One of the aspects of the modern consumer economy that Bitcoin users often miss out on is that of special deals, where customers can, whether through acquiring rewards points, gathering coupons or signing up for special programs, occasionally get select products at rock-bottom prices. Loyalty programs like Air Miles let people gather points and eventually receive goods like plane tickets at a heavily discounted prices or for free, some credit cards give 1-3 cash back to the customer (ultimately at the merchant’s expense), and programs like Groupon let customers go to select merchants and receive up to 75 off with no prior commitment. These kinds of programs serve a valuable role in the economy; sometimes, they are useful as marketing tools, giving everyone access to a small quantity of their product in order to spread the word about their business and give people a chance to see what they are about, at other times they are a form of price discrimination, giving discounts to people who cannot afford to pay as much, and finally they are often used by stores as a way of rapidly getting rid of a product that they have too much of in stock and want to sell.
In the Bitcoin economy, such deals are unfortunately hard to find. There are sites like the BitcoinStore and BTCTrip that sell things relatively cheaply, but the sort of heavy, twenty to eighty percent, discounts that traditional discount programs offer are simply not availbale. Fortunately, that is soon about to change. Coinforest is a new company that aims to provide a very specific kind of discount program, known as group buying, to the Bitcoin community, and has just opened its first deal today. Group buying is a system where a centralized service negotiates with a company to offer a large discount on a particular item if enough people are willing to buy it. The service then publicly announces the deal, and asks for anyone interested to sign up. If enough people sign up, the deal goes through, and customers are able to receive their product from the merchant at the low price; otherwise, everyone’s money is refunded.
Aside from the marketing and promotional aspect, group buying is good for merchants because it allows them to sell a product that requires mass production to efficiently produce without maintaining a large stock. The group buying arrangement gathers a large group of customers to buy a given product on the same day, allowing the producer to make all of the products at the same time and ship them off immediately. If there are not enough customers for economies of scale to kick in, the deal simply does not happen. For online services, the situation is similar, except the mass production process is replaced by expenses like hiring an additional employee for customer support or upgrading one’s servers; more important in those cases, however, is the marketing aspect.
Coinforest was originally founded by John Mardlin, an entrepreneur with a background in business development and marketing software-as-a-service products. The company itself is based in Victoria, British Columbia, Canada, and the company’s business development manager Brandon Gains is also involved in several tech startups in the region. “We’re driven by our desire to grow the bitcoin economy,” Gains explains, “Bitcoin, and cryptocurrencies in general.” So far, there are plenty of people developing Bitcoin projects, but the number of people actually interested in buying bitcoins is still relatively small. Short term discounts, Gains believes, have the power to change that. “CoinForest can’t create a whole new product and then only sell it for BTC,” Gains adds, “but we can create a temporary situation, where the only way to get a certain item for a certain price is with bitcoin. Our ultimate goal is to be the reason that many people get their first bitcoins.”
Right now, Coinforest has one active deal with the Bitcoin T-shirt vendor shirtoshi.com, as well as many others which the company is not willing to disclose at this time. In general, Coinforest is targeting Bitcoin-related goods and services, 3D printing services, equipment for makers, online education, tools and services for building software and services for startups and online businesses. Coinforest’s pitch is that by offering a deal exclusively in Bitcoin the company is targeting a strong early-adopter community and a successful deal can be a great public relations opportunity for gathering media attention. For businesses, Coinforest also has another attraction: they can test the waters accepting Bitcoin without actually setting anything up. Coinforest collects the bitcoins themselves, and is willing to pay out merchants in fiat – saving businesses both the effort of integrating a new payment system and 2.9 credit card fees. If the deal proves successful, the business can integrate a proper Bitcoin payments platform, and have an array of Bitcoin customers already waiting for them.
In the future, Coinforest intends to continually expand their range of offerings and add new features; once the company is comfortable with the success of its business model, a built-in escrow system using BTCRow will be one of the first new features on the horizon. Gathering more businesses and better deals, however, is a higher priority for now.
