Do Location Apps Need to Show Users the Money?

It’s become obvious over the past year that location-based services are the new black, to the point where some are speculating that Yahoo might acquire market leader Foursquare for as much as $100 million, and explorers are racing to the North Pole to be the first to win a special badge. Although it’s still not clear whether location-based services will go mainstream or not, the theory is that if companies can tie location to something tangible — advertising messages or marketing offers, direct sales, etc. — they could drive significant revenue, and that’s going to appeal to everyone from Yahoo and Microsoft to Facebook and Google.

Angel investor and startup advisor Dave McClure, however, says that all the talk about badges and game mechanics is nonsense, and that location-based services need to come up with ways to tie their behavior to cash incentives before anyone is going to care about them. Check-ins are “a classic case of early-adopter lust for shiny objects,” he says, and don’t have anything to do with “long-term sustainable mainstream consumer behavior.” McClure argues that no one normal is ever going to consider doing it “until you give them $5 off their next beer or 5-dollar foot long.”

His other main point is that accomplishing this — going mainstream with enough scale to make it worthwhile — is going to require huge sums of money, and that only a few players have that kind of heft and resources, including: Microsoft, Apple, Google and possibly Facebook. McClure says he believes that Facebook will win. With 400 million users and an active user base, as well as users’ familiarity with connecting through Facebook Connect, “they are the easy pick front-runner.”

Bijan Sabet disagrees. The Spark Capital partner, who has invested in both Twitter and Tumblr, says that there are “tons of non-geeks using Foursquare right now,” including his wife and other friends, and that badges and the utility of being able to see where friends are is enough to get people using the service, even without payments. Sabet also disagrees with the “Facebook can offer this and kill everyone” argument, and says that the ‘focused startup’ has many advantages over “the big, broad based established players.”

So who has the edge in this debate? I think McClure does. The reality is that location-based services don’t have an obvious utility for “normal” people (i.e., non-geeks). In fact, many people I know think that telling people your location all the time is madness, and the creation of Please Rob Me probably didn’t help that impression (even Om is skeptical of their appeal). So how do you convince people to check in somewhere? You reward them. And badges probably aren’t going to be enough for the vast majority of people — in other words, your service either remains FGO (for geeks only), or you broaden it by adding real incentives like discounts on merchandise.

As for Facebook taking over as the king of location-based services, I think there is a good chance it will. Without seeing what kinds of features the social network has planned, it’s difficult to say whether they will dominate, or whether they will federate (i.e., make it easy for Foursquare, Gowalla, etc. to work within Facebook). But the most important point — as Om noted in a post earlier this year — is that location doesn’t feel like a service all by itself — instead, it feels like a feature that belongs inside something else, such as a mobile app or platform, or as part of a web service or network. Regardless of whether users are paid in some way, that feels like the ultimate end-game.

Why The Location Wars Are a Dead End

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