From Check-In To Check Out: There's Money In Location

Social commerce will disrupt e-commerce and social media over the next year or two, effectively turning our social interactions into commercial transactions.

Over the next year or two, social commerce will disrupt e-commerce and social media, effectively turning our social interactions into commercial transactions. So how will this happen and where is the disruption taking place?

A Check-In Economy

You’re walking down the street staring at your phone and it’s telling you what deals are nearby. Perhaps not the best of visions but it’s the ecosystem that currently exists around check-in services like Foursquare and Facebook Places. The features are great, but staring at your phone could result into you running into something or even something running into you. It’s not elegant. The result has been an experience based on check-ins that take place when the consumer arrives at a venue.

Foursquare and Facebook both provide platforms that enable businesses to present deals or offers to visitors, in addition to rewarding visitors for repeat business. It’s an interesting business model and so far it appears to be having decent success. However, as deals disappear and users get tired of checking in, one has to wonder if this is truly the holy grail of social media marketing. If you want to know my opinion: it’s not. Check-ins are an early phase (reviews on Yelp were probably first) in a long shift which will completely disrupt commerce as we know it.

Will normal commerce continue to exist once social commerce takes hold? Definitely! However, a large portion of commerce will become much more integrated with our existing communication.

The Main Players

The goal for any business is to get more customers and more transactions (check-outs) and any new form of commerce will have to accomplish two things: It will need to empower the consumer and help transactions become frictionless. So if we examine all existing solutions through this lens, we should be able to determine how disruptive they truly are. Let’s take a look at a few.

Yelp is one of the earliest innovators in the social commerce space. The site has empowered consumers through the amplification of their voices. Suddenly any consumer could instantly have a large (and targeted) audience of potential customers for the business they’re reviewing. Getting bad service? Try threatening the hostess or waiter with a bad Yelp review and see what they do. On a scale of one to ten, Yelp deserves a rating of ten when it comes to empowering the consumer.

As for transaction friction, Yelp has simply integrated with Open Table in order to make reservations easier. That’s about all the site has right now as far as I know, so I’d have to rate them a three on the empowerment scale.

Groupon & LivingSocial
The other major disruptors to online commerce lately have been Groupon and LivingSocial. So far though there’s very little that’s social about these services aside from them making it possible for users to share deals with others. That capability alone has helped grow these two companies to their current values in the billions. The two companies have empowered consumers through the power of numbers.

Consumers get a discounted price for a product or service, and the business gets a massive flood of new customers. While this strategy is rapidly becoming blemished with consumer and business complaints, it has proven to be extremely profitable. Shoppers also love getting a deal so it’s a win-win most of the time. As such, we’d rank these companies relatively high, like a seven, on the empowerment scale, due to the value provided.

However, the transaction isn’t exactly frictionless. After you make a purchase, you often need to go through a scheduling process, depending on the business. Given that the Groupon and LivingSocial effect can be as overwhelming as the Oprah effect, many businesses find it hard to respond to all the demand. While this model will become more integrated overtime, there hasn’t been a removal of friction for the most part, so we’ll score both companies a one on the frictionless scale.

Facebook Places And Foursquare
Facebook and Foursquare are both interesting in their approach to location and empowering the consumer. With Facebook, users could already complain to their friends. Foursquare, however, required the re-creation of a user’s social graph in order to accomplish the same thing. Ultimately, the business value of Facebook Places and Foursquare are a bit more abstract, giving businesses the ability to reward consumers for various behaviors within a given venue.

The existing rewards programs are reminiscent of traditional coupons, making them valuable for a segment of the population. While I’ve heard people extoll the values of creating a Place on Facebook or managing a venue on Foursquare, the return on investment has yet to prove itself.

For Facebook, the value presented by tracking user check-ins is improved advertising, and Deals appears to be more of an afterthought for the company, although that could change in the future. For Foursquare, the value surrounds rewarding consumers for frequenting a business.

Ultimately, I don’t find either of these products to be extremely empowering for the shopper. The main reason is that once the consumer checks in, they aren’t as likely to change their decision to shop there. Contrast that with Yelp, where a bad review can result in a lost customer. As such, I’m ranking Facebook Places and Foursquare a three on the empowerment scale and a one on the frictionless transaction scale.

While I think both products will evolve over time, this space is still extremely nascent.

The Future

The convergence of local, mobile, and social (or “SoLoMo” as John Doerr calls it) is about to generate a tidal wave of change and we stand on the cusp of it. While I could wax poetic about the future of this space, I’ll simply say that the overall shopping experience will become much more social for a large percentage of transactions. If you think about all the purchases that involve social experiences (movies, concerts, travel, etc), these spaces are only beginning to get disrupted.

While the experiences are social, right now the transactions are not. So far the only social shopping experiences which exist today either provide basic integration with Facebook, sidebar chat with friends during the shopping experience, or other basic features. Over the next one to two years, we will see a wave of innovation in the social commerce space and it won’t be like the forms of interactions we have on the web; they will be completely different. While it’s easy to call the Groupons of the world overvalued, this is a trillion dollar market that is just beginning to unfold.