For those unfamiliar with FoundersCard, it offers founder-types and entrepreneurs select deals on everything from travel to business services. Uber had set up a discount for 15% off the first 100 rides for FC members. The goal was to entice early adopters who would evangelize Uber’s service.

From my anecdotal experience, it worked beautifully. My friends and I sang Uber’s praises far and wide (and drummed up quite a bit of business for Uber in the process).

Tonight, however, Uber notified all FC members that regardless of how many ride discounts a customer has remaining, Uber is reducing the number of discounted rides to 10 (or less than 10 if that’s all that was remaining). I still had 69 rides remaining.

As FoundersCard membership has expanded, Uber was probably finding themselves giving away 100 x 15% to a wider and less exclusive audience. I totally understand that Uber can’t be giving away 15% to every founder wannabe and late adopter.

In my humble opinion, however, this change could have been handled much better. Uber made several mistakes that could have been easily avoided.

1. Customer Segmentation 101

First of all, Uber should have realized that the FoundersCard members and Uber’s target customer base are effectively the same. Uber might have had an instinctual sense this was true, given that they offered a discount via FC to acquire users in the first place, but they might have failed calculate the full potential impact of 100 rides x 15% off x #Users on their bottom line.

For a company who brags about being data nerds and good at math, this is a bit embarrassing.

2. Stem The Bleeding

No doubt Uber must have been giving 100 x 15% off to a significant number of their customers. (see point 1 above)

If that’s the case, though, Uber should have just turned off the tap much earlier. If you start seeing everyone using a FoundersCard discount, then quietly modify it for all new members to be 10 rides at 15%. Or remove the discount entirely. This limits your future exposure while keeping your earliest adopters blissfully ignorant and happy with your brand.

3. Broken Promises

Instead of quietly modifying the discount to something less juicy for latecomers, Uber made a blanket decision to reneg on their promise to EVERY FoundersCard member, regardless of when they joined. So stragglers and early adopters alike are getting the same raw deal.

One could argue that 10 x 15% off, plus all those historical savings, is still very nice and more than Uber had to do in the first place. But that’s not the point.

Uber entered into a contract of sorts with their members. They made a promise to us of 100 discounted rides. Now they’re breaking that promise. Those of us who run companies understand balancing a bottom line, but do the math before you annoy your customers. Rational or not, this FEELS like Uber is nickel-and-diming their best, earliest customers.

That leaves a bitter aftertaste.

4. Fictional Savings?

One of the most awesome things about the 15% discount I was enjoying was that it made taking an Uber a no-brainer for me. Whenever I was on the fence between calling an Uber or taking a cab, I would just call an Uber. In fact, it got me to take Uber several times when I could have just waited a few extra minutes and hailed a cab. Instead, I said “Screw it, I’m going in style!” and took an Uber.

In the back of my mind I rationalized the extra cost by knowing I had a slight discount. And when that discount ran out organically, I probably would have just kept on riding out of habit and a passionate love for the brand. I might not even have noticed it ran out!

Now that our attention has been painfully drawn to the fact that the discount will soon be gone, I suspect many infrequent users are going to think twice before taking an Uber. Those on the fence might opt for a cheaper, if more inconvenient, option. Given their love of math, I hope Uber crunched the numbers on this one carefully, because there’s a chance they just lost a lot of users who were on the bubble.

5. Bruised Brand

Perhaps the biggest problem with this situation is the black eye Uber just gave its brand.

Uber’s brand is all about style, luxury and feeling like a baller (even if only for the length of a ride). Uber is selling convenience and affordable luxury, but even more than that they’re selling a FEELING! The feeling of awesome.

You know what doesn’t feel awesome? Having a discount you were promised yanked from underneath your feet.

Being penny wise doesn’t fit with Uber’s brand.

Reneging on a promise doesn’t fit with Uber’s brand.

And lumping your earliest adopters and evangelists into the same bucket with wannabes and hipsters who came late to the FoundersCard party does not fit with Uber’s brand.

In Conclusion

For the record, I still love Uber. I know several of the people who are running it on a personal level. They’re smart, hard working, genuine people who care passionately about their users and are building a great company. I applaud their efforts.

