Customer Acquisition Challenges for Location-based Startups

Location-based startups seem to be pretty popular these days. Some of the most successful location based startups (i.e. Foursquare, Shopkick, Yelp, etc.,) have received multiple rounds of funding, achieved nice exits and set a high bar for others to follow. Nonetheless, many location-based start-ups still face a number of challenges when it comes to growth – particularly in the area of customer acquisition. This post seeks to dig a little further into the issue of customer acquisition for location-based apps. Here are some steps startups can take to address challenges they face in acquiring new customers. 

  • Performance Measurement: It’s important to first take a step back and reflect on the existing product and existing customers. Some questions to ask include: Who are the customers? Are there different segments? How are the current customers using the product? Are there differences in the ways various segments use the product? How is the product performing among various customer segments? An understanding of these questions will allow the portfolio company to better target its strategy—whether that is to strengthen its position in a current market or pivot a little and go after a different set of customers.
  • Product Differentiation: Startups looking to acquire customers should differentiate their product from the competition and make the value-add very clear. That way, from a customer’s perspective, there is a clear reason for switching to the new product. Product differentiation can build customer loyalty and allow the startup to monetize its partnerships with advertisers or other 3rd party vendors. Mobile represents a huge opportunity to creatively differentiate across a range of platforms. Startups should find unique ways to combine location-based data with mobile platforms to provide users with useful information. Foursquare’s check-in rewards system seems to have championed this strategy.    
  • Personalization/Segmentation: Location-based startups should also focus on personalizing as much as possible when trying to acquire new customers. This means offering a different type of service for different customer segments. LinkedIn has done a great job of this. There is a free service for the 80% of customers who only use the platform a few times a year. Another 15% of the customer segment, who use the product monthly or weekly, pay for a slight business upgrade. The final 5% who use the service daily pay for the most expensive “executive” version—with expanded product features. But personalization should move beyond product lines to also include targeted marketing and sales campaigns so that potential users are finding out about the product through channels that appeal to them most.   
  • Focus on Branding: Location-based startups can also attract customers by building a really strong brand. Brand loyalty seems to be mostly based on three things: differentiation, relevance and emotion. Some examples: Apple has built an incredible brand around the concept of aesthetics and beautiful design. Etsy has built a brand around homemade/vintage goods.  Focusing on the above 3 keys to build a really strong brand can, in turn, attract customers.
  • Customer Service: One way to really attract customers (and to also differentiate from the competition) is to provide strong customer service. This entails providing a high quality service or product experience, showing support for customers during and after the sales process, developing customer loyalty programs and creating a customer service team with a 100% focus on customer satisfaction.

Tumblr: Innovation in Advertising

I have had something of a difficult time getting into the groove with Tumblr. I have nothing really against the product. Tumblr has a unique microblogging / social networking platform that clearly adds value value to its largely teen and college user segments. In 2011Tumblr boasted an 85% retention rate (compared to, for example, 40% at Twitter). It’s just that my current social media toolkit provides me with a range of options for all my needs. I have…

  • Twitter – for my status updates or thought of the day
  • Pinterest – for my photos / video “blogging”
  • WordPress – for my longer, more thoughtful posts
  • Facebook – for my day to day social interaction
  • Quora – for the questions I have that my current network can’t answer

With all these tools, I’m not really sure where Tumblr will fit into my current computer-mediated-communication (CmC) tool-box. However, there is one thing about Tumblr that I thing is truly innovative and something to look out for: their advertising structure.

The founder of Tumblr, David Karp, has long been a critic of traditional banner or adsense advertising. It can be invasive / annoying for users and costly / ineffective for advertisers. Recently, Tumblr has been toying with some new advertising models that seem to be headed in the right direction.

