The quality of the restaurant experience, and therefore its profitability, depends on its business model.
Author: Not Boring by Packy McCormick
Translation: DeepTechFlow
Blackbird is the first blockchain application I have used, but it doesn't feel like a blockchain application. It's more like a restaurant app. I use it to discover restaurants and earn loyalty points. Starting today, I can use it to pay my bill automatically—no need to check the bill—using a credit card, debit card, or Blackbird's $FLY token.
At the end of last year, I wrote that as the barriers to blockchain products decrease, more excellent entrepreneurs will build blockchain products. Blackbird is the best example I've seen. I would use this app whether it's on-chain or off-chain, and it's a tool for restaurants, even if they've never heard of cryptocurrency or don't particularly like cryptocurrency, because it can help them make a profit. But it's also an application that cannot achieve its vision for restaurants and customers without cryptocurrency.
Running a restaurant is very difficult. 60% of restaurants close in their first year. The surviving restaurants barely survive with meager profits. But restaurants make cities and communities vibrant, comfortable, and familiar. We hope they survive and thrive.
Therefore, this article will delve into Blackbird, the challenges of running a restaurant, and how cryptocurrency can help restaurants improve their business in the hands of the right entrepreneurs.
This is not a sponsored in-depth discussion. I am not an investor, although a16z crypto (where I serve as an advisor) is. I am just a fan and user, as a New Yorker who hopes my favorite restaurants continue to operate, looking forward to getting a free drink.
Let's get started!
Blackbird
The restaurant industry exists in a fundamental paradox: it is a hospitality-centric business designed to make every customer feel special, but it is also a volume business that needs to serve as many customers as possible to remain profitable.
If you've seen "The Bear" Season 3, you'll see this paradox portrayed with a high degree of realism. It's the showdown between Richie and Computer. Five-star hospitality versus cold, hard numbers.
Richie and Computer, The Bear
Blackbird is the product of the combination of Richie and Computer: using data to enhance personalized hospitality.
Blackbird is a loyalty and payment platform designed for the restaurant industry. For customers, it offers the opportunity to "be a regular anywhere." The company aims to solve this fundamental paradox by combining good hospitality with good business.
Essentially, Blackbird is trying to promote the "regular" experience in multiple places—being recognized, valued, and treated like an old friend. In the process, it hopes to reshape the entire industry's economy, which is in urgent need of reshaping.
Restaurants are unique in many ways. Overall, they are powerful: restaurant sales in the United States exceeded $1 trillion last year, accounting for nearly 5% of GDP. But each restaurant is a notoriously difficult business model: 60% of restaurants close in their first year, and 80% fail within five years. In 2023, 38% of restaurants reported no profit.
The reasons for this difficulty are diverse, intertwined, and form a huge challenge. Rent keeps rising, and suddenly, your favorite bar becomes a Chase bank. Labor is difficult to recruit and retain, the kitchen is chaotic, and inventory expires. The young people on Instagram only book the cheapest dishes for the sake of taking photos. Then, a new, trendier restaurant opens on the street, and all the young people no longer visit. More and more people choose delivery, and delivery services take a significant cut from your income. Reserved customers don't show up, leaving valuable tables empty. When they do show up, reservation platforms also take a significant cut from your income, as do payment processors. When all is said and done, if you're still standing, you'll be left with an average profit margin of 4%, far below the 20% of twenty-five years ago, and almost no funds to invest in the high-quality service and photo-worthy dining environment people expect today. It's surprising.
Ben Leventhal understands this as well as anyone in the world, and he wants to solve this problem.
Blackbird Founder Ben Leventhal
I love a book, The City We Became, in which author N.K. Jemisin gives a humanized image to each borough. Manhattan is a young, vibrant, multicultural young person; Brooklyn is a middle-aged black woman, a former rapper; the Bronx is a street-smart Afro-Latina woman; Queens is an Indian immigrant math student; and Staten Island is a protected, somewhat discriminatory white woman.
If Jemisin were to give a humanized image to New York's restaurant scene, she would choose Ben Leventhal.
"Ben is so New York in a way that's hard to describe," Jay Drain, a partner at a16z crypto, told me. He is involved in Blackbird's investment. "He looks like part of the restaurant."
Ben grew up in New York, attended Horace Mann, the school that inspired "Gossip Girl." After a brief college experience, he returned to New York and immersed himself in the intersection of food and technology.
In 2005, he founded the restaurant recommendation blog Eater. Before Eater, people relied on outdated print guides or arrogant professional critics who reviewed high-end restaurants. Eater embraced the internet and was successful. He sold it to Vox Media in 2013.
In 2014, he founded the reservation platform Resy. Before Eater, people made restaurant reservations through OpenTable, a product designed for desktops in 1998. "The advent of smartphones has come and gone, but OpenTable didn't really update its fundamental concept," he said in a Serious Eats podcast. Resy embraced mobile and was successful. He sold it to American Express in 2019.
After working for the $170 billion payment and loyalty giant American Express for a few years, Ben began discussing the next steps with some friends. One of those friends was Fred Wilson, a partner at Union Square Ventures and an early investor in Coinbase. Ben had an idea to build a payment and loyalty product for the restaurant industry, and Fred encouraged him to consider developing it on the blockchain. Taking action, USV committed to co-lead a $11 million funding round with Shine Capital, and Blackbird was born.
As you read the last few paragraphs, you may notice several themes.
First, the progression of the products reflects the customer experience: discovering dining locations (Eater), making reservations (Resy), enjoying the experience, paying, and returning (Blackbird).
