“Check-Ins are Coupons. Game Mechanics are Bullshit. Show Me The MONEY or Go Home (Loser).”
Over the weekend, Silicon Valley investor / advisor Dave McClure wrote a thought provoking post about why check-in services like Foursquare and Gowalla are doomed to stay in the tech ghetto until they find a way to offer meaningful financial rewards in exchange for people sharing their location. As evidence, he points to Foursquare’s relatively anemic growth compared to home run services like Facebook and Twitter. McClure goes on to say that in order to reach scale, LBS services are going to have to buy users – he estimates it will take $100M+ to do so.
Dave McClure is a smart dude. Through his connections with Facebook Fund, Founder’s Fund, Startup2Startup, and his own rep, he sees a lot of deals, a lot of companies, a lot of entrepreneurs. Plus, he was one of the guys who helped Paypal get to scale, pulling off the amazing task of getting Normals to enter their bank account info into a website.
He knows a bit about getting consumers to adopt new behaviors.
But he’s dead wrong about this. Here’s why.
It’s Not about the Freaking Money
People don’t share stuff on the Internet because they want to get paid. Facebook doesn’t pay me to share my photos. Twitter doesn’t pay me to share my status updates. Yelp doesn’t pay me to share my reviews.
People share stuff because they want to express themselves. Because they want to be recognized. Because their friends are doing it.
Tell me exactly, why should location be any different? Why should LBS suddenly be won by the “Make $$ FROM HOME!!!!” guys taking their show mobile?
I’m not buying it.
Checking In is the Easiest Thing to do in the History of UGC
Here’s another we know about User Generated Content. The easier it is, the more people will do it.
More people blog than write books.
More people comment than blog.
More people vote / like than comment.
And way more people read, than write.
So I ask you, have we ever seen a UGC publishing form easier than Checking In? It’s one tap of the phone. Even YouTube commenters should be able to handle this without screwing it up.
If Yelp can get mainstream forcing long form reviews, I have zero doubt in my mind that an LBS service that requires a single tap to play and to generate meaningful content can get there.
Go Tell Zynga that Game Mechanics are Bullshit
Zynga was founded in July, 2007. Today, they are estimated to be worth more than $3B. So game mechanics only work on Facebook, and not on the phone? Or is it that people don’t like to play games in real life? Which part of Zynga’s game mechanics are “bullshit?”
Do you really think that all those people who are blowing up casual gaming on Facebook won’t be doing it on their phones in two years? Or is that you don’t think Location works as a game element?
A Rising Tide Lifts all Boats
Location aware smartphones are surging. Today’s young kids who don’t give a crap about their privacy are getting older and buying smartphones. And they are being replaced by even younger kids who could care even less about their privacy. Old people are getting on Facebook and / or becoming social media gurus on Twitter. And pretty soon, Facebook is going to help Normals get comfortable with Location.
Mobile connectivity will get faster and faster. The phones will get smarter and more powerful. The geo data will get cleaner and more standard. And at the top of the stack, the location apps themselves will get more and more fun.
Foursquare’s growth to date has slow because of platform availability. Android launched five months ago. Blackberry launched two months ago. Same with Palm. I expect these guys to be doing 1M+ new users a month by the end of the year, and more if they continue to hit the BizDev side.
I’m not saying that location based coupons won’t thrive. They will, because they make sense as a new form of advertising.
But buying users is not the only way to hit a homerun in LBS.
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Uhhhhh has Zee seen this post??? :
It's 4:20am in London right now…
My guess is no. No way he lets that “through” / “thought” typo go by.
Oh hey, Chad!
Anyway, this post is not well thought out and the logic is a tad bizarre. #jussayin
Mona, that's kind of the story of my life! But seriously, would love to hear your thoughts on the subject. Does 4sq have to buy users?
I don't think that is the point Dave was making.
Um, I'm pretty sure he was talking about Cost per Acquisition(CPA), which is relative cost to get interaction on your service from someone or a group of people. His figures are not about any explicit payments to anyone. These companies, Twitter, Yelp, Facebook, and others, don't pay you to interact with their services, but ever user costs them something, they have support staff, advertising, development, and numerous other facilities to help acquire, and keep, new users.
