collectedthinkery

What next for Local Services?

Over the past year, I have become increasingly interested in the local services flash sale (often referred to as group buying) space. What was effectively the “internet-izing” of the long established coupon industry has rapidly become the hottest area of the internet now, driven by its tangible revenue streams and extraordinary margins.

I started building Gilt’s play in the space, Gilt City, with Kevin in September last year, and have been blown away by the growth it has shown since launch. I have also observed a massive crowding of a space that a year ago was almost empty - the launch of 22 competitors in New York alone, countless vertically-focused plays and a $1.35B valuation. Just last week, SecondMarket reported that in Q2, options and shares in Groupon were generating the most buy-side interest among investors in illiquid assets.

And then this past week, something really interesting happened. Yelp started to offer daily deals, through the businesses it already manages listings for. I have no idea why it took them so long to get into the space, but I am glad that they now have. In many ways, Yelp has the ultimate offering, coupling deals with quality content and reviews, enabling would be deal-purchasers to learn more about the business before committing to the purchase. Their recent opentable integration pushes the utility even further - at Yelp, you can find a restaurant, secure a deal and book a table all on the same page. Couple this with their already-established local sales team and its existing network of users (33M at the last count) and Yelp has the potential to be a category killer.

But yet there are some serious challenges to the Yelp model. Yelp needs a high volume of deals to keep users returning, which means deals that can live on the site over time. This will push their vendors towards more evergreen deals - “2 for 1 drinks between 5 and 7pm” - rather than the true one-time-only value that Groupon and Gilt City offer. These types of deal will rarely represent the same value as something available for a short time in the flash format, and Yelp will need to be careful that offers don’t quickly become second-rate and stale.

I have always felt that offering contextual relevance was the key to long term success in this business - the ability to put offers in front of users that have the ultimate relevance to their demographic profile, their location or the interests and needs. Yelp has this in droves - a user searching for “Restaurants in Murray Hill” is absolutely going to want to see special offers at restaurants in that neighborhood.

There is one other player that specializes in this highly tuned form of contextual relevance too, and that’s Google. Google has been tinkering around with its local offering for some time now, and local deals could be the answer. Google could (should) be aggregating deals from the multitude of players across the US and feeding them into relevant search results - it could even project them on to maps. Pushing the thinking down the Adsense route, Google could even develop a self-service platform to enable any small business to upload their best offers, to be displayed where most relevant right across the Google network. I think that Google poses a considerable threat to not just Yelp but the market in general.

So what does all this mean for Gilt City? I do think there are truly defensible positions in this market, and Gilt City is rapidly cornering one. Gilt City offers high end products and services from vendors who care about their reputation. It offers unique experiences that are crafted just for Gilt, and pushes them to an audience that has been tuned to expect this type of quality by the core Gilt business. It’s our own form of ‘contextual relevance’.

For everyone else? Find your own form of unique ‘contextual relevance’ and command your niche as quickly as possible.

It is going to be fascinating to see how the market shakes out, but I predict an unsophisticated, middle-of-the-road, giant and a select few focused players staunchly defending their corner.

Apple and the next category killer

Despite a range of technical challenges, sales of the iPhone 4 are already through the roof (1.7MM and counting) and Apple appears to have triumphed again. I bought the phone last week, and aside from the frighteningly real issue around left-handed usage, I am very impressed with the new features and functionality.

That said, I am much more interested in what comes next. I believe that right now, Apple has an opportunity to really dominate the mobile space. The driver would be a lower spec, carrier-ambivalent, version of the iPhone. Its a strategy that Apple have employed before (see the iPod Nano), and 2011 might be the time to try it again.

My recent upgrade cost $440 all in, including a $200 upgrade fee that AT&T were not prepared to waive. Even without that fee, the cheapest iPhone 4 comes in at over $200, and comes strapped to a contract starting at $59.99 per month. This is a price point that puts this product out of reach for many of the 300MM Americans that do not own one already. Perhaps more importantly, the sheer technical sophistication of the iPhone is way beyond the needs of most of these non-owners too.

