An interesting discussion broke out in the comments to my last post about whether location based services like FourSquare are about sharing one’s location with friends or an evolution of the loyalty cards where users get deals for advertising a store to their friends. You can also see members of the tech press asking themselves this question with articles like Dear Foursquare, Gowalla: Please Let’s Stop Pretending This Is Fun appearing on TechCrunch. The following excerpt from that article strikes at the heart of the matter

Pew Research reported that, despite all the hype, the use of location-based services is actually declining in America, from 5% of the online population in May to 4% last month. Forget the fabled hockey stick; that’s more like a broken pencil.

Why? Because they’re not giving us any good reason to use them. Look at their web sites. Gowalla proclaims, “Discover the extraordinary in the world around you.” Foursquare says, “Unlock your city.” To which I say: “Oh, come on“ — and it seems I speak for approximately 96% (formerly 95%) of the population. I have no interest in enlisting in a virtual scavenger hunt, or unlocking merit badges — what is this, the Cub Scouts? — or becoming the narcissistic “Mayor” of my local coffee shop. Thanks for the offer, but I’m afraid I already have some semblance of a life.

I do want to keep up with my friends, and (sometimes) let them know where I am. But if you’re competing with Facebook in social networking and your name isn’t Twitter or Google, I’m sorry, but I don’t like your chances.

The challenge for FourSquare is that being the best service for getting local deals is a very different product from being the best service for keeping up to date with my friends are. FourSquare is trying to be both when either one faces significant challenges as a standalone product given the competitiveness of the marketplace.

The main innovation with location based services like FourSquare is that they are so easy for the consumer to get into that you could make it similar to frequent flier miles where the model is “if I’m already going to be doing something regularly anyway why not get perks for doing so?”. The problem that FourSquare faces is that they have to compete with GroupOn, JungleCents, and various other services that have a more proven model for delivering customers to local businesses. The ideal place for FourSquare to be is where they can pitch to customers like me that every 10th check-in to my local health club gives me a perk even if it’s a free beverage or breakfast pastry instead of offering me a Gym Rate badge which I acquired after my first month using the service and now have no reason to check-in from there anymore. FourSquare has been primarily focused on getting discounts for "mayors" of local businesses which seems backwards given that they are basically saying only one person per store can get a discount (and in the case of Starbucks it was just a $1 discount). Can you imagine American Airways saying only the passenger who flies the most from Seattle<->San Francisco that year can use the frequent flier program? Sounds ridiculous doesn’t it?

If FourSquare wants to make a difference as a way for people to get local deals, they’ll need to refocus the company and not fall into the trap of paying too much attention to their game mechanics.

FourSquare faces a different set of challenges as a way to share location with friends and this isn’t just because of the social graph problem of competing with Facebook which I discussed in my previous post. I’m personally very bullish that location based services will be an integral part of our lives in the future. When I originally read Robert Scoble’s Location 2012 which aimed to predict where we’d be in 2 years given location trends today I couldn’t help but nod my head in agreement. However as I’ve started seeing some of these features show up in apps like Loopt and Facebook Places I’ve realized that some of these scenarios sound better in theory than in practice.

Constantly checking-in to share your location is a chore than you get nothing out of 99% of the time. This is why FourSquare uses game mechanics such as badges and mayorships to try to get people to regularly check-in. The problem is that game mechanics only get you so far and will not appeal to a significant chunk of the user population. On the other hand, automatically checking-in by sharing your location in real-time such as Loopt does brings with it a raft of privacy issues and can just come off as downright creepy. Although I’ve found real-time location sharing to be useful at times when I need to meet up with my wife at a crowded 5K race, it seemed a little creepy to have each other’s locations permanently shared even though it sounded convenient in theory. We no longer use Loopt and try as I might I couldn’t figure out how to pitch it to other people without it sounding creepy.

Striking the right balance between the tediousness of check-ins and the creepiness of constant location sharing will take a lot of trial and error as well as a careful sense of design. Again, I’d it would take refocusing the company to really cross the chasm here from the Silicon Valley early adopter to being the sort of mass market success that my non-technical friends who use Facebook and play Farmville but don’t read TechCrunch would be familiar with.

Right now FourSquare and other services that have cloned its model are between a rock and a hard place. It will be interesting to see how they transform themselves in the coming months to address these challenges.

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