar's specialty 18 31%

Cheapest 17 29.3%

Order what others order 15 25.9%

Ask for a tasting 9 15.5%

Other 14 24.1%

How do you make your decision what drink to order?

How important is the quality of the drinks to you?

0 10 20 30 40 50

Meet with Fri…

Bar culture/at…

Attending co…

Get drunk

Dating

Chill by your…

Watch sports

Other

0 5 10 15 20

Random

Always order…

Order differe…

Order/ask for…

Cheapest

Order what o…

Ask for a tast…

Other

not important: 1 1 1.7%

2 5 8.6%

3 12 20.7%

4 30 51.7%

very important: 5 10 17.2%

1 very unlikely 4 6.9%

2 10 17.2%

3 13 22.4%

4 9 15.5%

5 very likely 22 37.9%

Ordering Drinks (being shown a waiting time estimate) [How likely would youuse any of the following features?]

Managing/paying your bar tab [How likely would you use any of the followingfeatures?]

1 2 3 4 5

0

5

10

15

20

25

30

0 5 10 15 20

1 very unlikely

2

3

4

5 very likely


2 5 8.6%

3 5 8.6%

4 12 20.7%


1 very unlikely 0 0%

2 7 12.1%

3 5 8.6%

4 12 20.7%


Automatically splitting the bill among members of a group [How likely wouldyou use any of the following features?]

Using your phone for age verification at the door [How likely would you useany of the following features?]

0 8 16 24 32

1 very unlikely

2

3

4

5 very likely

0 8 16 24 32

1 very unlikely

2

3

4

5 very likely

0 5 10 15 20

1 very unlikely

2

3

4

5 very likely

5 very likelyCount: 24


2 8 13.8%

3 9 15.5%

4 9 15.5%



2 12 20.7%

3 9 15.5%

4 13 22.4%


1 not at all 10 17.2%

2 15 25.9%

3 8 13.8%

Drink recommendations specific to the bar, based on your preferences andreviews [How likely would you use any of the following features?]

Ordering Drinks (being shown a waiting time estimate) [How much would theavailability of these features make you choose one bar over another?]

0 5 10 15 20

1 very unlikely

2

3

4

5 very likely

0.0 3.5 7.0 10.5 14.0

1 not at all

2

3

4

5 very much

4 15 25.9%

5 very much 10 17.2%

1 not at all 7 12.1%

2 12 20.7%

3 14 24.1%

4 13 22.4%



2 12 20.7%

3 7 12.1%

4 14 24.1%


Managing/paying your bar tab [How much would the availability of thesefeatures make you choose one bar over another?]

Automatically splitting the bill among members of a group [How much wouldthe availability of these features make you choose one bar over another?]

0.0 3.5 7.0 10.5

1 not at all

2

3

4

5 very much

0 4 8 12

1 not at all

2

3

4

5 very much

1 not at all 25 43.1%

2 14 24.1%

3 6 10.3%

4 5 8.6%

5 very much 8 13.8%


2 14 24.1%

3 12 20.7%

4 10 17.2%


Using your phone for age verification at the door [How much would theavailability of these features make you choose one bar over another?]

Drink recommendations specific to the bar, based on your preferences andreviews [How much would the availability of these features make you chooseone bar over another?]

Imagine a bar where all interaction with the bar is through a smartphone app.Would you prefer it over a traditional bar if everything else was the same?

0 5 10 15 20

1 not at all

2

3

4

5 very much

0.0 3.5 7.0 10.5

1 not at all

2

3

4

5 very much

I strongly prefer the traditional bar: 1 10 17.2%

2 12 20.7%

3 19 32.8%

4 12 20.7%

I strongly prefer the phone bar: 5 5 8.6%

I strongly prefer the traditional bar: 1 0 0%

2 5 8.6%

3 10 17.2%

4 20 34.5%

I strongly prefer the phone bar: 5 23 39.7%

Imagine a bar that supports tab management and payment through asmartphone app but is otherwise the same. Would you prefer it over atraditional bar?

How favorable would you view others who frequent a bar where interactionwith the bar is mainly through a smartphone app?

1 2 3 4 5

0

4

8

12

16

1 2 3 4 5

0

5

10

15

20

very unfavorable: 1 2 3.4%

2 10 17.2%

3 33 56.9%

4 9 15.5%

very favorable: 5 4 6.9%

Strongly dislike it: 1 2 3.4%

2 5 8.6%

3 18 31%

4 16 27.6%

Strongly like it: 5 17 29.3%

How would you feel if your favorite bar introduced a system where you caninteract with the bar through a smartphone app?

1 2 3 4 5

0

8

16

24

32

1 2 3 4 5

0

4

8

12

16

how mobile apps can disrupt the bar...

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