Second, being at the forefront of embracing new technology platforms in the industry. Eater replaced traditional print with an internet blog, Resy replaced desktop (as well as piecemeal reservation management tools like paper, spreadsheets, and emails) with a mobile app. Blackbird is replacing fragmented loyalty programs and high-cost payment systems with cryptocurrency.
In this way and others, Blackbird is running the Ben Leventhal Playbook, but with some new twists.
At this point and in other ways, Blackbird is employing Ben Leventhal's playbook and adding some new changes. However, there is an important difference here. While Ben sold Eater and Resy to centralized companies, that is not the choice for Blackbird. Instead, as the company gradually decentralizes, ownership of the restaurant network will primarily belong to the restaurants themselves. "Overall, the restaurant industry should own about half of the network," Ben told me.
This is one of the new possibilities brought about by Blackbird's use of cryptocurrency, but the reason for Blackbird's success is that it is not a cryptocurrency application. It is a restaurant platform and consumer app built by restaurant professionals, using cryptocurrency and other necessary tools to make restaurants more profitable, help them better understand their customers, and ultimately build a healthier industry.
When I asked Ben what the key points were when telling the Blackbird story, he said they are very excited about the long-term prospects for the industry.
"We are just a few core breakthroughs away from a better industry."
This is an in-depth discussion of the industry and its key breakthroughs.
How to Understand Blackbird
There are several different ways to understand Blackbird. They are interconnected, but it's worth analyzing them separately before combining them.
The first way to think about Blackbird is from the industry's perspective: as a tool to help restaurants improve unit economics through payments, loyalty, and customer insights.
The second way to think about Blackbird is from the customer's perspective: as a way to discover dining locations and have a personalized dining experience that matches customer loyalty.
The third way to think about Blackbird is as a business: as a blockchain-based American Express, similar in many ways but different in some key ways.
The fourth way to think about Blackbird is as a blockchain network: as a decentralized platform that can create and distribute new forms of value within and outside the restaurant ecosystem.
It encompasses all of these, but to understand them, we need to first understand the restaurant business.
The Restaurant Business
Restaurants are something we are reluctant to think of as a business. Business requires trade-offs, and we want restaurants not to have to make trade-offs. We want to enjoy great food and excellent service every time we walk into a restaurant because, from our perspective, restaurants are an experience. They are a rare opportunity to be cared for and treated like nobility, a small pleasure.
But restaurants are, after all, a business, and their business model directly affects the level of service they provide.
In 2019, Kevin Kwok wrote Aligning Business Models to Markets, using Danny Meyer's Union Square Hospitality Group (USHG) as the primary example.
USHG is undoubtedly a success story in the restaurant industry. Meyer has built Union Square into what it is today. The Modern, Union Square Cafe, Manhatta, Gramercy Tavern, and ci siamo have always been New Yorkers' favorite dining spots. Shake Shack, spun off from USHG, has a market value of $3.4 billion. In such a challenging industry, USHG's consistency stands out.
How did Danny do it? Kwok explains, "In his business memoir Setting the Table, Meyer attributes his tremendous success to a steadfast focus on his employees, which leads to differentiated service."
So, Kwok asks, "If Danny Meyer's employee-first approach is so effective, why haven't more restaurant groups adopted it faster?" and answers, "Providing high-level service is a choice that must be supported by a** business model.**"
I highly recommend reading the entire article, but in short, providing high-level service requires investment in employee training, and training employees is expensive, something most restaurants cannot afford because employee turnover rates are as high as 50% to 110%. Once you've paid for someone's training, they leave. However, USHG can afford to invest in employee training because the group operates restaurants from fast food to fine dining, allowing them to provide clear career paths for employees. You can start at the counter at Shake Shack and eventually become the manager of The Modern.
Kevin Kwok, Aligning Business Models to Markets
Because employees stay longer, USHG can invest more in training them, creating differentiated service that makes USHG's restaurants so outstanding and allows the group to continue opening new restaurants, creating more career opportunities for employees.
The key is that the quality of the restaurant experience, and therefore its profitability, depends on its** business model.**
But Kwok wonders why models like USHG's are thriving now, while at any time in the hundreds of years of the restaurant industry's history, a similar argument could have been made?
In the past, people chose local restaurants mainly because there weren't many choices. The restaurant industry used to be supply-driven. Now, consumers have hundreds of choices and dozens of internet sources to discover those choices, making it more important to be a place consumers want to return to. The restaurant industry is now demand-driven. As Kwok writes:
These shifts to the demand side of the industry make restaurants more focused on service quality. Customers can go anywhere they want, so excellent restaurants are better able to retain customers.
Therefore, excellent service is essential in today's restaurant market, but excellent service requires an investment level that most independent restaurants cannot afford due to employee turnover. In fact, the profit margins for most independent restaurants are very thin.
Previously, we mentioned that the average profit margin in the restaurant industry has dropped from 20% to 4%. That's thin. But these high-level numbers often lack vitality, so I read some detailed analyses of restaurant owners' profit margins to better understand the actual situation.
In "The Financial Reality of Restaurant Ownership", Charlie Anthe, co-owner of Moshi Moshi Sushi & Izakaya in Seattle, analyzed the economic situation of his restaurant in detail.
In 2019, Moshi Moshi's total food and beverage revenue was $797,365.
