AUSTIN — A year ago, the rage at South by Southwest Interactive were so-called check-in services — mobile apps that let people flag where they are. These services promised to spin the habits of smartphone users into advertising gold.
But that was before Facebook plunged into the market, with Places, last year. While that move legitimized the nascent market, it added a formidable competitor to the likes of start-ups Foursquare and Gowalla.
"We're at an interesting place, with Facebook involved," Gowalla CEO Josh Williams says. "They eliminated the need for basic (check-in) services, and shook up the industry."
If last year's SXSWi here was a coming-out party for Foursquare and the entire category, this year is a maturation of sorts.
It's "Act 2," Williams says. The emphasis now is on adding features that distinguish Gowalla and others from Facebook Places. Complicating matters, Google has folded its Places and Maps functions into the Android platform, giving it a check-in look and feel, says BIA/Kelsey analyst Michael Boland.
Like social networking on mobile devices, location-based services are still in their infancy. Ad spending on mobile, location-based services was only $43 million globally last year.
"There is a novelty factor that may wear off, and the robust growth pattern may succumb to check-in fatigue," says Gartner analyst Ray Valdes.
Yet the upside could be immense. Noah Elkin, an analyst at eMarketer, expects 79.1 million mobile users will participate on social networks in the U.S. in 2015, almost double the 38.9 million last year.
What is more, Boland projects mobile-based local ad revenue in the U.S. — of which location-based services are just a fraction — will vault to $2.02 billion in 2014, from $404 million last year, as national advertisers grow more astute at local, targeted promotions.
What check-in's major players are doing to cash in:
- Foursquare - Despite heightened competition, Foursquare has maintained its lead in the category. It's at 7 million members, and adding 1 million a month. It is attempting to extend that lead, with version 3.0 of its app for Android and iPhone devices. An "Explore" feature gives users access to tips on food, entertainment and shops from other Foursquare users — not just friends. Something called "Specials" rewards loyal customers with the businesses they frequent. "Our growth has doubled since Facebook launched," says Foursquare CEO Dennis Crowley. "We used to have to not only work on the service but publicize our field. With Facebook around, we don't worry about publicity anymore."
- Loopt - The U.S.-only service, up to 5 million users, just rolled out a real-time feature that notifies consumers via e-mail and text of up-to-the-minute deals at their favorite spots when they are nearby. "The move to mobile computing is the freight train that is moving real fast," says company president Steve Boom.
- Gowalla - Twelve months ago, the Austin-based company was at 100,000 members. Today, it's at 1 million — with sights on 5 million to 6 million this summer. Last week, March 7 it unwrapped a new Android release with a redesigned activity page, featuring friends and family in one stream, including Facebook Places and Foursquare check-ins; a new book-marking feature to help locate favorite hangouts; and improved photo taking and sharing. In the end, maybe Facebook Places made check-ins the virtual place to be, says analyst Boland. "Facebook Places is a sleeping giant, but it will popularize check-ins and help smaller services grow via social sharing, rather than squash everyone," he says.
COMMENTARY: I am glad that I found this USA Today article because I have been wondering for quite some time now what location-based social network (LBSN) advertising revenues were, and the paltry $43 million in ad revenues confirms many of my suspicions about LBSN's.
Facebook Places, the assumed market leader in the LBSN space has been historically stingy in providing user statistics and revenues. Most numbers have been leaks provided by "unidentified or informed sources". Not a peep from Zuck about Facebook Places.
Some social media guru's estimate that Facebook Places had 40 million users at the end of 2010. If you combine that number with the number of users for Foursquare, Loopt and Gowalla, the combined total is 53 million users.
If USA Today's cumulative advertising revenue estimate for LBSN's is half-way accurate, then the average revenues per user is $0.8113 ($43 million divided by 53 million users). Facebook's average revenue per user was $3.10 in 2010 ($1.860 billion divided by 600 million users). I don't have comparative revenue estimates for Foursquare, Loopt or Gowalla, but they probably aren't very much.
If you do the math, and assume that advertising revenues are allocated in proportion to each site's share of users, then advertising revenues for the top four LBSN's are as follows:
- Facebook Places - Number of users: 40 million. Share of total: 75%. Share of advertising revenues: $32.4 million (75% of $43 million).
- Foursquare - Number of users: 7 million. Share of total: 13.2%. Share of advertising revenues: $5.7 million (13.2% of $43 million).
- Loopt - Number of users: 5 million. Share of total: 9.4%. Share of advertising revenues: $4.0 million (9.4% of $43 million).
- Gowalla - Number of users: 1 million. Share of total: 1.8%. Share of advertising revenues: $0.8 million (1.8% of $43 million).
If Forrester Research's LBSN advertising revenue estimates are close to accurate, their $43 million estimate represent only about 1% ($43 million divided by $3.477 billion) of total social network advertising revenues.
According to eMarketer, Facebook had total advertising revenues of $1.860 billion in 2010, therefore Facebook Places represents only 1.7% ($34.7 million divided by $1.860 billion) of Facebook's advertising revenues.
If Facebook Places is a "sleeping giant" and LBSN check-ins are the "virtual place to be", this does not correlate with Forester Research's study about LBSN adoption and participation, a subject which I wrote about in a February 18, 2011 blog article, which found limited interest in location-based marketing on mobile phones. Only 4% of U.S. internet users had subscribed to an LBSN service. Only 6% want local offers and only 4% want time-sensitive promotions such as daily deals. Those kind of number's are not going make advertiser's break down the door to advertise on LBSN's, not even Facebook Places.
I think what we have here is a whole lot of hype with very little concrete evidence to support the claims about location-based check-in services future potential. It is going to take a monumental effort by location-based social networks to become significant advertising revenue contributors. LBSN's will have to improve their business model, find ways to reduce fears concerning privacy and stalking, eliminate the gender gap (males outnumber females 3 to 1), and provide users a better overall mobile experience.
Courtesy of an article dated March 11, 2011 appearing in USA Today, an article dated February 18, 2011 appearing in PBT Consulting Blog and and article dated January 24, 2011 appearing in PBT Consulting Blog
Comments