Well, that didn't take long.
SXSW Interactive 2010 brought the hype, people sobered up, and now the backlash is beginning.
Mark Hopkins kicked it off on March 31 and yesterday Dave McClure jumped in. They've observed a few things, most notably:
- Even the most successful LBS startups don't have a large enough audience to truly matter, especially for advertisers,
- There is no evidence of a mainstream consumer phenomenon around these apps yet,
- The only reality so far is that LBS apps are hot among the early adopter innovator crowd, and that crowd is serving more or less as an echo chamber and nothing more.
I don't have a problem with LBS startups. In fact, I've talked with just about all of them in some capacity over the last year or so and there are good people in those companies. But I do think as I've stated here before that I think the hype/reality ratio is way out of whack right now. Valuations are in the stratosphere. Yet, these folks have a lot of work to do to succeed in a way that justifies those numbers.
If you put me on the spot, I'd suspect that one or two will do very well but that there will be a lot of people left out as well. Those will be the next iteration of a long line of over-invested, "next big thing", and hysterically overhyped companies like Webvan, eToys, DrKoop.com, Boo.com, and others whose biggest achievement was a massive fundraise.
Just my two cents… more to come on this topic that I just find way too fascinating.
Long-term, the biggest obstacle these guys face is social media fatigue. I mean, if I’m the “mayor” of some bar and I get everything on special Tuesday night, super.
But, in general, there are far easier ways to get coupons and discounts than having to whip out your phone, pull up an LBS app, find the place where you are (or create it on the app), and check in — and do this every time you go anywhere, thus making it nearly impossible to Be Here Now.
If a significant chunk of the early adopter crowd decides this is too much of a pain in the ass before the mainstream starts to bite on it, then this thing is over before it starts.
The thing I suspect no one wants to talk about with social media is how shallow the mindshare is. Checking Facebook at lunch time, I looked at chat and saw that a whopping 8% of my friends are on the site. My brother, who’s three years younger than me, hasn’t been on there in months. I know, I’m just one data point — but this is the most established social media platform at what ought to be the busiest time of the day. It’s not an 80/20 thing with social media — more like 99% of the time spent on social media is being spent by 1% of the participants.
So back to LBS, if you’re building a business on that 1%, you’re going to need an absolutely enormous audience.
Well, 8% of people to be online at one randomly selected time is actually pretty good. Extrapolate that out over the course of a day and maybe half your friends log in every day. That’s significant and ridiculously immersive relative to other web sites. In fact, I think only Google has achieved such a high level of adoption.
But I think that’s where my point lies. LBS is a feature that has been blown up into the next big thing by the innovator crowd. Maybe it will be, maybe not. But like Dave McClure suggests, it’s much more likely that LBS will be another screwdriver in the toolbox of the Web/mobile strategy of major players (Facebook, Google, Microsoft, Yahoo, AOL). It’s clear that Facebook and Google are pretty much going their own way. What’s more interesting to me is what Microsoft, Yahoo, AOL, and other major tech giants do. My guess is that those guys will split 50-50 between build and buy… so a few of the current LBS giants will be acquired for significant $$$ because a few big boys don’t want to get left behind.
But who knows… I could be totally wrong here and this could very well be the next big deal and I’m just too much of a curmudgeon to see it. For the record, I did see Facebook but was a little more skeptical about Twitter so my record is mixed.
8% is pretty good, but here are my caveats:
1. It’s Facebook, the undisputed bell cow of social media, which has the equivalent of a million GoWallas and FourSquares.
2. It’s probably the same 8% (give or take a few percent) logged on at any given moment. The rule at Bazaarvoice about customer reviews was that 1% create, 9% participate (i.e., comment), 90% fall somewhere between passively consuming and not knowing where the on button is. And that’s to engage with the primary purpose of the thing — sharing with friends and peers.
So, as you and I have noted, you need huge, 100x scale for the conversions to add up to real dollars.
The challenge for LBS, if they want to base revenue on local ad dollars, is not to try to be Twitter when they need to be Groupon. Checking in, in and of itself, isn’t enough of an event to draw a Twitter/Facebook-sized audience, where even a piddling conversion % might still amount to decent real dollars. Groupon’s audience is directly aligned with Groupon’s revenue model. Twitter’s and Facebook’s isn’t, but it doesn’t matter due to the sheer audience sizes of both.
If the point of checking in is to inch my way closer to some discounts, then let’s be direct about that. All of these fake virtual prizes make me think I’m farting around with another FarmVille.
Sorry if this derails your chat…
I work a lot, don’t go to 10 coffee shops a day, and don’t know many people in Austin, so Gowalla is not really very fun or valuable to me day to day.
But after having palled around with some really hardcore Gowalla users during SXSW and used the app myself in that critical mass environment I think there is a strong, if perhaps not bajillion dollar market cap, future for the winners in this space centered around event marketing and engagement. It was just too fun and useful during that week.
I think it could bleed into more mainstream events over time too. Their future doesn’t have to be ad-driven…
not at all — thanks for dropping by.
I had a different reaction at SXSW — more that it was an alternate universe that perfectly fit the LBS scenarios. IMO, those situations are rare and not exactly a sign of “the next big thing”
But who knows, I’m probably wrong and totally missing the boat.
If the point of checking in is to inch my way closer to some discounts, then let’s be direct about that. All of these fake virtual prizes make me think I’m farting around with another FarmVille.