Why Yelp (...and Every Single Retail Establishment) Should Support Foursquare

Charlie O'Donnell
Venture Capital & Technology, nextNY

When I first heard of Foursquare, I'll admit that I didn't jump on it right away.  I knew the founders, Dennis and Naveen (see photo below), but I'm not really much of a gamer, nor am I much of a bar hopper, so the idea of turning my nightlife into a competition didn't seem so appealing to me (especially when working on Path 101 sucks up so much of my nightlife).  Plus, I don't have an iPhone, so that seemed like it should be the third strike for me.

However, I discovered my own reason for using it.  I was talking with a friend about how I stumbled into a great restaurant (August) walking around Greenwich Village, but couldn't remember the name of it.  I was saying how I wished there was an app that pulled my credit card data to track where I had been.  I was always forgetting the places I had gone.

"Why don't you use Foursquare?"

Aaaaaah.  That made so much sense.  Forget the game.  Forget the bar hopping.  Foursquare would be a dirt simple way to just record the places I had been--and that's all I wanted to do with it.  I signed up and started using it through the mobile site on my Sprint Mogul.  I'll admit, I quickly got hooked.

I definitely started getting sucked into the game, too.  Getting badges and seeing where my friends were was fun.  The other night, I realized that I was about to go to a place that Mike Galpert had been to about an hour or so before me, so I called him to ask what he had.  Indeed, the spinach gnocci at Supper was excellent.

That's when I realized how valuable Foursquare really is from a business perspective.  Mike made a recommendation to me, but Foursquare was the service that actually knew that I went, because I checked in.  Being able to connect web advertising, recommendations, and social media buzz to an actual person walking into your store has long been the holy grail of the advertising world.  We spent lots of money and effort online to drum up our brand, but does it actually drive food traffic?  Foursquare knows.

Think about it from Yelp's perspective.  Yelp helps you figure out where to eat, and gives you recommendations, but it only knows about the people who write reviews.  That represents only a small percentage of the overall Yelp traffic--so while Yelp tries to make the business case for advertising and using it's retail services, it doesn't really know how much real live foot traffic it drives.  Foursquare is the missing link, enabling you to come full circle from a review or recommendation to an in person visit from a real customer.  Best of all, it has figured out a compelling reason to get you to submit that data--in the form of a fun game you play with your friends. 

Additionally valuable is that the game syncs up with Twitter and Facebook, so Foursquare users are telling the world where they are and the places they've visited at any given moment.

What Foursquare does is even more valuable than the Yelp mobile app itself.  It not only records where you've been, but it also encourages others to visit the same place and join you.  If I was a business, and I had the choice of getting all my customers on Yelp or on Foursquare, Foursquare seems much more compelling.  It's not about reviews so much, so I have less downside of a bad rating or review killing my business.  Plus, it encourages others who aren't even on the app to come join their friends and check out my business.  More Foursquare users will check in and promote my store than the number of Yelpers who will rate my store and then publish that rating.  On top of that, Foursquare helps me identify who my best customers are, putting a name to a face.

So if I'm Yelp, Foursquare has valuable data that I need--whether or not my recommendations are actually driving anyone to visit the store--and has a much more compelling social media network effect.  Yelp's current social network isn't well tied to their site.  I can have friends on Yelp, but it's not totally clear how having friends improves my navigation of the site or my ability to get ratings--as opposed to Foursquare which is all about tight networks of friends. 

But Yelp also has stuff that Foursquare really needs--distribution and content.  A deal or some funding from Yelp could put Foursquare on the map as the default "Where am I now?" app and make Yelp's social media offering to a business complete and compelling.  They'd finally be able to figure out exactly how much traffic their site drives in the door.  They'd know which reviewers were the most influential--not just to other reviewers but to actual paying customers.

I think Yelp needs to act fast on this, because if I'm Foursquare, I'd start going straight to retail establishments and striking deals.  I'd get every single Starbucks to start encouraging their customers to use Foursquare and check-in to their favorite Starbucks.  I'd know whether or not that was driving feet in the door from other check-ins and who my best customers were.  Foursquare should built a neat little self serve portal that allows retailers to claim their establishments, and track who's coming in and when. 

Yelp has an "Elite" badge for the best users of Yelp, but how long before Foursquare allows retailers to create their own Elite badges for their best customers--rewarding people who support the store, not just the ratings site.   If I'm Shake Shack, I want to know who the Shake Shack Elite is, not the Yelp Elite--the latter doesn't really directly help me as a business.  The more a site enables me to have a direct relationship with my customers, the more valuable it's going to be for me and overall.  Starbucks, Jamba Juice, NYSC, Dunkin Donuts, etc. should be all over FourSquare right now trying to figure out how to get their customers on it. 