It paid $192,168 for food and pour costs (-24.1%), $200,165 for back-of-house labor costs (-25.10%), $60,932 for front-of-house labor costs (-7.64%), and other wage-related expenses, totaling labor costs of $328,793 (-41.23%). The gross profit after deducting "primary costs" was $276,404 (34.66%).
Next are fixed and semi-variable costs. Direct operating expenses (such as aprons, uniforms, pest control, kitchen supplies, and paper products) were $37,973 (-4.76%), advertising and promotions (including third-party delivery fees) were $27,134 (-3.40%), general and administrative expenses (such as credit card processing fees, legal fees, and accounting fees) were $42,875 (-5.38%), maintenance costs were $9,932 (-1.25%), and occupancy costs (mainly rent) were $75,790 (-9.51%).
If you're following these numbers, Moshi Moshi Sushi & Izakaya's operating net income was $82,697 (10.37%). Not bad! Well above average.
Then there are other expenses—interest expenses and owner's wages—totaling $70,772 (-8.88%), leaving a net profit of only $11,928 (1.50%). Still profitable! That's good!
Wait a minute. We still need to include cash outflows not shown on the profit and loss statement. A new outdoor sign cost $4,000, and SBA loan principal payments cost $17,000, as Charlie said, "So, our barely profitable restaurant ended the year with $8,000 less cash than it started with."
I put all of this into a spreadsheet, including a running balance column, to give you a sense of the anxiety restaurant owners feel as they watch their cash gradually decrease.
Charlie Anthe's data
In Boston, on the other side of the country, Irene Li is the chef and owner of Mei Mei Dumplings. Mei is a serious chef: "In 2016, she was named an Eater Young Gun winner; she has been a Zagat 30 Under 30 honoree and a six-time James Beard Rising Star Chef Award semifinalist." She shared the financial situation of her restaurant with Eater.
I won't go into the gory details, but with a revenue of $1,215,037 from the restaurant and food business, Mei Mei ended 2019…
Eater
"This doesn't include debt repayment and taxes," Li said. "It's nothing special. It's not great. But it's where we are now."
Both of these examples are from 2019. Then COVID hit. Then food prices rose. Things got worse.
So what do you do? Reduce food costs or labor? Move to a cheaper community? How do you invest in training when every minute of employee training is spending money without generating income? How do you invest in the customer experience when you don't know if customers will come back?
One answer proposed by the industry is consolidation. In "Refactoring Restaurants", Byrne Hobart writes:
Chains account for 77% of total restaurant visits in the United States, and are growing over time. In the independent restaurant space, there's been consolidation on the back end, the food distribution industry has consolidated through public and private equity mergers, and on the front end, more demand is aggregated through review sites, or met directly by delivery companies.
I don't know, buddy. In a world with cheap energy, flying cars, miracle cures, and increasingly homogenized dining options, these choices prepared and served by robots seem a bit dystopian.
What we want is the opposite. Thousands of vibrant independent restaurants, each offering something unique, each providing a magical personalized experience for customers. We want to become locals at the places we love and know that our favorite restaurants will be there with us.
Blackbird hopes to help achieve this goal.
How It Works
Blackbird launched in April 2023, initially partnering with a restaurant with a simple premise: a well-designed loyalty program can establish a direct connection between the restaurant and its customers, "the more often customers visit, the better their experience."
Gertie's membership card
Blackbird will work with restaurants to establish customized loyalty programs or membership systems. Customers can sign up for the restaurant's membership, receive a membership card in the form of an NFT, check in at the restaurant by tapping Blackbird's NFC chip using the Blackbird app, and the restaurant can reward customers in various ways to encourage them to visit multiple times.
As the first restaurant on the platform, Gertie has decided to launch a "Friends and Family" program, which Ben described in a blog post.
Customers become "Neighbors" on their first visit, "Friends" on their tenth visit, and "Family" on their fifteenth visit. The design, naming, and grading are all configured by the restaurant. On the first check-in, a free cookie from a nearby bakery is given. On the second check-in, coffee is free. Over time, common freebies give way to various privileges expected by you as a regular, such as a personalized coffee cup always waiting for you in the store.
A restaurant's membership card does not need to be an NFT. They can simply exist in the app, as long as you trust the app to continue running, Blackbird can simply share customer data with the restaurant, stored in a database or spreadsheet in case the app is no longer usable. But from the start, the plan is not limited to just one restaurant or just a membership system.
Soon, Blackbird added more restaurants in New York City and added new tools to connect with customers, understand customers, and motivate customers. In May, it announced its local token $FLY through a whitepaper and blog post.
While the membership system is specific to a particular restaurant, $FLY will become a "cross-industry loyalty currency." For example, each time you check in at Gertie, you might receive 1,000 $FLY or 5,000 $FLY. The restaurant may encourage customers to visit at specific times with higher $FLY rewards. So, each time you check in at a specific restaurant on the Blackbird network, that restaurant will know you're becoming a regular, and other restaurants will also know you're a valuable customer.
In the blog post announcing $FLY, Ben had a conversation with Marguerite Mariscal, a board member of Blackbird Labs and CEO of Momofuku, who described what she thinks $FLY might unlock:
"I think what Blackbird potentially offers is a broader network, bringing together those who love dining out and hospitality but may not have visited our restaurants yet. So, it's not just about identifying relatively frequent diners and the ability to turn them into regulars, but also those first-time customers who dine out frequently. If a restaurant knows a new customer dines out seven nights a week—because they see a huge $FLY balance and a crazy dining history—but has never been to that restaurant, he should be treated just like those who have been dining at your restaurant all along, because he is a valuable customer."
