Monday, May 17, 2010

Find Me - Navigating Value in Location-Based Services

Any time I see rapid, mass adoption of a service, I immediately think of product/market fit. Take Mint. It filled a gaping hole in the personal finance market, a market virtually untapped by developers with a proper sense of UI design. It solved people's problems. Users suddenly couldn't live without it. It grew very quickly to a remarkable level and viola, big payday.

One key aspect of Mint's success was the retention of their users. Their core value proposition was clear, and it had lasting value. Think of it in reverse. If Mint was a fun diversion, a fad that went out of style, its user adoption curve would have flattened very early and then dropped off. This happens with Facebook games all the time. I should know. I saw it happen.

The past year we've witnessed the fast rise of Location-Based Services. Well, they're games right now, not much of a service because they don't provide much value in their current state. I'd like to focus on the complex value propositions that they are navigating, that of their customers and of their vendors.

Part 1: Value for the Customers

Go the destination sites of Gowalla, Foursquare, and My Town. Only Gowalla is advertising any payback for playing their game. And it's vague, in the guise of "Enjoy Rewards." These rewards are not yet monetary finally showing signs of real value. They're the bragging rights of enjoying mayorship in the game, or earning a badge as a regular. The concept, the promise, the aspiration is that one day you'll get a coupon, a free beer, or even earn velvet rope treatment. But we're not there yet. In fact, we're not even close. Unfortunately, as Dave McClure says, the games are bullshit. The games --- with the payoff currently emotional and not yet monetary --- don't have lasting value. Without lasting value, we may see the user adoption curve flatten and fall.

How do we get to a real payoff? Serious biz dev. They have to sign up companies incredibly fast to start giving out real payoffs incredibly fast. Why? Because the novelty of being the mayor of the Elbo Room wears off. Users will want actual value.

There's a critical difference between Gowalla and Mint. Mint developed a business model (commissions from financial offers) that worked. Had it failed, their users wouldn't have cared. The service itself is the value proposition. And it has lasting value. They would have stuck it out as Mint developed plan B. For Gowalla, like Dave said, the game is bullshit. The value is in the payoff. They have no payoff yet. They better find it soon.

Part 2: Value for the Vendors

Why would Philz, who serves the best coffee in the world, offer me a coupon for checking in via Gowalla? What's in it for them? Why, the impression in the user stream, that's what. When I check in to Philz in the Mission, my Facebook and/or Twitter streams show this check-in to my friends. It's an ad impression. But it's not an ordinary impression. It's of incredibly high value. It's a trusted source. It might as well be a personal recommendation. Clearly Philz has a reason to incentivize this check-ins with special deals.

But that impression is, in its current form, fairly useless. For one, it doesn't integrate with Philz's Facebook page or Twitter account. It bounces to a Gowalla page which no small business owner is interested in maintaining. (Most are only now coming around to Facebook and Twitter.) With nothing but the check-in, these companies are just features. They're not a product. This leaves Facebook (and Twitter) a gaping hole to step in and bring a location feature to their already deep product. Yelp is already off to the races.

It will be very interesting to see how this plays out over the next year. These LBS companies are highly capitalized, so they won't simply fade away if numbers begin to flatten. They are going to have build a deeper product around location, and I don't think this is a wise investment considering the competition.

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