If Yelp doesn't strike up a distribution deal with Foursquare soon, I think they're going to regret it.  The deal is simple.  We'll invest a couple hundred grand in you and promote you to our users.  You give us the data (through a sync to Yelp accounts) of who goes to an establishment based on a Yelp review.  That will help Yelp sell it's service to retailers and restaurants.  Yelp should provide reviews in Foursquare in exchange for promoting Foursquare's "Tips" and "ToDo's" as well. 

Google proved that you needed to be able to tell a retailer exactly how advertising helps their business and help them track ROI.  Foursquare is well positioned to capture that all important retail visit--the hardest piece of data to get short of diving into your credit card statement.  That makes them a serious player in the local ad space--and one that will undoubtedly pass on an early Google exit based on Crowley's past experience. 

The three types of deals that VCs invest in

Charlie O'Donnell

I was talking with one of my investors the other day about the job search and recruiting space--and how I was surprised that there wasn't more innovation here, given how monetizable the space was.  After all, what's the value of the right hire to a company--and what's the value of the right job to a candidate?

Then I realized that innovative ideas alone don't really spark VC interest.  They need to be in areas that a venture capital firm has already decided that they want to be in.  So, if you're doing something innovative in cleantech, mobile apps, hyperlocal, or some kind of social media monetization tool, an innovative vision can get funded.  VCs are willing to make bets on visions of how certain markets will develop, even if they don't know all the details of how the business works out. 

If you're not in an area that VCs are excited about, you basically have two options.

The first, and probably best choice, is to go make some money.  VCs, especially towards the second half of their funds, will invest in baked in ROI.  Once you prove out your ability to make money, then it becomes the simple matter of an associate's spreadsheet.  How much do you make now and what valuation can we get it at?  What will you make with some product improvements and a new head of sales, maybe some international expansion and what can we sell it at and when?  Dollars in, dollars out, pure and simple.

The next choice, which isn't really a choice, is to have done it before.  This is betting on the jockey, not the horse.  Dave Morgan recently got $4 million for the Simulmedia powerpoint presentation.  Actually, that's a guess.  I'm not even sure there was a presentation.  Basically, if Dave Morgan does something in the ad space, given his track record, you back it.  That's it.  No questions asked. 

So, you better be in a hot space, be making money or have an exit under your belt, because if you don't have at least one of the above, it's an uphill climb. 

The Case for Public Replies on Twitter (... or at least the .@ convention)

Charlie O'Donnell
Venture Capital & Technology

Recently, there was a big fluff up over Twitter replies--messages that users direct at each other in public using the @ symbol.  Now, you only see public @ messages if you follow the person being spoken to.

It used to be that you had a choice as to whether or not you saw replies that were directed at you or people you followed. The default had most recently been set to off--meaning that you didn't see many of the public messages that your friends sent. Most users didn't even know this was a setting, so few changed it.

How can we know that most users hadn't known about it versus liking the way it was? We can't know for sure, but the fact that *most* users have trouble catching on to using Twitter in the first place and that *most* users will just leave the default up on any feature in any web service is a good indication that this was not a conscious vote for the setting.

In fact, many were unaware that they weren't seeing all of the Tweets from their friends--I certainly didn't.  These were people they had signed up to follow the conversations of.  It would be an odd assumption to think you weren't seeing all public messages.

The effect?

Discovery of new people to follow has gone way down. One rarely encounters the usernames of new people they don't follow anymore.  It goes both ways as well.  Not only is my own discovery of new people way down, but since the change, the number of relevent, interesting people who have found me has gone way down.   No offense to recent followers, but now I hardly look at who follows me, because it's often people I have no connection to who never chime in on conversations--because they can't see conversations.

Instead of a more organic discovery mechanism based on overheard conversations in your close proximity, most new followers come from recommendation services, PR lists, and WeFollow.  For whatever reason, the quality and relevence of these followers seems to be much lower.

I'd be willing to bet that, across the board, the follow back ratio of new followers of popular people has gone way down.  The lack of discovery is making relevent connection difficult and unlikely.

Fred Wilson argues that hiding public replies increases signal to noise--a big problem for him given the number of people he follows on Twitter. That's true--tweets not directed at Fred or people he knows are less likely to be relevent to him.

So who does this affect?  What is their preference and what are the alternatives?  Also, how does it change Twitter usage?   Also, how does this relate to the overall core value proposition of Twitter?

In Fred's case, not seeing replies increases his signal to noise, but is that really why? What makes something noise? The average Twittter user sends about a quarter of his messages as replies. Chances are, most of those are going to people they know.  While Twitter networks can often have a fair bit of overlap, let's say that 2/3 of my replies are directed at people he doesn't know. That means that 2/3 of 25% of my tweets--or 17% of them--are his issue.

But, even then, is it really true that every tweet I send as a reply outside of Fred's network isn't relevent to Fred? What if I'm writing "@frozen2late I don't think Carlos Delgado is going to come back this season"? Fred's a big Met fan, too. It's hard to believe he wouldn't want to weigh in with a "@ceonyc Josh thinks if we don't get Delgado back, we're screwed."