This is what I call "expanding the regular customer experience." Walk into any restaurant in the network and be treated like a regular.
For restaurants, Mariscal pointed out that the flow of information about customers—"still or sparkling water? Left-handed? What was the last bottle of wine?"—is still a manual process, which means it's fundamentally difficult to scale. In the same context, Jay Drain of a16z crypto told me that Blackbird will "handle all those customer notes that the staff at Don Angie writes on paper or in a spreadsheet when they have time, and the front desk leaves in Resy." Mariscal said that with better tools, "we're increasing the number of regulars, because of the improvement in service and attention."
The key insight here is that the "regular" experience is a form of capital—more precisely, social capital. This is valuable for restaurants (because it benefits from repeat business and word-of-mouth marketing) and for customers (because they enjoy better service and status). However, this capital has traditionally been non-transferable and non-liquid. With $FLY, you can.
In addition to membership and $FLY, Blackbird continues to experiment with new ways to help restaurants acquire customers and expand the customer experience.
"Blackbird is a young company," Ben explained. "We naturally like to experiment and iterate a lot to find solutions."
For example, in February, it launched Gjelina House Accounts.
The Gjelina Group owns popular restaurants Gjelina and Gjusta in Los Angeles, and last year, its restaurant in New York operated for only 30 days before closing due to a fire. When Ben had dinner with Shelley Armistead, CEO of the Gjelina Group, she mentioned that they lacked the funds needed to reopen. Ben suggested a collaboration: Gjelina could sell House Accounts on Blackbird to raise funds to reopen, and Gjelina would treat its supporters as regulars, offering popular House Accounts.
I thought it was a great idea and participated on the first day. I prepaid $5,000 and received a $5,000 House Account to spend at the restaurant when it reopens, as well as a dedicated hotline for booking hard-to-get tables, a gift (they gave a Gjelina hat and delicious granola), and 50,000 $FLY. It's a wise move: I'll have a go-to place and enough $FLY to possibly be seen as a regular at other restaurants in the network. Mutual benefit.
In March, Blackbird launched the Breakfast Club, offering a different but equally enticing deal: pay an $85 membership fee to enjoy a year of free coffee or tea at 14 coffee shops in the city, along with merchandise, event access, and 5,000 $FLY. Additionally, as you are more likely to choose one of the coffee shops in your neighborhood, the restaurants gain repeat customers, and you will repeatedly encounter those willing to join the Breakfast Club. Mutual benefit.
a16z crypto partner Carra Wu tweeted that she made new friends at the local Fairfax shop:
carra.eth: Yesterday morning, I went to the @blackbird_xyz Breakfast Club closest to my home and made 5 new friends - I mean real friends - all living near me.
As an introvert struggling in the world of merriment and noisy parties, I can't tell you how much of an unlock this is for me. The Blackbird Breakfast Club is the closest thing to Central Perk Coffee from "Friends" in the smartphone era. @benleventhal might soon launch a dating app too?
In June, Blackbird launched its latest club: Bar Blackbird. Similar deal: $50, enjoy a free drink every night at over 15 bars in New York (when purchasing a second drink), and receive 2,500 $FLY.
Breakfast Club and Bar Blackbird
Members can enjoy free drinks and a "buy-back" experience every time they walk into their favorite bars. The restaurants gain new customers and turn them into repeat customers. Mutual benefit.
There will be more mutual benefit experiments. Earlier this month, Blackbird partnered with Miami's Cowy Burgers to host a three-day pop-up event at Standard Biergarten, open only to Blackbird users who claimed a (free) Blackbird x Cowy Burger access pass. Perhaps a burger club is on the horizon.
But Blackbird's biggest new release is clearly not an experiment. It's at the core of their business and their mission to help restaurants become more profitable.
Today, Blackbird officially launches Blackbird Pay, which has been in the works for the past few months.
"Blackbird initially focused on loyalty, which is nice to have," Fred explained in our conversation last week, "but when combined with payments, it becomes a must-have."
Here's how it works.
When you check in at a Blackbird restaurant, a bill is opened. You can choose to split the bill with friends, pay with a debit or credit card in the app, or even pay with $FLY. From the customer's perspective, this converts your social capital into actual capital that can be used for dining.
And there's one more thing…
At some restaurants, you simply tap, order whatever you want, and then walk out. The bill is automatically paid.
I've only had this experience once, about five or six years ago, and it was so magical that I remember the details. It was a summer night, and Puja and I were dining outside at Bar Primi on the Bowery. We ordered pasta and drinks, and waited for the bill. The server came to our table with the receipt: the bill had been paid. We were free to leave. A magical experience.
Bar Primi, The New York Times
I even remember that I used the Resy reservation app. My credit card was on file, and the bill was automatically paid. It was a magical experience for me and a faster turnover for the restaurant. A win-win.
I haven't had that experience since. It seems that Resy didn't continue that feature after being acquired by AmEx. But Ben is bringing it back through Blackbird, and I can't wait to try it.
I also remember my first time using Uber, around 2011. My friends and I were gathering at my place to go to a concert, and I tried to order an SUV to take us to the show. The SUV showed up, we all got in, and each of my friends downloaded Uber on the way. I bet the seamless Blackbird Pay experience will also generate similar word-of-mouth effects.
However, to promote Blackbird Pay, restaurants need to accept it, and staff need to be trained on the new system and processes. What's in it for them?