That said, I think they fumbled this one. It feels clumsy to me. We all make mistakes, and this one isn’t going to totally derail Uber, but it does not fit with the brand image they’re trying so hard to create.

That said, this isn’t going to stop me from riding Uber, and it shouldn’t stop you, either. If you haven’t already, go sign up and experience the awesomeness for yourself.

The next phase, he maintains, will leverage people’s interest graphs. He specifically mentions Hunch’s prediction engine, Apple’s “Ping” platform for social music sharing and discovery, and Facebook’s social graph as potential predictors of interests and spending habits.

I think Om’s on the right track, but I’d take it a step further. I believe that the next phase of social commerce will be based on more than social graphs and interests – it will be based on actual behavioral data.

People are growing more comfortable sharing information about where and with whom they spend their time. Foursquare is not just a game or a way to find your friends when you’re out drinking. It’s a database of places you’ve visited and likely spent money. In short, it’s an extensive record of how you choose to use two of your most precious resources: time and money.

Foursquare and Facebook Places are capturing real-time information about actual behavior, not just “intent” (like a Google search, for example). This data of how, where and with whom we spend time is incredibly valuable, and it will likely prove to be an excellent predictor of future behavior and future purchases. Just because I’m friends with someone on Facebook doesn’t mean we have the same spending habits. But if a stranger and I are visiting the same bars, coffee shops and clothing boutiques, it’s probably safe to say our tastes and demographics are aligned.

The old adage “tell me who your friends are and I’ll tell you who you are” might still hold true, but I think the future of social commerce will adopt the motto “tell me where you spend your time/money, and I’ll predict your next purchase.”

I think it’s quite clever on their part, and it feels like a natural evolution of the gaming ecosystem as advertisement starts to creep into the gaming experience. Social gaming has already seen some partnerships with large brands, like the Farmer’s Insurance blimp in Zynga’s Farmville, or deals with charities whereby they reap the benefits of virtual goods sold in the game. Some console games also have deals with advertisers that show brand ads on billboards in a stadium, for example.

But what if you combined a commercial brand with a virtual good that cost real money?

Let’s say you’re playing a sports game and your players are tired, so you need to re-energize them. Well, you can perform some “grind” action, or have them drink water, but you now also have the option to let them drink Gatorade. Drinking Gatorade will give your players an extra boost, superior to water or resting, and will give you a slight edge in the game. The catch is that the Gatorade option costs game credits.

Now some might say that paying for branded goods would be crazy because, after all, advertising is annoying and painful and we tolerate it only so that we can enjoy things like free television. We don’t pay extra to have ads shoved at us. If anything, we pay less when ads are involved, right?

Not quite.

In fact, we, the consumers, pay advertisers all the time. Not only do we buy their products, but we proudly wear their giant logos, and flaunt their designs. Why? Because it signals status. For the same reason that someone will shell out $50 of hard earned money for some awesome suit of armor in a MMORPG, or purchase a limited edition mansion on Farmville, other people will spend $500 or more on a purse because it has Louis Vitton’s logo stamped all over it.

As humans, we are drawn to social hierarchy, and we love status. “Aspirational” brands are just that – something for people to aspire to. Anyone can ride a bicycle. But it takes some real scratch to drive an Audi R8. Cruising down the street with your R8 purring will definitely turn some heads and might even get you laid. In a game, however, its superior performance might help you win the race.

So is it really such a stretch to think that people would pay a premium to unlock a branded virtual good in a game that provided some premium features or game play? I don’t think so. In fact, I believe that branded goods that cost real money could be wildly profitable, assuming they’re built into a game in a way that doesn’t spoil the core game mechanics.

The best part for game developers is that it could evolve into a two-sided market. Will I offer Gatorade or Powerade to my users? RedBull or 4Loco? Depends on which one of them pays for exclusivity. Then you can turn around and sell the branded virtual good on top of that. It’s a win-win.

I haven’t heard of anyone doing this yet, but if any of you know of real life examples of this, please let me know in the comments.

With this in mind, Mullany’s equation for freemium businesses looks like this:

Price Paid by Premium User – Cost of Proving the Service to the Premium User – [ (1/Ratio of Premium:Free Users) * (Cost of Free Service Per User + Cost of Marketing to get a Free User) ] = Profit Per Premium User

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