So what features should the pared-down iPhone retain - voice and web and text, clearly, as well as seamless video and music. A single camera, with a 2MP lens, would be sufficient, as would a staple selection of the best apps pre-installed. And it wouldn’t hurt to throw in a couple of proprietary features, like Face Time, that only work iPhone-to-iPhone - if anyone can make network effects work with a hardware device its Apple.

The two most critical elements for me are form and accessibility. What this iPhone looks like, and how it feels, will be critical to its success. It needs to be smaller, lighter and designed with a broader audience in mind (the iPhone 4 is almost oppressively geeky). In the past, Apple have crossed the geek-barrier by using color, although I am not sure that would translate to the phone.

The second key feature is multi-carrier accessibility. AT&T can’t provide decent service in New York City, yet alone across the rest of the country, and its critical that customers for any pared-down phone have the ability to choose the carrier that best covers the area they live in.

The final question for me is price. Can Apple build a killer phone with a total outlay for a new customer of less than $50? It could well mean carrier subsidies, and these are harder to command if there is no associated exclusivity.

Lots of open questions for sure, but if Apple get the product right, I believe they could command over 50% of the US handset market by 2013.

Social networks and privacy

I have been thinking a lot about my declining usage of Facebook recently, and what might be driving it. The answer lies in two core issues that just did not cross my mind when I signed up 4 years ago. Social networks are about sharing, and about connections.

As I think about the concept of friends, its a group that can be broken into two parts - close and distant. Close friends are the people you have known for years, that you grew up with, went to school with, or that you have become close to through work. Distant friends are acquaintances that you have connected with at some point in life, and make some effort to stay in contact with. For most people, there is some migration between the groups over time, but broadly they stay the consistent.

The explosion of online social media has presented each of us with a wealth of options for staying connected to both of these groups. The challenge is that the type of information I want to share with one group, is not information I necessarily want to share with the other. My list of facebook friends incorporates members of both groups, which is why I find it hard to figure out what to post there. In part because of this, I have resorted to posting pretty much nothing over the last year.

For a good number of my Facebook “friends”, I see communications that I imagine were really designed for members of the close group, but that end up being broadcast to both. The result is that I just don’t care about 80% of what appears in my friend feed. And when you consider that Facebook is essentially a public forum, the issue is exacerbated further.

Personally, I would rather use more private forms of communication to stay in touch with the first group - phone, text or ideally face to face conversation. All of these are social media channels in their own right, although more personal and typically offline.

And so we get to the second serious challenge of online social media, persistancy. Conversations that are built online do not die. They are archived, and are searchable, for as long as the network on which you started them decides to maintain them. Google your name 10 years from now, and there is every chance that your Facebook posts will appear as part of the results. Scroll back on your Facebook wall today, and see what you wrote in the early days after joining - are these things that you want attached to your name in the public eye?

To me, this is why the current privacy debate around social network data is so critical. We need to be able to trust the social networks that we engage with to be the guardians of our privacy. Most of us were not raised in an environment that required us to consider the consequences of our interactions with friends - conversations, over the phone or in person, were private in all channels other than the eyes of those we shared them with. This is just no longer the reality, and a slow and thorough re-education process is going to be required.

In the meantime, we should all put a lot of thought into what we do and do not post across the social media spectrum.

Keys to the City

New York is a fascinating city, full of hidden surprises and secrets. A lifetime would not be long enough to discover everything that it has to offer.

Paul Ramirez Jones has just launched an amazing new project to showcase some of the best hidden secrets to New Yorkers and visitors alike. Visitors to the Key to the City booth in Times Square can betroth a key to anyone they would like - friend, loved one, relative or stranger. The key provides access to over 50 hidden secrets around the city, and each recipient receives a map and instructions to unlock each of them. The project goes on right through the summer and new secrets are added all the time.

What I like best about this project is that any key holder can copy their key and betroth it as many other people as they like. No false pretense, no limited edition, but an underlying desire by the artist to share these amazing finds with as many people as possible.

A true democratization of the honor of receiving a key to the city.