Blackbird Pay charges a fixed 2% fee, while the industry average fee is 3-4%. Payments are Blackbird's main source of revenue. Ben explained that they lose money on some transactions (when users choose to pay with a credit card, Blackbird pays those fees), and make a profit on others (when they use $FLY for payment, Blackbird incurs almost no fees), but "overall, we like this 2% model." Mutual benefit.
You can see how everything comes together. Earning social capital and converting it into actual capital. Restaurants gain data, good repeat customers, and lower fees. You can be a regular anywhere.
Hopefully, these are the first steps to help excellent independent restaurants become profitable.
Helping Restaurants Become Profitable
This brings us to the first of the four ways Blackbird is thinking about: as a tool to help restaurants become more profitable.
In the paradox of customer flow in the restaurant industry, there is another important contradiction: short-term and long-term. Actions to improve profitability in the short term may cause damage in the long term. This tension exists in any business, but it is particularly evident in restaurants, making it especially difficult for them to balance.
Take USHG's emphasis on employee training, for example. Other restaurants could better train their staff, leading to a better experience in the short term, but as these employees leave, this decision may destroy the restaurant's fragile financial situation in the long term.
Another example is the quality of raw materials. Restaurants can choose to lower the quality of raw materials to save costs and increase profitability in the short term, but customers will notice and choose to dine elsewhere, ultimately leading to the restaurant's failure in the long term.
There are also things like providing a consistent high-quality experience for all customers. Restaurants can offer free drinks to everyone, hire an excess of staff to ensure timely service for every customer, understand each customer's needs, and strive to meet them. If the restaurant had unlimited funds, this might be a long-term profitable choice, but unfortunately, the restaurant may have closed before determining if the investment had a positive return, or may not be able to evaluate the return on investment.
This is an extreme example, but it highlights the key point Ben believes is crucial to understanding the plight of restaurants: independent restaurants lack complexity in customer acquisition, retention, and customer lifetime value compared to the typical companies we cover in "Not Boring".
Many of the restaurant's costs are fixed costs. The cost of food and beverages is determined based on a certain quality level. The cost of rent is determined based on the specific location you want to be in. The cost of labor is determined based on the level of service you want to provide.
But restaurants can control some things, as long as they have the relevant data and tools. These are the areas that Blackbird hopes to improve.
Blackbird Pay is an obvious solution to enter these areas. Reducing payment processing fees from 3-4% to 2% can improve profitability in the short and long term. Faster turnover can also increase profitability in the short and long term. Restaurants may adopt Blackbird Pay to gain 1-2% profit, which could potentially double profits in some cases.
Once Blackbird is established, it can help restaurants acquire, retain, and increase the lifetime value of customers more intelligently.
First, restaurants can design their own membership programs and incentive schemes. They may encourage customers to return after five visits by offering free drinks on the fifth visit, or offer additional $FLY during lunch to encourage dining when dinner is usually busier, or provide free merchandise to the most loyal customers.
Since Blackbird customers check in every time and open a bill after checking in, the restaurant can directly track the relationship between these actions and spending. Unlike traditional reservation systems that only track the booker, Blackbird can collect data on each customer at the table, as they also need to check in to receive $FLY.
Equally important, although customer data is usually stored separately by individual restaurants and third parties, Blackbird's data is shared among all restaurants in the network, allowing them to build more complete customer profiles.
According to the updated Flypaper, Blackbird's customer profiles are divided into four parts:
Personally Identifiable Information (PII): Information such as name, address, phone number, order history, etc., is stored in the Blackbird Labs database, with access restricted by privacy regulations and requirements.
Check-in Records: Each Blackbird customer has an anonymous wallet on the blockchain, where customers manage check-ins and membership activities independently, verified by the restaurant.
Customer Value Score: Blackbird uses its data to provide an assessment of the expected lifetime value for each customer. This is important because even with all the data, restaurants cannot be expected to be experts in calculating customer lifetime value.
Wallet Balance: If the customer has a $FLY balance, the restaurant can view it.
With each check-in, Blackbird shares the customer profile with the restaurant so they can better understand the customer they are serving. Each restaurant can tailor the experience to the customer.
Restaurants can even use this information to decide who gets priority for reservations. Now, Blackbird members can request tables or other special requests via direct message to the restaurant (all of which are recorded in your customer profile). Once there is enough liquidity in the system, it is normal for restaurants to reserve tables for high-value Blackbird members - those who spend more, tip more, dine more frequently, or invite others and make them regulars - to create more value from each table and achieve higher profitability.
There is still much work to be done between the current situation and this vision. One major risk Jay described to me is, "Blackbird can provide a powerful platform and recommendations for restaurants, but the restaurants themselves must fully leverage all the value Blackbird provides and design unique loyalty programs using that value."
Ben also expressed a similar view, believing that tools around customer acquisition and retention are the most difficult for restaurants to understand. But he said that Blackbird's job is to help them improve in this area.
"We plan to work with them to improve this skill, from promotion to product design in all aspects," he said. Blackbird has a responsibility to build an interface that allows restaurants to simplify the use of $FLY, rewards, and information to attract customers and encourage repeat visits to increase profitability.
First, they will gain 1-2% profit space from Blackbird Pay. Over time, the plan is to help restaurants measure what decisions they can make today to resolve the short-term and long-term contradictions, thus achieving profitability now and in the future.
A major lesson from USGH is that the business model and customer experience are closely linked, and Blackbird hopes to make it easier for each restaurant to understand and leverage this relationship.
