The Spend Graph

Its prized cardholder data makes American Express a valuable partner for social deals players

They know you like French food and Spanish wine. They know you shop at Nordstrom and Trader Joe’s, that you read The New York Times and TMZ, that you spent $3,000 on a bike and five grand on last year’s vacation. They know where you’ve been and, in all likelihood, where you’re going. And more and more, they’re leveraging that information with brand and media partners wanting to get to know you just as well.

Even in an age in which social media and oversharing have made everybody an open book, perhaps nobody knows more about us than credit card companies—especially American Express. As AmEx vice chairman Ed Gilligan puts it, “Facebook has a social graph, Foursquare has a location graph, and Twitter has an interest graph. American Express has a spend graph.”

AmEx’s edge: Its so-called closed-loop data, which lets it amass cardmember, merchant and transaction data since the company handles both ends of a sale. “We know a lot about our cardmembers—we know who they are, where they spend,” as Gilligan explains.

Over the last 16 months, AmEx has forged relationships with Foursquare and others to stake a claim in the exploding (some would say imploding) deals marketplace. But the 162-year-old financial services company isn’t only taking on the Groupons and Living-Socials of the world. With commerce undergoing a foundational shift as offline and online merge, AmEx is raising the bar for traditional competitors like Visa and MasterCard as well as burgeoning rivals such as PayPal—all looking to establish themselves as a consumer and merchant’s best friend.

AmEx’s spend graph puts it in a unique position to capitalize on social, local and mobile commerce, better than perhaps any other brand. While MasterCard, with 1.8 billion cards, and Visa, with 2 billion, have more customers, they merely serve as payment-processing middlemen with financial institutions. Meanwhile, AmEx, with 98 million cardholders, serves as issuer, underwriter and processor, so unlike the other credit card brands, it owns its customer data.

It is that closed loop that puts AmEx in the family of brands like Facebook and Amazon, as opposed to Coke and Colgate. And it makes a lot of other brands want to get closer to a company with that sort of valuable data at its fingertips.

Still, AmEx hasn’t always been so adept at capitalizing on the closed loop, says Stacey Haefele, who worked on the account as a digital strategist at Digitas and is now CEO of HNW, a marketing firm aimed at the affluent.

“Even a decade ago, at the senior most levels of AmEx, they were still trying to solve the puzzle of closed loop—for years, very secret projects, close-to-the-vest projects [around] what to do and how to leverage closed-loop data,” she says. “Closed loop has always been—and I mean it quite seriously—the holy grail. They know they have this crazy asset, and they’re always trying to figure out, how do they get the most out of it?”

Last year, AmEx launched Smart Offers with Foursquare during South by Southwest. That program made it possible for consumers to link their AmEx cards with an app like Foursquare so that when they checked into participating merchants they would get an offer—say, $10 off dinner at the Cheescake Factory.

“It kind of brings the sexy back to discounting, where it’s not about bargain hunting and that awkward experience of showing a coupon to someone,” says Jake Furst, who works in business development at Foursquare and oversees the AmEx partnership. “It’s kind of your little secret between you and your smartphone, with AmEx in the background.”

Furst says the location-based service aims to provide its merchant partners three things: the frequency and recency of customer visits—something Foursquare is equipped to do—and also the value of those visits, which he calls the “most difficult one.”

“When we partner with AmEx and allow a merchant to run a deal, they can actually understand all the way to the bottom of the funnel how much spending did that actually drive and what were the results of that campaign, so we think it’s really unique in being able to track an offer from start to finish,” Furst says.

Groupon and the like are also able to measure the performance of an offer and share with merchants how much consumers spend when redeeming a deal, but they have a harder time ensuring that the consumers who are offered a deal are the right ones. While with Foursquare location takes precedence over purchase history, AmEx goes one step further, seeking to answer the common complaint about daily deal sites offering guys Brazilian bikini waxes. Last July, the company introduced the Facebook app Link, Like, Love, which presents users with offers based on their spending histories and Facebook profiles after linking their Facebook and AmEx accounts—potentially making waxing offers for dudes a thing of the past.

“For us, we were most excited about the relevance piece [of the Facebook program] because that was something that you don’t see a lot in the marketplace,” says Leslie Berland, svp, digital partnerships and development at AmEx. “At the time, you did see a lot of location-based offers, but the idea of making a like on Facebook mean even so much more was very powerful to us.”

Through Link, Like, Love, cardmembers who connect their cards with their Facebook accounts receive deals based on things they’ve liked, interests listed on their Facebook profiles, social connections and, of course, their purchase histories.

Tom Arrix, vp, global marketing solutions for the U.S. at Facebook, says one of the keys to Link, Like, Love is how its use of the social graph promotes sharing, thus creating a network effect for merchants. “When people start to receive things that are really relevant to them, they want to share them,” he says. “We’ve seen that for a long time here at Facebook, and we’re seeing the power of the social graph come to life right before our eyes with Link, Like, Love.”