For example there is the Highlighted Post option. Users or advertisers can pay $1-$5 and have their post get a special sticker to make it standout from the rest in the dashboard. To draw a parallel to one of my favorite sites 4-5 years ago (Digg), it’s like you are paying for “diggs” so that your post ranks higher and therefore gets more views. Sticker options include words such as “On sale now” or “Today only.” These paid blog posts stay at the top of Tumblr home pages of users who are already following those blogs. Users can also click “dismiss” to remove the adds. Furthermore, advertisers are only allowed to link to pages that appear on their own Tumblr blogs.The combined effect of these features is a less invasive experience for users and a more effective, targetted add for advertisers.  It is therefore no surprise that advertisers are lining up to access the 60 million blogs on Tumblr.

I did what?

Google has become more than just a search engine. Since its early years, Google has evolved into a platform that provides a wide array of tools and services to users. Through Google you can find everything from video sharing capabilities (YouTube) to social networking (Orkut/Google +) to metrics and analysis (Urchin). But it wasn’t until recently that I realized just how far reaching Google really is and how much data they have on users.

Google Dashboard

The dashboard feature on Google is very convenient and easy to use. It can almost be compared to a computer’s desktop or some other related organizing feature. Google’s dashboard can be personalized to the user depending on the applications they have added to the dashboard. For example my dashboard included:

And the best part of Google Dashboard is that it doesn’t require any maintenance from the user. Rather, it tracks one’s use of applications and organizes the applications on the dashboard for the user. Google Dashboard also provides short summaries on recent activity or usage of the Dashboard. For example, Google Docs informed me that I “owned” 51 documents, was “sharing” 216 documents and had “opened” 247 documents. It also provided me with the dates of my most recent activity. In general, I found this information to be useful and unobtrusive.

Google History

Google History on the other hand was much more surprising, to say the least. Essentially this feature tracks all of a users web searches in alarming detail. There were many interesting stories that could be told each day just by looking at my web searches. On any given day, Google History could provide insight on my work assignments, what music I was listening to and what mood I was in. Here were my top visits last month:

1. wikipedia

2. twitter

3. techcrunch

4. young changers

5. venture beat

These 5 sites did not surprise me, but Google’s ability to record my web usage did. Even more impressive was the way in which data on my usage was presented. Below is a graph of my hourly search activity over the last month.

The way the data is presented in this nice graph makes it possible for anyone to read an understand the trend in my use (which peaks at around 8pm).

Business with Google

One interesting aspect of Google’s services is that they serve as a pull factor into the “Google Universe.” When users spend more time using Google related services, Google is able to track more data on them. This data is then paired effectively with advertising to create a business model that is incredibly strong. As a result, Google has for years been placed on the internet pedestal.

The Leviathan and Facebook Messaging

It’s incredible how quickly social norms have developed on facebook since its founding in 2004. For the most part, we all have an idea of what’s socially acceptable behavior and what’s unacceptable, inconsiderate or even downright creepy. Much of this social awareness on facebook has to do with the fact that most interactions start off Face to Face (FtF) before moving to the social networks computer-mediated communication (CMC) basis before finally ending up as mix-mode relationships. There are, however, a few gray areas that aren’t quite so established. I will examine the facebook messages feature.

The Norm

It seems like the growing trend with facebook messages is to treat them the same way as you would treat a new email in your inbox. Most people have the email notification feature for facebook messages turned on. As such they are notified very quickly when someone leaves them a message. The standard, socially acceptable behavior when receiving a facebook message seems to require responding promptly to the message, just like you would to any email that requires a response. Responding later than a few days is considered unacceptable and often raises concern for the original sender.


The Leviathan

Failure to follow the social norm and respond quickly usually leads to a few negative consequences. As with many people, I’m very busy during the week juggling work, grad courses, a nonprofit and a healthy interest in technology. In addition, I turned off the facebook email notification feature for messages that come into my email inbox—I simply found the feature a little annoying and not worth the hassle of spending time cleaning my  inbox each day.

The combination of being very busy and not having the email notification for messages turned on has led to my breaking the norm of timely response on a few occasions. My cousin in London and I communicate frequently about our weekly activities and how our respective families are doing. I usually respond promptly to her messages and multiple questions about how I’m doing.

