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Facebook co-founder Saverin leads ShopSavvy’s $7M round

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Alexander Muse, CEO and co-founder was this close to selling his shopping assistant start-up ShopSavvy to a company in the search and shopping business in July when he took a moment to rethink his long-term vision for the company. After getting advice from people like Facebook co-founder Eduardo Saverin and Brad Martin, former chairman and CEO of Saks Incorporated and chairman of RBM Venture Company, he found supporters who affirmed his belief that ShopSavvy could be a transformative company that rode the changes in commerce as more people use their phones to shop.

Instead of selling to a larger company, ShopSavvy, which makes apps for Android  (s GOOG) and the iPhone (s AAPL), is steaming ahead on its own and is now picking up $7 million in a Series A round to help it compete, evolve and grow. Saverin leads the round and will sit on the board with new directors James Bailey and John Boyd, the COO and co-founder of ShopSavvy. Martin is also joining in the round and will serve as an advisor. The company plans to use the money to build its team, extend to the web and tablets and weave in more social features, something Saverin should be able to assist with.

“Could we be part of a bigger company at some point? Perhaps, but there’s enough of a story here to remain independent and see if we can be part of the new way that retail works,” Muse said.

Smartphones enable smart buyers

Apps like ShopSavvy are helping fuel a boom in mobile commerce, as consumers leverage their smartphones to find the best deals around and become what Om recently called smart buyers. ShopSavvy lets consumers scan bar codes to obtain product information and reviews and find the lowest price of a product online and in nearby retail stores. It runs advertising against the bar code scans and searches of users, serving up a very appealing audience of consumers ready to shop.

ShopSavvy is betting that it can be an even bigger player in the exploding mobile commerce market, which Forrester predicts will hit $31 billion by 2016, up from $3 billion in 2010. Mobile devices are expected to weigh in big this holiday season with 15 percent of total “Black Friday” searches coming from mobile devices, according to Google (s goog), which also predicted that 44 percent of total searches for last minute gifts and store locator terms will come from mobile devices.

ShopSavvy launched in 2008 after winning Google’s Android developer challenge. It’s gotten by on the prize money and $2 million provided by the founders. In its three years, ShopSavvy raced to 20 million downloads on Android and iOS and has 10 million users. ShopSavvy counts over 40,000 partnerships with retailers such as Wal-Mart, Target, Best Buy, Sears, Nordstrom and Barnes & Noble.

Mobile shoppers are appealing to advertisers

Muse said 91 percent of bar code scans happen in a retail store by consumers looking to see if there are better deals to be had. Those scans show a great intent to buy, which makes ShopSavvy an appealing place to advertise. The company makes money primarily through advertising and it fetches eCPMs, or cost per thousand impressions, of $400.  Click-through rates are about 30 percent.

The ads are a way for other retail businesses to target those consumers or  companies to show goods  similar to the one scanned. A business which stands to lose a customer  can also advertise and try to retain that user, offer them a discount or sell them on other related products.

The new reality of commerce

Smartphone apps like ShopSavvy, eBay’s RedLaser (s ebay) and others are forcing offline merchants to scramble. They have to cater to consumers who can quickly comparison shop right from the aisles. That forces them to price competitively and think about offering a range of services that includes not just in-store but online and mobile shopping options.

This is the reality of shopping now that consumers are able to wield smartphones like local shopping devices. We’re still early in this transition in commerce, but Muse and his new investors believe they’re perfectly positioned to take advantage of this opportunity.

“Much like the nascent days of social media, I believe the mobile shopping services market is in the very early innings of change,” said Saverin. “ShopSavvy has the right connections, the right partners and the right technology to be a game-changer.”

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