Cheaper in Bitcoin
Coinforest is only part of a larger movement to get merchants to not just accept Bitcoin, but also to sell goods cheaper in Bitcoin. Some Bitcoin-only businesses, like BitcoinStore and BTCTrip, offer very favorable deals to Bitcoin users already, but the goal here is to convince even business owners that do not quite consider themselves Bitcoiners first and business owners second to do the same. That is to say, merchants should offer the same products to Bitcoin and fiat currency users, but specifically offer a price of, perhaps, $12.99 for fiat and $11.99 in BTC. There are several reasons to do that. First, when a business accepts Bitcoin for a transaction they do not have to worry about fraud, chargebacks or transaction fees (above 0.99 for BitPay if applicable or 0.0001 BTC for a standard Bitcoin transaction). Second, businesses might want to pay their own employees, suppliers or contractors in Bitcoin; this is particularly attractive if they need to make the payments across international borders.
There is also another interesting argument for offering low prices in Bitcoin, one that is particularly attractive to sellers of zero-marginal-cost goods like digital downloads (eg. songs, movies, e-books). The argument is this: when a customer pays for a product, the customer is not just paying the listed price; rather, they are also paying the hidden “transaction cost” of having to enter their credit card details and provide their personal information. This cost is the same regardless of whether the good in question costs 49 dollars or 49 cents. The result of this hidden cost is that it dampens the effectiveness of offering low prices. For example, imagine that a company is offering e-books for download at $0.99 each. Should the company drop the price to $0.49 each? The standard answer is, if the price drop brings at least twice as many customers in, then yes. In reality, there are distorting factors, as authors naturally want to get their work out to more people if possible both for marketing and altruistic reasons, but these discrepancies do not overturn the fundamental validity of this argument.
Now, imagine that the “hidden transaction cost” described above is something that consumers value at $1. Will a de-facto price drop from $1.99 to $1.49 bring enough customers in to justify the reduced price? Probably not. However, buying with Bitcoin is more efficient than buying with a credit card; if you have a smartphone wallet, a scanning a QR code and clicking “Send” is all you need. Browser extensions even exist that let you pay with Bitcoin directly from your browser. Finally, when making a Bitcoin transaction much less privacy is lost. If this drops the “hidden transaction cost” to $0.20, you are now dealing with a de-facto price drop of $1.19 to $0.69 – a considerably larger price drop in proportion, and thus one that is more likely to convince enough extra customers to buy to justify the fifty-percent revenue loss on each one. Thus, for that particular e-book store, offering books for $0.99 in fiat and $0.49 in Bitcoin may actually be the best strategy. Most of the time, the discount justified by this reasoning will not be quite so drastic, but twenty or thirty percent off with BTC is certainly quite reasonable.
For the success of the Bitcoin economy in general, promoting the “cheaper in Bitcoin” movement is simply crucial. Bitcoin has a considerable number of merchants accepting it – very few if you simply browse randomly, but enough that an increasing number of people are living their entire lives with it. But what the Bitcoin economy also needs is consumers. Right now, in many parts of the world, including the United States, bitcoins are unfortunately difficult to acquire; so much so, that in-person meetups are becoming an increasingly popular way to buy and sell them. Merchants offering goods cheaper in Bitcoin will help bring some of the advantages that Bitcoin offers to the consumer as well.
Vitalik Buterin is a co-founder of Bitcoin Magazine who has been involved in the Bitcoin community since 2011, and has contributed to Bitcoin both as a writer and the developer of a fork of bitcoinjs-lib, pybitcointools and multisig.info, as well as one of the developers behind Egora. Now, Vitalik's primary job is as the main developer of Ethereum, a project which intends to create a next-generation smart contract and decentralized application platform that allows people to create any kind of decentralized application on top of a blockchain that can be imagined.