Thursday, 11 November 2010

Hyperlocal mobile content – coming soon to a neighbourhood near you

The internet has had a hugely disruptive impact on every aspect of the publishing industry and rising mobile internet uptake is a ‘second wave’, that is going to herald similarly profound changes. This blog explores the implications of mobile internet on local content consumption.

The publishing industry and changes in internet usage
The internet has affected every step of the publishing value chain. The cost of publishing has fallen to near zero with blogs. Direct ad sales are worth a fraction of print and can be outsourced to ad networks, more or less on tap (albeit at a discount to premium inventory). Distribution through search engines has levelled the field yet more. This effect has been compounded by the general absence of online subscription to date. Not surprisingly, the newspaper industry has been hurt badly - with some large local UK publishers losing tens of millions in revenues in the last financial year alone.  But some forms of localized media survived as an internet connected PC or laptop was not always an option. Most locally oriented websites are meant for planning rather than on site consumption –  e.g. the Hampton Court website is much more likely to tell you what is happening there, than to help you navigate the attractions of this venerable royal property.  As another example, Zagat or Michelin print guide provided a level of quality and portability that was unequalled.

 Smartphones and portables such as the iPad changed this. Mobile internet adoption has seen exponential growth recently, but the interesting story is around local usage. Google has noted that a third of its mobile queries have local “intent”. Recent studies by Microsoft back this up - 27% of Bing’s mobile queries show intent to take action locally as opposed to 18% on PCs. Besides search, mobile maps have also been a big beneficiary – according to comScore, the UK had 5.7bn users of mobile maps in 3 months to Feb 2010, an 86% increase over the previous year.  Many mobile maps users tend to follow up their navigation usage with a local search, so it is not surprising that directories e.g. Yellow Pages have reported a significant increase in mobile apps usage and mobile internet traffic. IPhone App Store rankings also reflect the local flavour of searches, with many popular apps in the Travel and Lifestyle category having a location based search or local element.

Hyperlocal content optimized for mobile formats
There is now evidence that hyperlocal print media has not escaped - a recent FT article profiled the demise of the guidebook industry. Interestingly, the biggest threat to the guidebook industry is not from startups that have invested in creating local content and digitized, but from apps that mash freely available content and navigation (supplied by the likes of Google). Whilst smartphones are hurting local media, the accessibility of hyperlocal content is also opening new avenues. A recent NYT article profiled US startups that are mapping the interior of malls and convention centres. These companies are much more focused on navigation than rich content, but they are hyperlocal in that they map out small geographical locations and support them with value added content. However, commercial venues are beginning to realise that by organizing their wares virtually, much as Google has done for the internet, they can generate additional returns.

The hyperlocal content value chain
The economics of app creation and mobile site creation could have hit a tipping point. Currently, a professionally developed mobile app costs in the £10k - £50k range (although m-commerce apps with rich content can be much more expensive). This is much cheaper than setting up an equivalent (PC) website and the costs of mobile apps and mobile websites will fall further. This should have the effect of putting the long tail hyperlocal content within the reach of enthusiasts. So for the London 2012 Olympics, fencing enthusiasts could quickly create an app that mashed Twitter feeds, Google maps, bios of each participant, local hangouts, Facebook Places/Deals and the like. The same dynamic will allow sectors such as the guidebook or the local media industry to take many small bets at a low cost – witness the ‘Thisis’ set of sites that have been launched by Northcliffe Media.

However, building the apps is only one part of the equation. In order to reach critical mass, a simple and convenient distribution system is required. Whilst the FT article alludes to Google being the gateway for content distribution, there are other players hard at work on alternatives. Consumers have been trained to look at static maps at malls and museums and search for the ‘You are here’ sign. What is needed is a similarly signposted system that allows consumers to access virtual content locally.  Amongst other mobile platforms, Apple’s patents seem to point the way (no pun intended). The essence of one of Apple’s location based apps patent is that users will be alerted to the presence of local content and be able to access this for the duration of their local experience. This could be a spur to both commercial and enthusiast driven content creation and distribution.

And what of their business models? Many of these long tail apps will be freeware and most will come to rely on some form of internet advertising for revenues. With current mobile CPMs in the £1 range, it could take 10,000,000 visitors to breakeven. Location based targeting CPMs can achieve a 10x CPM multiple, but would still require significant traffic to be viable. Many iPhone and iPad apps have a freemium business model – it is conceivable that basic local content will be freely available and premium content will be charged for. This will allow hyperlocal app creators to monetize through advertising and premium sales.