However on one occasion, I failed to respond to her facebook message for just over a week. This led to a lot of anxiety on her behalf as she thought I may be ill or depressed. She ended up calling my mom and frantically explained how worried she was. This of course made my mom worried about my well being. Before I knew it everyone in my family—both immediate and extended—was calling me to ask how I was doing and to offer their own medical advice. I quickly realized that I ought to respond to facebook messages as soon as possible if not suffer from a barrage of inquiries about my well being, which were well taken but slightly embarassing.

 FtF Departures from CMC

Facebook messages don’t really have a face-to-face equivalent. As such, it is difficult to discuss the enforcement of norms and the leviathan. On the whole, FtF violation of norms usually lead to less sympathy and more hostility. Typically, if you see someone and they try to engage you in conversation and you ignore them, they will take offense or decide to ostracize you. In that sense, the consequences of ignoring another person when inhabiting the same physical presence are much more severe. After all, CMC is far more conducive to concepts like deception and practices like butler lies than FtF interaction. So it should come as no surprise then that the enforcement of CMC norms do not directly translate over to FtF communication.

From Ithaca to Qatar: Mix-Mode Relationships

A few summers ago, I was in Ithaca working for a start-up and learning how to write code and query a database using SQL and the MySQL framework. Aside from this adventure, I also helped lead an incredibly unique program: the IthaQatar (IQ) Ambassadors program. The IQ program hosted close to 30 pre-medical students from our campus in Doha, Qatar during the summer. We helped them adjust to life on the Ithaca campus and went on a number of adventurous excursions in the surrounding area (such as Niagara falls, Boston and Syracuse).

In the process I became very good friends with the leader of the Qatar team—a student named Maen. Maen was originally from Lebanon and was headed into his 3rd year at the medical program in Doha. Maen and I worked closely together via Face to Face (FtF) interaction in planning a number of events—including a large scale dinner event where numerous leaders of the Cornell community and surrounding Ithaca community were in attendance. At the end of the summer, before Maen returned to Qatar, the two of us pledged to stay in touch via email in order to continue to bridge our two campuses together and ensure that future generations of Cornellians could benefit from a vibrant interaction between the two undergraduate student bodies. Unfortunately, Computer Mediated Communication (CMC) has been far more challenging than what we had originally assumed.

Cues to Choose By

In his work on mix-mode relationships, Joeseph Walther argues that there is an optimal match between the communication task and the communication medium that ought to be used. The utility of the communication mechanism or “richness of medium” is determined by four factors: multiplicity of cue systems, availability of immediate feedback, message personalization and language variety. Ultimately, Waltham argues that email is a relatively poor medium of communication or a “lean medium.”

My experience with Maen since he went back to Doha has led me to concur with Walther. Email does not allow for multiplicity of cue systems as there is really only one form of communication: electronic, text based messaging. In addition, feedback is not readily available. Because of the time difference between Ithaca and Doha and our extremely busy schedules it often takes us several days to respond to one another. Language variety is often fairly academic and formal. We rarely resort to colloquial dialect, which in turn causes us to lose a sense of message personalization and our interactions become more business oriented.

Cues Filtered Out

This sense of business oriented or task-oriented communication is a direct result of CMC. Waltham hypothesizes that the greater the bandwidth—number of communication cue systems a technology can convey—of a technology, the greater the social presence of the communicators utilizing that technology. He also argues that central to a sense of social presence is the availability of non-verbal cues. Thus, CMC is impersonal due to a lack of physical appearance, co-presence and dynamic non verbal behavior.

Again, I would have to agree with Waltham. Email has a very low bandwidth—the only available cues are an additional message in one’s inbox. Thus, when Maen and I communicated via email, our social presence was very weak. Being thousands of miles apart, we lacked physical appearance, co-presence and dynamic non verbal behavior. These concepts simply can not flourish in the text based, task oriented nature of email. As a result our relationship—in particular our ability to stay motivated towards the long term goal of uniting the Ithaca and Doha campuses has struggled.

