On July 21st, I had the pleasure of attending the Geo-Loco conference in San Francisco, CA. With the theme portraying geo location as the next big thing in advertising, social media and discovery, the conference was a great opportunity to mingle with some of the leading advocates, investors, preachers and practitioners of location based services (LBS). Fred Wilson of Union Square Ventures emphasized on the difficulty of engaging millions of consumers with LBS; while Seth Priebatsch, CEO, SCVNGR and Keith Lee, CEO Booyah shared evidences of how games can be utilized to not only drive millions of LBS consumers, but also produce sticky behavior. Other discussions claimed the narcissistic human behavior as the growth driver for some of the popular check-in mobile apps such as foursquare and Gowalla; still others addressed the privacy concerns around LBS and how startups in the space could make money. All this buzz and my various one-on-one discussions with the LBS gurus and CEOs of up and coming startups got me thinking about which LBS business models could provide long term value to its customers and investors. This blog entry is my attempt to portray one such model.
Perhaps, the right place to start is not the business model but the problem that needs to be addressed. The “old mantra” for acquiring and retaining customers can be summarized in these lines – bombard customers with advertisements and offers irrespective of whether these offers are relevant or timely. This worked well in the past, especially, for print newspapers and magazines since there were fewer channels for audiences, seeking information on what’s new and upcoming and who might be offering deals in product/service category of their interest. With the proliferation of distribution channels and advent of smart search engines, the search took hold as a new medium for reaching targeted customers. Under the “search mantra”, the engines display advertisement and offers when an intent for a service or a product is revealed (user performs a search). Because the intent is known, the advertisements and offers under this model are relatively more relevant and timely when compared to the “old mantra”. Although, the search-supported ads continue to work well today (~72% of Google’s revenue), there is another phenomenon currently underway that may displace the customers away from the search – the phenomenon called social media networks. The obvious signs are the Facebook’s growing 500MM user base, foursquare’s recent growth ,and Twitter’s staggering performance. This combined with the proliferation of mobile devices and location specific mobile applications have led to a new challenge – how to engage the audience that is highly mobile, extremely busy, don’t like to be interrupted, continues to trend towards spending lesser time searching (see graph 1), and prefers spending more time socializing.
Graph 1: Facebook.com vs. Yahoo.com vs. Google (source: compete.com; accessed: July 29, 2010)
In essence, the advertisers – the local merchants and the large national chains – who continue to deploy highly fragmented print publishers – the newspapers, the magazines, and the large printers – and the online search engines to generate leads and drive the foot traffic to their businesses are at loss in engaging the audience that increasingly relies on their “social connections” to assess and make decisions about its next purchase.
Herein lies an opportunity for someone who can aggregate the ad and offer content published today in thousands of print publications and online, and deliver this content on piecemeal basis at the time it is requested (anytime), at the place it is requested (location-specific), and in the form it is requested (application-specific). That someone should be able to bring together content from thousands of publishers and deliver it on demand to millions of consumers – think of admob of location based services. I believe that this model is best suited to provide the solution because it addresses advertisers as well as “social consumer” needs. The model allows the advertisers to reach the “social consumer” with their ads and offers when she needs them most (delivered on the go rather than distributed at a fixed source), where she needs them (while checking-in at a location using foursquare, Gowalla, or Geodelic mobile app or while reading reviews on her Yelp mobile app) and in the form she needs them (dollar amount discounts or winning virtual currency in the virtual game world that can be equated to certain discount in real world currency).
There are some innovative startups that are in pursuit of this very solution and have actually garnered interest from the constituents, the publishers to aggregate the content and the app developers to feed the content to their users who are socially engaged on their apps. Given the mobile nature of the aforementioned audience, the more innovative startups are concentrating on the geo location based mobile apps to engage their target audience. The geo location apps that have been successful in rallying millions of consumers have also been successful, and rightfully so, in receiving high-flying valuations and funds from the venture community. Although, the same is not true in the case of “content aggregator/deliverers”, I believe, it is no longer a question of whether they will succeed, but when they will succeed.