Magical Regular Customer Experience
The good news is that Blackbird provides tools and incentives for restaurants to improve our dining experience (unless you are rude to the server, or just here for the 'gram).
If you're in New York, I highly recommend giving it a try. The Blackbird team generously offers an additional 500 $FLY to all "Not Boring" readers, just register with Blackbird on your next check-in, and fill out your name, email, and phone number.
I discussed many customer-facing benefits in "How Blackbird Works," so I won't go into detail here, but I did ask Ben how he thinks the experience will evolve in the years after network expansion. Here's his description:
You open the Blackbird app. Based on what it knows about you, your location, and the specific query you make, it recommends two to three places nearby. This will be your last interaction with technology. You simply walk into the restaurant, and the restaurant recognizes you and understands your preferences. All staff know your name. They might give you a round of free drinks, cook your steak the way you like it, or prepare a special dessert for your birthday. Then you can just leave. The bill will be deducted from your $FLY balance, and you will also receive additional $FLY for visiting.
The idea is to use technology to take you away from technology and into a magical in-person experience, making you a regular customer wherever you go.
Blackbird as the On-Chain AmEx
More profitable independent restaurants, more amazing dining experiences. Sounds good. However, to achieve this future of dining, Blackbird itself needs to become a successful business model. It needs to continue to grow while maintaining the charm of a startup.
Just like a restaurant itself, the better Blackbird is built, the better it can meet customer needs.
From this perspective, the best way to understand Blackbird is to see it as an on-chain AmEx. It profits through payments and increases transaction volume by enhancing customer loyalty.
There's a reason Blackbird looks like AmEx - both are in the payment and loyalty business. Fred Wilson stated that Ben's experience at AmEx after acquiring Resy directly influenced the conception of Blackbird.
He worked at AmEx for a year and understood the internal mechanisms AmEx had built in payments and loyalty. He understood the power of this business model and the dependence of the restaurant and hotel industry on it, but its limited impact. He believed that rebuilding this business model on-chain and allowing restaurant owners to become owners was timely.
There are similarities between the two businesses, but there are also important differences.
AmEx has built a $170 billion giant under a closed loyalty and payment system, where it is both the issuer and merchant acquirer. Its operation model is as follows:
AmEx charges higher fees (2.5%-3%) than Visa and Mastercard (about 2%).
Higher fees allow AmEx to provide generous rewards, attracting affluent customers.
Affluent customers drive high transaction volume, making merchants feel the fees are reasonable.
High transaction volume generates more points, increasing customer loyalty and spending levels.
Enhanced loyalty and spending attract more merchants, increasing acceptance.
Wider acceptance drives more transactions, creating a virtuous cycle.
If Blackbird is successful, it will be reflected like AmEx in a funhouse mirror:
Blackbird charges lower fees (2%) than traditional restaurant payment systems (3%-4%).
Lower fees attract more restaurants to join the platform.
Restaurants use $FLY rewards to attract more diners to join the platform.
These diners drive transaction volume, attracting more restaurants to join the platform.
High transaction volume generates more $FLY points, increasing customer loyalty and spending levels.
Enhanced loyalty and spending attract more restaurants, increasing acceptance.
Wider acceptance drives more transactions, creating a virtuous cycle.
There's one more detail I haven't mentioned. While the purpose of $FLY is to maintain stable value or a fixed exchange rate, using $FLY will allow diners and restaurants to acquire a stake in the network through Blackbird's second token, $F2. The more $FLY you hold and spend (as a diner) or hold and receive (as a restaurant), the more stake you get.
I like Blackbird's approach because it prioritizes experience over ownership. It's not about kickstarting a flywheel, but making the existing flywheel spin faster by providing additional incentives for diners and restaurants.
Blackbird gives control to restaurants and diners, echoing the key difference between AmEx and Blackbird: AmEx's value comes from its closed-loop payment system across all merchants, while Blackbird's value comes from its focus on specific merchants in an open system.
Over time, other industries may develop products specific to vertical industries, using $FLY and $F2 to enhance the practicality of rewards and expand the ecosystem.
But Blackbird Labs focuses on restaurants, and given its business model, the fit between the two is obvious.
Blackbird needs to simplify the process for restaurants to provide a quality experience using its tools as much as possible. These quality experiences will bring more transaction volume to restaurants, which will increasingly be processed through Blackbird Pay. Blackbird charges 2% of all transaction volume and, with widespread use of $FLY, can generate more net income.
Quality experience → more transaction volume → more profit.
This is true for restaurants and for Blackbird, partly thanks to the support of cryptocurrency technology.
Cryptocurrency Solves This Problem
So far, we've talked very little about cryptocurrency. Blackbird's membership card is a non-fungible token (NFT), its loyalty token is $FLY, and network participants can acquire a stake in the network through $F2. However, we are focused on the impact of these different products on restaurants and their customers, not the specifics of the tokens themselves.
And that's a good thing.
Blackbird is one of the first "crypto" applications adopted by mainstream users and businesses, who may not even realize they are using a "crypto" application. When I asked Ben why he thought that was the case, he gave two reasons:
People love restaurants. "Restaurants are deeply ingrained in our habits. They bring joy. If we put ourselves at the center of restaurants, it naturally makes consumers happy."
Building a magical product, whether it involves blockchain or not: "The key is to develop a product that consumers love. This has nothing to do with blockchain technology itself."