Online restaurant-delivery service Seamless is among the brands testing promotions through Link, Like, Love. It used AmEx’s social graph to target consumers age 18 to early 40s who are single, as that demo tends to cook less and order in more, says Ryan Scott, vp, marketing at Seamless. Scott refers to a brand targeting according to a cross-section of a user’s social and spend graphs as—here’s that term again—the “holy grail.”

FedEx has also glommed onto AmEx’s Foursquare and Facebook partnership, aiming to drive in-store traffic. Think of that small business owner in Memphis who’s traveling to Los Angeles for a presentation, but instead of carrying his materials on the plane, he is able to pick them up from a FedEx store once he lands. Because AmEx is able to see a cardmember’s transportation history, it can create travel segments and communicate that consumer pool to FedEx, which can then opt to run an offer, explains Denise Yunkun, director of small business marketing for FedEx. “It’s more data-intensive than probably people realize,” she says.

The same day AmEx announced Link, Like, Love, it also unveiled the Go Social self-service offers tool to enable small businesses in particular to run deals through the Foursquare and Facebook programs and analyze a campaign’s performance through an online dashboard. AmEx won’t say whether the product is aimed at the big players in the daily deals market, but, says Scott, “Groupon has no shot relative to someone who has the spend data—and in AmEx’s case, 160 years of it.”

Groupon may very well have no shot—for now. But in order for Groupon or similar players to rival AmEx’s personalization capabilities, it would need access to a consumer’s purchase history. It could do so indirectly through third-party data—but that’s somewhat like buying a Rolex in Chinatown.

“First-party relationships are the gold of data,” notes Tim Suther, chief marketing and strategy officer of the technology and marketing services giant Acxiom, who noted that data exchanges frequently get consumer basics like gender wrong.

Besides daily deals and Facebook shopping, AmEx is also cozying up to Twitter, looking to enable commerce on that platform. Less than a year ago, the two companies started taking note of how Twitter users were including hashtags when tweeting about things they’d bought or wanted to buy, or deals they’d received.

“We looked at the data, looked at what people were talking about, looked at the categories and used that really as the kernel,” says Joel Lunenfeld, who oversees Twitter’s brand strategy group. In March, the companies launched a program encouraging cardmembers to sync their accounts to receive offers for tweeting a hashtag.

AmEx won’t share specific performance metrics, but the @AmexSync account has sent out more than 232,000 tweets to date (though it should be noted the company automatically posts tweets whether a user successfully syncs up or not). Lunenfeld says getting comsumers to retweet deals is key to helping drive enrollment. And the partnership seems to be bearing fruit. Seamless, one of the program’s eight brand partners at launch, had to raise the cap on how many offers it would extend three times over a 48-hour period, says Scott.

Yet as AmEx experiments in the social arena, the fight for commerce’s future is expected to play out in the mobile arena, as more key players look to line up power positions. For example, Google unveiled its Mobile Wallet last year. PayPal has been rolling out its mobile payment system since last fall, and a joint venture by AT&T, T-Mobile and Verizon Wireless is expected to launch the ISIS mobile payment package later this year.

AmEx is already well positioned. A consumer can link his AmEx card to his PayPal account, and three of the company’s cards will be available through ISIS. But perhaps the best indicator of where AmEx wants to take mobile came, if subtly, a few weeks ago in an update to its iPhone app. With that update, AmEx pushed a new My Offers feature to users populated with deals from the social programs as well as ones specific to an individual cardmember’s purchase history and iPhone’s location.

But the battle to own the mobile commerce relationship with consumers promises to be fierce, and mobile deals look to be a key front. Google already rolled out an Offers product during its wallet launch event. PayPal is making a similar push. But the issue those two companies face, particularly Google, comes back to purchase histories—once again, an AmEx strength. Google has sought to sidestep the issue with prompts for users to personalize their deals preferences, whereas PayPal can factor in purchase history (but only insofar as purchases are made through PayPal).

“The relationship consumers have with PayPal is quite different than what one has with American Express and perhaps other card products,” says Denée Carrington, a former new product development director at AmEx and now senior analyst, consumer product strategy at Forrester Research.

Until PayPal, Google, Visa and Groupon solidify or stake themselves in the social-local-mobile commerce landscape—and that means with users—they risk having to compete in a world that AmEx created and users adopted. “It begins to frame their expectation for how commerce should work,” says Carrington.

But with all the balls AmEx has in play—and those it’s readying to pitch—it is perhaps inevitable that it would bump up against its partners. AmEx is looking to add location-based alerts to its iPhone app so that when a cardmember swipes his card he would receive a location-based alert of a complementary offer nearby—a deal at a retailer a few blocks from where he just finished lunch, for example. As it happens, Foursquare is readying a similar product that would let businesses tap into its Explore location-discovery algorithm and target offers to users, according to Furst.

The big question going forward is: Will those partners be able to resist AmEx’s powerful data supply, not to mention its relationship with consumers wallets? After all, it’s hard to pass up a deal on a cheesecake.