CPA = (Total Costs)/(Userbase)
So what he's saying is that to acquire 1 new user, from what he understands of their models, these services are likely to spend $5-10, and for 1 new business they need to spend $50-100. He also thinks that, before they have any likely shot at a successful business, or a buyout, they have to reach about 20+MM users.
So this post is utter rubbish, since you misinterpreted what he was talking about, simply by not understanding CPA.
Did Facebook offer you a $5 footlong to try their service?
well said
Not surprised to see you here…
No, I went there because Myspace, and numerous proxies, were blocked in school.
What does that have to do with the price of tea in China? It still cost Facebook, Zuck and all of his developers living expenses, everyday for 2.5 years, infrastructure costs, and what ever political and legal costs, to acquire me and the other users that were on at that time November '06.
If you take all those costs and divide it up by the number of other users at that point in time(~15MM), you will know how much it cost for Facebook to get me on their service.
Ah, so it sounds like you saw some value in the Facebook service without needing some direct financial reward. I think lbs can be like that too.
What? How does what you just said make any sense to what I said in my past two comments?
His post wasn't about paying people to use the service, it was about the costs to acquire users, which any company has Facebook, Macy's, or BMW. You misinterpreted his post because you didn't understand CPA, or didn't think he was talking about CPA, I honestly don't know which it is, now after your bizarre unrelated responses to my comments.
I'll re-iterate, “Your post is a refutation of his post, because you think it's about paying/rewarding users, to join or continue, resulting in some direct financial gain. While his post is actually about the costs the company spent, or are likely required to spend, in all areas of the application, in relation to gaining users.”
In my experience, the problem LBS face isn't necessarily getting users, it's keeping them. In my area, Foursquare has developed quite a following, but as many times as I see a new user claiming the crown of Mayership, somewhere I also see a Twitter post about someone who no longer sees the point in checking-in.
The novelty and game dynamics were entertaining and involving when it began, but now, all but the most obscure locations have been entered, so all that's left is, well… sharing where you are. That was the original point of Twitter, to answer the question “What are you doing?”. While Twitter and Facebook don't automatically provide GPS information in the data stream (or at all), these services are more familiar and easier to use, for the layperson. Ever try to SMS to Foursquare? I've had to help people out with that issue and guess how they asked? Yeah, Twitter!
So where is the repeat value for Foursquare users? I've unlocked the badges, everything in town is already tagged, and everyone has forgotten the original intent of Location-Based Social Networking, as it was originally referred to, and shortened the acronym to LBS–where the “S” stands for services.
The key to LBS like Forsquare, Brightkite, and (to an extent) Buzz will be what it adds to the users experience. Foursquare is quickly drying up, Brightkite is simply viewed as Twitter with locations, and even though Buzz is geared toward the mobile market, it still has to contend with the relatively small amount of the populous that has a phone capable of using the app to it's potential. All three of these sites offer businesses a way to advertise, FOR FREE, and in very specific ways directed at different types of consumers. But instead of advancing with the times most businesses pay for billboards, magazine adds, and inserts in the local paper hoping to reach customers. All the while, a new breed of consumers have begun to study their Garmin instead of the scenery of the commute, get their news in the form of tweets and RSS feeds instead of glossy bound pages, and are helping kill off the newspapers in order to go green.
While Twitter and Facebook are great ways to advertise, their structure limits them to passive advertisements where Brightkite and Foursquare might be considered active. Upon trying to check-in Foursquare will alert you to any deals, tips, or to-do's. Brightkite can SMS you when you're in range of a deal, or at predetermined times based on the businesses needs (Umbrella Shop proximity SMS on rainy days, Baseball ticket discounts SMS on sunny days). This was, I believe, one of the original goals of the LBS. but they've had a tough time getting the businesses to buy-in. This is where LBS fail: appealing to companies as a viable source of income by creating a mutual partnership.
Twitter and Facebook have grown steadily, partially due to the fact that people have a desire to share. By removing the social aspect of LBS you remove the need for them to appear in your status. It becomes another automated Farmville, Mobwars, or LOLQuiz post that soon becomes muted by those who don't play. Sharing a great deal, or announcing a friend is close by, is more personal, more interesting, and makes the post have a value to users other then the one posting. Value has long been established as the key to determining the success of a post, or the popularity of the one posting on Twitter. In contrast, LBS are irrelevant if they can't provide, at least, a Location Based Value to a place. “What are you doing?”, or “Where are you at?” are no longer the questions you have to ask yourself when posting. The more relevant and meaningful one is: “Why should others care?” (a question you probably asked yourself before you even started writing this post). If you can't answer that question then you probably shouldn't tweet it, announce you're there, or write a blog about it.
