Startups with a business model based on local check-ins and promotional campaigns run by SMBs are in need of a reality check. Winners in this space will offer real value that goes beyond virtual incentives.
In “Mobile & Location: Checking in on the Latest,” we examined how social check-ins have solidified as a form of currency in mobile local search. That continues to be the case as we see mobile check-in services, inspired by the success of Foursquare et al., flood the space.
We’ve also begun to see more established players launch check-in functionality, such as Yelp, Loopt, and WHERE, while Facebook looms in the distance with the ability to “turn on” location at any time.
Meanwhile, Loopt and Brightkite signed advertisers like Gap and Starbucks. And brands like Bravo and CNN continue to line up to work with Foursquare as founder Dennis Crowley lands the iconic cover of Wired magazine.
Photo by Brent Humphreys for Wired Magazine
Long Tail Envy
But in all of the excitement, there’s still something missing; a clearly defined path to monetization. Some of the players mentioned above are exceptions with national advertisers, and other revenue streams such as carrier deals.
But for startups entering the space, it’s a different story. At TechCrunch Disrupt last month, company after company took the stage to glowingly espouse their business model — based on local check-ins and promotional campaigns run by SMBs.
This goes back to the advantage of check-ins; they’re grounded in specific places rather than random lat/long readings. This means clearer user intent, contextual relevance, and thus tangible business leads for SMBs.
So tapping the SMB segment becomes the source of optimism fueling investment in the space. In other words, the biggest source of future value on which these models are based involves tens of millions of mom and pops waiting to sign over their ad budgets.
The problem is that this ignores what those in local space have known for years; self-provisioning ain’t that simple. But the line is still the same from newcomers to the geo-location game:
“Why wouldn’t any SMB want to sign up for something that drives foot traffic into their store or restaurant?”
Reality Check-In
In theory, I agree. But the thinking falls apart with the reality that most SMBs don’t have the time, technical competence, and inclination to launch and manage these promotions. Plus, don’t forget the complexity of countless sales reps and new digital options flying at them from all angles.
“When you talk to restaurants right now, they’re completely overwhelmed by social media tools that are supposed to help them better market themselves,” said TechCrunch Disrupt judge Katie Geminder during the startup competition.
Just ask Google, which has gone further than anyone but continues to grapple with getting SMBs to self-serve. Its folding of the AdWords Authorized Reseller program and subsequent Places launch represent efforts to redefine and improve margins from SMB search spending.
In fairness, there could be generational and other factors pushing more SMBs into self-service online marketing such as social media. BIA/Kelsey data shows that 16 percent of younger businesses (0-3 years old) use Twitter, compared with 9 percent overall.
Factions of SMBs are likewise mobilizing around things like Foursquare; data shows growing SMB adoption. The volume isn’t anything to get too excited about yet, but could be a sign of a directional shift in the next couple years.
All Fun & Games
Advertiser adoption aside, product features will likewise have to evolve to maintain the usage growth on which investments in the space continue to be made. Check-ins are becoming a form of currency in mobile local search, but it’s a form of currency that is experiencing rapid inflation, based on oversupply and insanely fast innovation cycles.
Check-ins, mayorships, and badges aren’t enough; and game mechanics — the original “value exchange” for the likes of foursquare — will lose novelty. There has to be a real offer of value that goes beyond virtual incentives.
Foursquare knows this and has already begun to innovate with “nearby specials” and teasers of more to come. Meanwhile, Loopt just launched a “loyalty card” tied to check-ins, while Yelp, WHERE, and Brightkite are dabbling in similar local offers.
The winners in this space will be those that continue redefining the value exchange. Following closely behind will be those finding scalable and realistic ways to get the promotional content — and ad budgets — from the elusive, fragmented but massive SMB segment.