GroupTabs group deal offerThe biggest promise location-based services offer for merchants is that they are going to bring in the pundits en masse. Location companies and brands have been experimenting with rewarding users with discounts and other special offers (like cutting the price of a coffee for the Foursquare “mayor” of a given coffee shop,). Now a new service called GroupTabs is taking on the challenge of turning check-ins into transactions.

GroupTabs describes itself as Groupon meets Foursquare. Meaning that it combines special deals (that Groupon is known for) with the check-in (as made popular by Foursquare). The biggest problem for location-based services these days is that they are rewarding people who already frequent a certain venue, be it a bar or a restaurant.

“We thought that there must be a better way to drive in new customers,” explained GroupTab’s Josh Malin. It works like this: A coffee shop or a clothes retailer puts out an offer, say 30% off a certain item. The deal happens only on the condition that a certain number of people check in. When the predetermined amount of people, say 20, check in, every one of those people get the deal. “That way, the deal has immediacy [alerting people that a deal is going down tonight] and it’s bringing in new people to shops, because it’s not rewarding just the one regular visitor,” said Malin.

GroupTabs is using Foursquare’s open API for checking-in, but says that the service has a strict, built-in way of making sure that the entity checking in is a real person and really physically there (as Foursquare allows users to check in at various locations even if they never leave their home). The New York-based company says it “makes sense” to work with Foursquare, which is also based in New York City. GroupTabs is looking to collaborate with the other services (Brightkite, Gowalla, Loopt and so on) when it gets its service up and running.

The company is testing its business model in New York, and Malin thinks the service is well-suited for urban areas, where there is the critical mass of people needed for finding enough groups interested in various deals. The number of people participating in a particular deal is up to the merchant, who will likely also limit the number of people who get to be in on the deal, just so that there will not be hundreds and hundreds of consumers creating a chaos. GroupTabs charges the merchant for using its platform. But not all deals will go through. For example, if a deal requires 20 people to check-in, and only 19 do, the deal doesn’t tip, and the merchant pays nothing. For users, the service is free.

GroupTabs has been in development since late April, and has three people, Malin included, working on it. The business is completely bootstrapped, and Malin says the company doesn’t need more money until it makes the move from New York to other metropolitan areas, which could be soon. The company’s CEO is Zane Friedman, who worked as a sales executive for local service directory Citysearch prior to starting up GroupTabs.

The service is an HTML5 application right now, meaning that smartphone users are able to access the service via mobile web. Native apps for the iPhone, Android devices and Blackberry are in the pipeline, says Malin. The next version of the app will also have basic social networking features, as the service seems like a fun way to meet new people – maybe even dating – as people who share the same interest show up to the same store or bar. While not jumping on the idea of turning the service into Groupon meets Foursquare meets (dating app) Skout, Malin agrees that there is plenty of potential in the service for social networking like sharing deal invites and rsvp’s with friends, and the company is planning to incorporate similar features in the future.