Very well written post.It was really great experience to read it.I want to say LBS buzz will be what it adds to the users experience.As we know Foursquare is quickly drying up, Brightkite is simply viewed as Twitter with locations.
m3 zero
Some good points in there, thanks for that. Couldn't the game itself evolve to stay interesting?
It could stay interesting as just a game, seeing that people still insist on donating virtual animals to me from their zoo or planting crops that they can never eat on Farmville, but they will eventually begin having a tough time creating content without devaluing the game (hey, I just found my ninth dried out worm on the sidewalk today, one more and I get a badge).
Foursquare (and I'm assuming we are talking about Foursquare since you referenced “the game”) has already been called out for inappropriate naming of badges (douchebag), and has no problems asking its users for ideas on badges, possibly pointing to the fact that they may be close to their creative limits in that matter. Foursquare also creates too many badges that people may never have a chance to get (celebrity badges, North Pole badges, reality show badges… I live in Grand Rapids, MI not New York, L.A., or The Artic!).
Another argument is that Foursquare can be used to help orientate people, explore parks, campus, or cities and earn custom badges. But there are already services for that, and they do a much better job. Try SCVNGR, it has apps for most smart-phones, allows pictures, audio, or text to be used. It can also be set up as a way to do self-guided tours. It also works on dumb-phones and allows you to work in groups, utilizing multiple phones, if you want.
The other problem with the game approach is the Leader-board. While it was a major factor in bragging rights, you have to log into their mobile website to find out how you rank. No matter how many times I've downloaded an upgrade to my mobile Foursquare application this problem still remains unsolved. To play a game you need to know how to keep score. Ironically, not many people know where to find it.
I, myself, am at the point where I don't see the point in using Foursquare without some sort of potential for gain. My friends would get annoyed if I posted every place I went in a day and would eventually mute the feed on Facebook, removing the social aspect of the game, and nullifying the point of connecting to Facebook in the first place (vicious cycle). People will still play, regardless of any deals being made or virtual money exchanging hands, but most will start to wonder, “what's the point”?
It may also become an issue of control. Do I just say what I want to with Twitter, or say half of what I want and then advertise for Foursquare with my location? I'd rather have the full 140 characters and use them on my terms. There has to be a value to the information Foursquare is including otherwise I am sacrificing my contribution to a post that will be muted away or subject to triage in my followers twitter feeds.
There are three places in my area that advertise Foursquare deals. The two more established venues have reported great success with the service. I laugh every time I go into a store to find the proprietor sitting behind a laptop checking their Facebook page. I know they don't advertise a Foursquare deal (mainly because I modified a Yahoo Pipes application to tell me of any deals in my area), yet I imagine them, sitting online for hours every day, on social sites, and spending money to advertise in fliers that might be considered junk-mail.
If you want me to share an experience it needs to be be creative. And by creative, I mean it must have novelty, relevance, and be spontaneous. While life is the driving force behind creativity in regards to Twitter and Facebook, LBS may be difficult to fit into this model as time passes. The key would be to find a way to keep the game creative; otherwise, the novelty of badges may wear off, the relevance of the place may seem trivial (like checking into a grocery store for eggs), or the task my become monotonous over time.
Sorry about the rambling, it's late, I'm tired. :-)
You're completely wrong about young kids and privacy.
Hi Lawrence,
Nice post…did you consider swearing as much as Dave? ;)
The difference here (imho) is that 4SQ/LBS et al can be used as the next generation platform for ubiquitous rewards/incentive/loyalty systems…as someone said in a tweet once…”think airmiles 2.0″. Money is at the heart of this: you say “I’m not buying it.”…that's cool…but venues are selling :)
Joel
Haha, I don't think I can pull it off like Dave can. “Freaking” is about as strong I will go.
One thing that I didn't really talk about is my belief that merchants will step up and “show Dave the money.” Companies like Groupon are proving that companies will provide cash incentives in exchange for guaranteed volume. Your point about the loyalty system platform is well taken – that's the number one request for my own company's product.
