Mobile Local Search and the New Click Fraud

TechCrunch’s Social Currency Crunchup at Stanford University and Geo-Loco 2010 in San Francisco echoed one of the ongoing themes of this column: the monetization of social and location based mobile products like Foursquare. Though we continue to see misguided thinking on revenue opportunities, a glimmer of realism is beginning to take over.

At the TechCrunch event, CityGrid’s Kara Nortman provided a good reality check on SMBs — the segment that’s continually proposed to be a massive ad revenue opportunity for newer entrants in the mobile local space.

Though massive, this SMB segment is filled with inconsistent buying behavior, low adoption rates, and high churn. Nortman reminded us that a combination of direct sales and networks/channels are required to scale. Foursquare lead investor Fred Wilson agreed.

“It will take a lot of technology and sales and marketing efforts,” he said at Geo-Loco. “There will be resellers and intermediaries to take these services to small businesses.”

Google head of Local and Maps John Hanke chimed in on the challenge of getting SMBs online in the first place — one of the tech giant’s biggest ongoing initiatives.

“It’s not competition amongst Google and Yelp or anyone within this space,” he said during the TechCrunch event. “It’s more about getting SMBs online at all. We’re trying to educate SMBs why the ROI is good, and it’s far from being over.”

Getting There

Foursquare Business Development head Tristan Walker was also on hand last week to discuss how the company is tackling these issues. Its challenge so far has been the resource constraints of a small team, and capital deficiencies.

But after last month’s $20 million series B round, it’s time for Foursquare to prove itself up to the market’s escalating expectations. Walker characterized the check-in as only a foundation — the value of which will grow from different applications.

“We’ll evolve how we present specials, and that could involve bidding on placement, day parts or days of the week,” he said. “We can open up the floodgates but we want to understand the use cases first.”

Examples of these use cases include the University of Wisconsin’s classrooms, which are each listed as Foursquare check-ins. Whole Foods Franchises, meanwhile, designate individual store managers to create check-in and mayor deals, redeemable for store items.

In New York (Foursqure’s hometown), a “heatpocolypse” listing was created by a user. The listing gets thousands of check-ins on hot summer days, prompting specials for Tasti D-lite frozen yogurt.

Lastly, Walker cited a Milwaukee bar that utilized a “swarm badge” promotion (badge unlocked when checking into a place with 50-plus concurrent check-ins). Reminiscent of Groupon, deals are offered to users that unlocked the swarm badge at the bar.

“How important is the check-in? [It” enables everything,” Walker said. “What can we do on top of that check-in is the question.”

Check-In Fraud (No, Not Check Fraud)

As this all develops, one stumbling block will be dealing with check-in fraud. This is my made up word — also known as “fake check-ins” — for checking-in to a place when you’re not really there. It’s rampant on Foursquare, and I do it all the time.

Until now, this hasn’t really mattered (except maybe irking Foursquare purists). But it could be a problem when these services move toward charging businesses to run various promotional campaigns based on check-ins.

In other words, the system can be gamed when I can unlock deals by checking-in to my neighborhood bar every day from my living room couch. Viewed in this light, check-in fraud could be the click fraud of the offline world.

Search Engine Watch readers will know the latter as the act of clicking on links in order to drive up what paid search providers can charge their advertisers. Check-in fraud is a bit different, as it’s the user doing it rather than the service provider, but you get the point.

The simplest way to battle this is with spatial limitations (via GPS) on check-ins. Foursquare has experimented with this and Gowalla has done it since the start. Best Buy announced a product this week with Shopkick, which will limit check-ins to within the physical store walls.

Businesses can also be urged to make offers that aren’t conducive to fraud. In other words, those whose greater volumes help instead of hurt businesses. This can include “buy one, get one free” offers, or existing offers they are pushing for scale.

Offers can also be tied to social or Groupon-like deals where, say, the first 100 users receive a deal. The offer is unlocked whether you check-in once or 20 times; tying the offer to user volume rather than check-ins per user avoids unique user duplication.

Either way, this will be a source of investment and innovation within a quickly growing sector. Just as we’ve argued that check-ins are the new currency of mobile local search, tools will have to be applied to prevent check-in fraud from becoming the new click fraud.

Join us for SES San Francisco August 16-20, 2010 during ClickZ’s Connected Marketing Week. The festival is packed with sessions covering PPC management, keyword research, search engine optimization (SEO), social media, ad networks and exchanges, e-mail marketing, the real time web, local search, mobile, duplicate content, multiple site issues, video optimization, site optimization and usability, while offering high-level strategy, keynotes, an expo floor with 100+ companies, networking events, parties and more!

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