Gowalla, Foursquare and Lots of Zeroes

I just heard some great thoughts from Dave McClure on the location based service industry sector.  He jumps through a couple of quick assumptions and drops down some pretty big numbers on the value of the overall market.  In response to questions over the entire market:

…there’s at least 50 million users in the U.S. that are potentially the consumers of these services.  If you assume that each of these users is worth $5-$10  in local search advertising per year, then yeah, it’s a big number..”

…it’s a big market measured in billions of dollars and probably worth tens of billions of dollars…

After listening to Dave talk for a few minutes, I started to think that the $100 million valuation of Foursquare sounded (somewhat) cheap.  This blog is seems like a good pace to explore why, which I’ll try to do in three quick points:

1. The mobile application market is exploding

Think about the fact that three years ago there was no market for mobile applications, and that the market size is now approaching $17 Billion. The adoption of applications are signaling an eventual  decline in the use of laptops, as users can do more on mobile devices and seem to want to.  I don’t know of anyone that believes that mobile devices do not play a larger role in their lives than they ever have, and that their use will continue to grow with the improvement of smartphones and the development of bridge devices like the iPad; and if users are on mobile devices more they are certainly more likely to consume location based services.

2. Frequency marketing and coupons are massive

For a year I worked in social media strategy for an agency that marketed OTC Health and beauty products and I can say without question, that every mass market product fighting for shelf space in big box retail  uses coupons like most of us use oxygen.  In my plans, coupon downloads were consistently a strategic marketing objective for every brand that we worked with.    For getting new customers, coupons induce trial and frequency programs drive repeat purchase.  This is a market that, if location based services are able to capture even a small amount of U.S. consumers, will be worth billions of dollars.

3. Where else are ads actually useful?

If users are decreasing their dependence on desktops and laptops in lieu of mobile, then digital advertising needs to move into the smartphone.  I currently don’t get a lot of ads on my phone and, until I downloaded my first Twitter application, I don’t think I ever saw an ad on y phone (I’ve been lucky enough to never have received an SMS advertisement, which I find incredibly intrusive).  But geo-locating advertisements based on where I actually, physically exist at any given moment is a big deal; it’s useful and exciting.  Who wouldn’t want to walk into a mall and be fought over by department stores with discounts, right on their phone? Anyone in the U.S. under the age of 25 is unlikely to ever clip  coupon form a newspaper–  but they are highly likely to use digital coupons that are readily available on an LBS that they are a member of.  With enough imagination, it becomes possible for these services to do for brick-and-mortar locations what Google has done for e-Commerce sites.

You can check out Dave McClure’s interview  in this TechCrunch post and you can check out his blog at 500 Hats.

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