Well derived counterpoint there Lawrence! I think the truth will shake out somewhere inbetween. The appeal of LBS will have a limited audience by default. There isnt any substantive creative involved in location. To explore it deep enough to find value turns it into a blog project with a hyper local focus. As far as ubiquity its an up hill battle. The ad paradigm will very slowly shift toward location and even then it will be a drop in the bucket compared to even conventional online ads. And location rewards will seem similar in accrual by comparison to an adwords account … peanuts.
Lord help if parents ever figure out how to track teens on the thing. That will just about kill it outright.
Ric, as logical as the moderate viewpoint is, it just doesn't drive pageviews :)
Great point on the parents / teens thing. I'd expand that to include if Facebook screws up location by going too aggressive from the get go, it could also damage the industry.
Lawrence -
thanks for the kudos, and appreciate the alternate perspective… however:
1) i'm a big fan of game mechanics, and believe in the philosophy of using game mech for user engagement, retention, etc. have invited Amy Jo Kim to speak at our Startup2Startup dinner in the past, and even encouraged her to post her slides on slideshare (now several thousand views) and pimped it out on my blow. and yes, Zynga is kicking much hiney.
2) BUT: there is a fucking shitload of money to be made here. Yellow Pages, local business advertising, affilate fees on shopping, eating out, retail purchases, group buying, etc etc. To assume that this is NOT an extremely valuable category is naive — and THUS, money will ABSOLUTELY figure into this story. in fact, it's PRECISELY because this segment of the market is so friggin' valuable that there is a high likelihood financial incentives for customer acquisition will be part of the “game” mechanics (nothing like money to incentivize leveling up… except perhaps porn ;)
3) and you're WAY wrong about this point — the check-ins are NOT easy. ABSOLUTELY NO FUCKING WAY. seriously: takes me at least 60 seconds to check-in to most venues, sometimes longer. (and if i have my geo off to save battery, which i do a lot, it takes even longer). no way the average techno-savvy human being checks-in anything less than 30-45 seconds, and for the NON techno-savvy it's probably a minute or more. that requires significant motivation and rewards schemes, and i seriously doubt you can explain that away by notification benefits to friends (except maybe for the horn-dog or cougar who's trying to get laid). regardless, noting #2 above, it's very likely that somebody starts playing the financial incentives game, and once that happens the cat's out of the bag and everyone will start to compete not just on game mech, but on bonuses and rewards.
so while i share some of your views & perspectives on game mechanics being a TIE-BREAKER, and perhaps strategic advantage for those who have it down, it's still going to require a) excellent UI experience, and b) financial incentives (for both users & merchants, i think), in order to win this war.
the GOOD news about all this is that consumers will likely benefit from all the LBS wars and incentive offers we're going to see over the next few years. and early-adopters wil likely get the lion's share of these opportunities, if they are willing to lead the luddites into the promised land of LBS usage & discounting.
it's a good thing, and it's coming soon.
now gimme my $5 for this awesome comment on your blog, dammit ;)
true, but facebook can't actually afford to incentivize users (relatively weak per-user economics currently), and they don't have much competition so they don't have to (they rock harder than most anyone else, so not a commodity)… check-ins are.
thus, it's because LBS is so valuable that money will be exchanged here somewhere… remains to be seen if the startups can actually get merchants to pay for those users, or whether they have to spend their own money.
The local merchants are stepping up for Groupon (and many of Groupon's clones). I'll bet they do it for Foursquare as well.
I agree with you that there is value in there…. and more network effect than the collective buying guys. So it could be winner take all.
Thanks for responding Dave, and that was a pretty awesome comment. My only additional point that if done wrong, attaching tiny dollar amounts to activities can actually cheapen a service. Wikipedia editors give a lot more than Squidoo lens creators, though the Squidoo people are technically getting paid. Yelp is the #1 review site and RateItAll (my site) is #9, despite the fact that we share revenue via the Google AdSense API. etc.
No doubt there is real money at play here. $15B in yellow pages market alone. I think these guys will end up raising big money (because they can), but that merchants will (and should) step up to provide the bulk of the financial incentives (as they are with the collective buying guys).
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