However, despite his experience building traditional software products, Ben chose to introduce blockchain technology in Blackbird, despite the regulatory complexity and technical challenges it brings. After all, he didn't need to work after selling two companies, and he was committed to supporting the restaurant industry, and if blockchain technology couldn't achieve that goal, he wouldn't develop on blockchain.
So, why introduce blockchain technology?
Last November, in "Blockchains as Platforms", I argued that blockchain is just a platform with unique benefits and certain drawbacks, and as infrastructure improves and these drawbacks are eliminated, more developers will build on-chain.
When transaction fees are $50 and take minutes to settle, or customers have to deal with the complexity of setting up wallets and signing transactions, many consumer developers will find the trade-off not worth it. "But," I wrote, "as transaction costs decrease, speed up, and user experience improves, these products start to become viable."
In fact, Blackbird is an example I cited in that article.
Five years ago, you couldn't build Blackbird on-chain. That's obvious. It means that five years ago, you couldn't develop a product like Blackbird. This is not so obvious, but more critical.
Blackbird's Effectiveness and the Role of Cryptocurrency
Blackbird is effective because it can operate like a regular consumer application while also executing functions that regular consumer applications cannot achieve.
Let's delve into the underlying structure of Blackbird provided by the new Flypaper to understand the reasons and methods behind it.
Earlier, I mentioned that Blackbird's restaurant membership cards are non-fungible tokens (NFTs). Currently, they are the only part of the app that exists on-chain, and their on-chain existence is not crucial. They are currently non-transferable ("We believe identity should not be transferable"), limited to use within the Blackbird app. At present, they can be seen as a record in the Blackbird database, and if Blackbird were to disappear tomorrow, I could walk into Gjelina and show them that I do indeed own my House Account NFT.
The $FLY token currently exists in the Blackbird database. When you check in at a restaurant that accepts $FLY, Blackbird simply moves $FLY from the restaurant's quota to your account in the database. When you settle a bill using $FLY through Blackbird Pay, it simply moves it from your account to the restaurant's account.
In the future, $FLY will be used as a reward and payment token within the platform, and restaurants will be able to exchange $FLY with Blackbird at a relatively fixed rate. It will not be traded, transferred, or exchanged for cash outside the app. You cannot profit from speculating on $FLY.
Blackbird users speculated that, in addition to being a reward and payment token, $FLY would also serve as a symbol of fuel and network ownership, but that is not the case.
Instead, Flypaper has introduced a new token, $F2, which will serve as the network's fuel and governance token. The network itself will be a third-layer Flynet built on top of Coinbase's Base L2, which is built on Ethereum. You don't need to understand all of this, just know that it means a few things:
First, transactions will be very fast and low-cost. You won't notice any difference in the experience compared to using regular consumer applications, and Blackbird Labs will bear most of the costs.
Second, other apps can be built on Flynet. If someone wants to develop a Blackbird for airlines, for example, they can build on Flynet and use $FLY for rewards and payments, using $F2 as fuel.
There will be a relationship between $FLY and F2. When the blockchain launches, all $FLY balances in the Blackbird database will be transferred to users' Blackbird spending wallets at a 1:1 ratio.
F2 will be allocated to diners and restaurants based on their $FLY throughput - the amount of $FLY they hold plus the amount they consume or redeem as rewards, divided by the total $FLY throughput of the network. If you hold or use 10% of the $FLY in the network during a certain period, you will receive a 10% F2 quota for that period.
This is a simple and elegant mechanism for distributing ownership in the network, and one of the reasons why Blackbird cannot achieve this off-chain.
First, network participants (mainly diners and restaurants) will receive 2.51 billion out of 5 billion $F2 tokens, meaning they will own and control over half of the network.
Second, because the distribution of $F2 in these 2.51 billion tokens is measured based on $FLY throughput, the most active restaurants and diners in the network will receive more network shares.
Third, considering that most people usually dine at only one restaurant per night, while most restaurants can serve hundreds of guests per night, restaurants naturally should receive more benefits than diners.
Fourth, it incentivizes diners and restaurants to join the network and be active early on. Since the allocation is based on the proportion of individual throughput to the network's total throughput, it will be easier to get more F2 early on. This is an elegant solution to solving the market's cold start problem.
Finally, because restaurants can use $FLY obtained from Blackbird Labs to reward diners in ways they believe are beneficial to the restaurant, and because restaurants are physically present, bots cannot enter and conduct Sybil attacks to steal all the tokens. Any bot attempting to book a non-peak time reservation at Principe, check in personally, spend $500 with friends, and settle the bill using $FLY to maximize their $FLY rewards will be detected.
(Note: I hope to see restaurants that are difficult to book with $FLY.)
Cryptocurrency makes it possible for diners and restaurants to have ownership of the network. It also enables instant, almost feeless payments on Flynet using $FLY. These are the core elements that make Blackbird unique.
Restaurants and diners don't need to spend a second thinking about cryptocurrency and how it works.
As a restaurant, it's worth considering how to design a loyalty program that maximizes profits, encourages the use of Blackbird Pay, and increases throughput. They may need to understand some digital acquisition and user retention strategies, but they don't need to know about L2 or L3.
As a diner, you just need to show up, check in, enjoy your meal, and leave. Just as some people work hard to maximize credit card points or airline miles, or snag restaurant reservations, some people will also plan to maximize their $FLY rewards. As long as the restaurant develops a plan that benefits both the restaurant and the network, it can be a win-win. But diners don't need to know anything about cryptocurrency to enjoy a "regular" experience at more and more restaurants.