The opportunity for local media
Time was when recruitment, property, auto sales and the classifieds were the mainstay of the newspaper industry, both local and national. The internet resulted in the aggregation of local and national content through job sites and this favoured the larger national players, who had the audiences to brand and monetize these quickly. The hyperlocal phenomenon may be different. The ability to develop quality local content, in association with cultural venues and the like and refresh it regularly could play to the strengths of the local media. For example, it is interesting to note that guidebook creators are busy developing hyperlocal apps and commercializing them through iTunes. If distribution is not controlled by a few big players such as Google, locally based media groups will be able to use existing networks to create awareness of their offerings. Monetizing this will be challenging, and there is a case to be made that ad networks that can acquire this remnant content cheaply and optimise to best converting ads will do well. However, networks tend to focus on the largest advertisers. Hyperlocal content should appeal to small and mid sized businesses – the very advertisers that were the mainstays of classifieds that supported local media.

In conclusion, the scene is set for a revolution in the way we consume local content and this is going to create new set of challenges and opportunities. Organizations with the right mix of sales and editorial resources could reap outsize rewards. 

Raja Saggi

Thursday, 4 November 2010

Why Facebook Places deals announcement is great for location based startups – perhaps even for Foursquare

In the last year working at Yell (the UK’s leading directory company), I have been approached by a number of very interesting location based startups that were keen on partnerships. These are companies that have gone beyond simple location based search, and created unique IP which is augmented by location targeting. Some have already launched whilst others are still in the prototype stage. All face one or more of the following difficulties:

  • Accurate listings information: Most location based apps share a need to do geoproximity searches for useful businesses. Accurate geolocation information, name, address and telephone number are minimum requirements. Getting this information and having it refreshed regularly for a large number of businesses that are started up, shut down or just move premises, is a daunting task.
  • Marketing/distribution plan: Acquiring new customers is the bane of the B2C startup. To date, location based services had to rely on app stores or marketing a standalone site. Whilst Apple does try its best to highlight new apps, with over 300k apps available, gone are the days when an interesting startup could count on leveraging word of mouth alone. Most new entrants are easily outshone or outspent by bigger brands that can invest in mobile marketing. Even those that do, find that this seldom translates virally.
  • Business model: Those that have traffic, struggle to monetize it. Other than paid for apps or paying for upgrades to free apps, mobile advertising is the only option. Those with deep pockets can afford to hire large number of sales people but for almost all startups, that means working with mobile ad networks or Google AdSense. With mobile CPMs on the floor (location based multipliers are still few and far between), you need a lot of traffic before you can pay the rent. The lack of a compelling business model affects their ability to get funding as well.

Foursquare is a great team that has solved all the above problems, but they have spawned numerous clones. The reason for that is whilst the above activities are time consuming and expensive, paradoxically, they are quite simple. It is no wonder that the location based services space has so few hits and limited usage. Foursquare have been around for over a year and a half and acquired just 3 million plus users, despite great interest from the general media and a $20M B round.

Facebook has the ability to alter this landscape dramatically and has a track record nurturing a huge number of startups. This far into the life of Zynga, they had several times the number of users that Foursquare has. The reasons are to do with creating the right ecosystem. First and foremost, this means a rich platform that is already in use by 200M potential mobile customers and growing. The reason it is still possible to virally launch a niche app on Facebook is that it has volume, and a long tail that is highly networked. It is also relatively cheap to target your audience. How else can a 13 year old with little cash get 16k fans in 4 days? Adding freely available local listings and allowing geoproximity searches to this mix is a great enabler. Coupons could be the answer to the ‘Show me the money’ VC or angel question. Whilst the current launch allows businesses to create deals free of charge, Mark Z. has indicated that he would consider making money from deals in the future if it were in the interests of its user community – presumably that could include the app developers.

To be sure, there are going to be challenges. The accuracy of Facebook’s location data is suspect, but then again, that is true of other larger players too. To achieve critical mass, in coupons, you also need volume. Whilst millions of early business adopters are already signed up, Facebook lacks a large sales team to get businesses to publish their offers. However, these issues could be remedied by working with partners, such as directory companies and media sales houses.

And what of Foursquare, that had already invested much effort to create its own platform (and was charging businesses to display deals)? Have they been outmanoeuvred? Perhaps. But Foursquare partly got into the platform business by necessity. If a team that innovative refocused on their core, which is creating a great gaming experience based around local presence, and ported their product onto Facebook, they could yet be the Zynga of location.