Clearly there is a large amount of validity to what Waltham outlines. My own experience with Maen draws to the conclusion that email is both a “lean medium” and has a weak social presence—both concepts predicted by Waltham in the sections “Cues to Choose By” and “Cues Filtered Out.” One interesting application to these theories that Waltham doesn’t really address in his work on mixed mode theories is the concept of CMC in government and foreign policy. Waltham seems to argue that FtF interaction is generally better than CMC. Yet when it comes to foreign policy, diplomacy and international relations not only is CMC far more convenient, it is also far more preferred for many nations, strategically speaking. It would be interesting to see Waltham’s take on this issue.

Facebook Groups: Bringing People Together

Does anyone remember one of facebook’s hallmark features: the facebook group? I know this app is a thing of the past, but it’s worth mentioning for a couple of reasons.

In his publication on groupware and social dynamics in 1994, Jonathan Grudin argues that there are eight major challenges that developers of technology applications seeking to create better virtual spaces for collaboration must overcome. Since 1994 developers have to a large extent overcome many of these challenges. And while there still remain many problems with virtual groupware, technology and groupware development have improved tremendously. No where is this better seen than in Facebook’s old groups feature. Facebook groups addressed the problems of critical mass and the prisoner’s dilemma, disparity in work and benefit and unobtrusive accessibility. However, at the time Facebook still needed to improve on exception handling. I will be using the “No Cornellian in Poverty” group that was formed several years a year ago as a running example to illustrate these concepts.

1)    Critical mass and the Prisoner’s Dilemma: According to Grudin, one of the biggest issues with groupware is that it does not always enlist the critical mass of users required to be useful to the individual user. Facebook groups addressed this problem by creating a social setting online where a user’s existing social network is mapped out online. Currently there are more than 700 million users on facebook using the site on a consistent basis to interact with people who are important to them. Especially in younger generations, many users have accepted a vast majority of their friends as “facebook friends.” So when it comes time to form a group, whether it be for a cause like the group used in this blog, or about anything else the existing critical mass is already there to form the group. “No Cornellian in Poverty” had over 450 members in the group from an admin list of 3 people—and this was well over a year after the group was formed. Clearly facebook groups had tremendous success at acquiring critical mass.

2)    Disparity in Work and Benefit: Another one of Grudin’s concerns with groupware applications is that they often require additional work from individuals who do not perceive a direct benefit from the work that they put in. The Facebook Groups application overcame this challenge by making it really easy to set up a Facebook group. Utilizing drop down menus, auto-fill features, radio buttons and text boxes, users of the Facebook group application could set up their group in a matter of minutes and then invite all their friends to join. The small amount of work is definitely worth the reward of garnering attention to or facilitating discussion about the Facebook group.

3)    Unobtrusive Accessibility: In his paper, Grudin states that groupware ought to ensure that features that support group processes are used relatively infrequently in comparison to more heavily used features. The beauty of facebook is that it gives individual users control over the quantity and nature of information they receive via email from the group. For example, some users may find the “discussion board” useful whereas others may find the “links” useful. In either case, a user can go into the group’s settings and customize the type and quantity of emails he or she receives from the group. This allows for the application to be less obtrusive.

4)    Exception Handling: Grudin argues that groupware should be able to handle a wide range of exceptions as well as be conducive to improvisation. Herein lies the one flaw with Facebook groups—it simply wasn’t built to handle exceptions. There are a whole range of types of groups and features that facebook groups never had. This includes features like: uploading documents, synchronizing calendars of members, communicating via video chat within the group, sending out mass text messages, etc,. There are definitely a number of exceptions that facebook simply wasn’t ready to handle at the time

Nevertheless Facebook groups made a number of important strides towards overcoming Grudin’s challenges for developers. Despite having difficulty with handling exceptions, it obtained the necessary critical mass, eliminated the disparity between work and benefit and made accessibility far less obtrusive. This progress seems to suggest that slowly groupware will eliminate all the challenges that Grudin presents, making virtual collaboration as efficient and beneficial as face-to-face interaction. Yet we ought to be a little more reserved in our optimism. After all there seems to be an inherent and irreplaceable value to personal interaction. Are we then chasing an illusive goal  or trying to conquer the unconquerable? It seems that only time will tell that tale.