The crypto infrastructure has finally matured, and all of this can happen quietly in the background. Jay specifically pointed out two factors that contribute to enhancing the Blackbird user experience:
Privy makes it easy to embed user-controlled but unobtrusive wallets in the app.
Base, Coinbase's EVM-compatible second-layer network, is a low-cost, high-performance L2 with Coinbase's trusted reputation and brand. (Since its launch in August 2023, Base has been upgraded to make the network more economical and faster, which should make on-chain transactions so smooth that users won't notice when more of Blackbird's components move to the chain).
The result is that Blackbird can build a top-tier consumer app with superpowers. Programmable incentive mechanisms. Faster, lower-cost payments. Ownership and control for restaurants.
This means that besides Blackbird, others can also develop similar products to improve their industries.
Fred Wilson pointed out that the on-chain existence provides an opportunity to establish loyalty programs similar to AmEx, where all loyalty points are on-chain.
"$FLY is like a stablecoin. It's not like Bitcoin, where you buy it and hope it goes to $100,000," he said. "But the idea of putting loyalty points on-chain is a big deal."
Specifically, this will allow any app to accept $FLY. "Right now," Fred said, "only AmEx and their partners can participate in the AmEx points program. But $FLY is similar to USDC: the hope is that over time, any developer can launch an app that supports $FLY."
FLY may become a reward and payment token for various merchants (including but not limited to restaurants). For example, if an airline wants to treat FLY similar to credit card points, they may be able to do so. If a luxury brand wants to limit the release of its new products to those who hold or spend a certain amount of $FLY, they may also be able to do so.
Interestingly, developers and entrepreneurs will come up with better ideas for using $FLY based on their own understanding of the problems that need to be solved, just like Ben did for restaurants.
In this regard, Jay made a very interesting point about why the a16z team is so excited about Blackbird. "Whenever there's a huge market with broken business models, that's a great opportunity for someone to try to fix it with crypto."
Perhaps in the case of Blackbird, cryptocurrency can indeed solve this challenge, even if it is happening behind the scenes.
Our Dining Future
The successful future of Blackbird sounds more appealing. It's the world we want to live in, a world that uses technology to create better face-to-face experiences rather than completely replacing them.
Achieving that future will require a lot of effort. According to the Dune dashboard provided by @jhackworth, there are currently 38,811 wallets holding Blackbird NFTs, and diners have checked in at 142 restaurants in New York City. Upside Pizza is the most popular restaurant, leading by far.
Top 10 Blackbird restaurants, @jhackworth’s Dune dashboard
It will take time to onboard more restaurants to the platform. Restaurants are notoriously slow to adopt new technology, and even if the restaurant owner gives the green light, getting the staff to embrace a new system requires extra effort.
Implementing Blackbird is not easy for anyone, but it's even more challenging if you're not Ben Leventhal.
When I asked Ben if it was necessary to operate Eater and Resy before starting Blackbird, he replied, "Understanding restaurants and speaking their language, being able to communicate with them, is a huge advantage for us."
We understand, love, and deeply engage in this industry. We work with them and have built long-term relationships with them. In our day-to-day operations, we understand how they operate, how to build technology for them, how to implement it, the process of implementation, and what we can reasonably ask for. We know how to work with them, how to interact, and ask, "What do you need?" and listen to their answers without taking them literally. Many of the things we do well are because we have been in this industry for a long time.
If Blackbird is successful, it's because it has built a product that helps restaurants solve the problems they care about. Technology is just a means, not the ultimate goal.
Every restaurant is unique, just like every person and every business. Some restaurants will be immediately excited about new things, while others will need some persuasion. But most restaurants want to provide a good experience for their guests, make them want to come back, and want to make more profit.
If Blackbird can solve this paradox, early partners will attract more restaurants to join.
How they use these profits, just like their designed loyalty programs, will be up to the restaurants to decide.
"Today, there's uncertainty for restaurants about what the future holds," Ben told me. "We want to give them more control over their destiny."
Blackbird hopes to give restaurants a deeper understanding of the future based on the decisions they make today, as well as additional profits that can be used to take action based on that understanding.
Some restaurants will use it to reward consumers with prices and discounts. Some will use it to provide better benefits, salaries, and training for their employees. Others will use it to try new things: menu development, concept development, capital investment in new locations.
The challenge and opportunity lie in the fact that restaurants are diverse and decentralized. This makes it more difficult to attract customers and develop products that meet their unique needs, but if you can do that, and provide the tools and profits needed for restaurants to thrive, it will bring a richer, more interesting, and more unique experience for everyone. This will bring more opportunities for your favorite restaurants and make you feel like a regular. And it means that local businesses can thrive without merging or homogenizing, because they have not been merged or homogenized.
One of my favorite articles is Colson Whitehead's “Our Dining Future” in The New York Times two months after the September 11th attacks. Whitehead describes New York City as a vibrant, ever-evolving city, defined by the closing of old locations and the opening of new ones, but always remembered for how it looked when we first saw it.
No matter how long you've been here, when you say "That used to be Munsey's" or "That used to be Tic Toc Lounge" for the first time, you're a New Yorker.
When the past is more real and solid than the present, that's when you're a true New Yorker.
This is a defining feature of this city, a common feature of any city, where our local places, the places where everyone knows your name, are overwhelmed by competition and change. The demise and rebirth make the city vibrant. But it would be great if these places could grow and evolve with the city and its residents. I hope Blackbird can help with that.
As for you? Make your contribution. Go out to eat and become a regular.
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