Here's an example, albeit on Facebook, of how someone else got value from a conversation that wasn't intended for them:

 

Some of these replies are very relevent to Fred, judged on content alone. There's no reason why anything I write in a reply would be any different from a relevency perspective than any other Tweet.  Sure, I might occasionally tweet out "@zoedisco Funny!" and that's a meaningless tweet to Fred--but is it any more meaningless than when I tweet out that I'm going to bed or that I ate some ice cream--not directed at anyone in particular.

What's also important is what is good for Twitter as a service and a community.  There have been stories about Twitter's engagement issues--that most people join and don't Tweet at all, or stop soon after they start.  This isn't any different from any other site.  One thing we do know is that on any site where there are network effects--the benefit to finding more people that you know or feel are worth following is clear. 

It's no different than walking into a party late.  If no one shows you around, you need to be able to insert yourself in other people's conversations otherwise you're just going to feel left out and leave early.

So while someone following 400 people might feel like replies are overwhelming, those following 3 people really need those public replies to discover new people.  People need to remember that there are many more people *not* using your service than users.

So what's the solution?  I think we should default back to public replies and let people like Fred who follow 100's of people opt out of them--because he represents the minority.  Not only that, but I'm sure he has a few people who are the worst offenders and maybe he just needs to unfollow them altogether.

Or, you could perhaps do give people the choice to opt out at the app level--which would also solve Fred's problem because he's reading these tweets on his phone half the time--and that's probably when it's most annoying.

In the meantime, I've circumvented the hiding of my tweet replies by throwing a period in front of them--the .@ convention for public replies. This way, the person sees the reply and so does everyone else.  I'd like to see more of this, because I want to see who my friends are talking to and discover more people that way.  I think it's also important to the growth an engagement of the service overall.

 

Trending down: Popularity lists without filters and reputation are a Twitter cesspool

Charlie O'Donnell
Venture Capital & Technology

Twitter trending topics had become a good way to play celebrity deadpool--only now every legitimate celebrity death is followed up by a fake one.  After Michael Jackson died, we had fake rumors of Jeff Goldblum, Rick Astley, and Billy Mays. 

(Wait...  Billy Mays is actually dead?  Jeez.  How's anyone supposed to confirm anything these days?  Does Twitter need Verified Death tweets?)

Now, almost every day, I see trends starting from people who are clearly gaming the system or that just aren't interesting at all to most people.

Aircraft Loadmaster anyone?   WTF is this?

 

If you're going to make Twitter trends relevant again, you need to start focusing on who's creating the tweet (influencer versus some job posting bot vs a bot that just picks out trend names to get in the flow) and what their reputation is.  

Trends have become a mess--inviting spam, gaming, marketing and combinations of the three.  Kill it for now and come back when it's fixed and it's not so easy to glom onto it.

When will we see the last paid job post?

Charlie O'Donnell

Reid Hoffman believes the classified job-posting model to be “a little absurd.” Around the industry it is known as “post and pray”.

Here's the problem:

What are the chances that the right candidate with the right talent, right expertise, right demeanor, at the right time for the candidate, will happen to come along and see this job post while the company has an opening?

Answer: Not likely.

Plus, by definition, if they're looking at job ads, are they unemployed, or stuck in dead end jobs--potentially not the upwardly mobile rising stars you really want applying.

Even if you did get the right person, they'll come in a flood of resume spam, so you're likely to miss them.

It's the same thing for most broadcast advertising--which is why advertisers are abandoning broadcast messages for search in droves.  Instead of mass messaging a potentially irrelevant audience, companies would rather target people that they know are more relevant. 

At the same time, more and more people--particularly the most innovative candidates--are exposing data about themselves on the web via their social network profiles, Twitter, blogging, del.icio.us, etc.  The best candidates are abandoning job boards and instead saying, "Come to you?  Why?  How about you come to my place?" 

It makes a lot more sense to imagine a world where everyone is searchable and open to hearing a relevant opportunity and that there are tools to find them--tools that understand the nuances of each network and application.

So when I can ask a search service to find me the top salesperson with 5 years experience that is into sustainability, and I triangulate on the combo of a public LinkedIn profile, an blog on sales that has a high level of authority, and "greentech" and "sustainability" as some of their top tags in del.icio.us, then why would I ever pay to post a job?

Certainly, we're already seeing companies bolt at the idea of paying hundreds of dollars for a job posting when you can just pay Craigslist $25.  Even then, Craigslist really just charges to keep the site spam-free.  I'd bet that if you could somehow prove your reputation as a legitimate employer, Craigslist would lower the cost.  That's why they started charging in real estate--because a free rental board attracts the worst of apartment scammers. 

Indeed.com will aggregate, for free, your company's job board if you submit it--assuming they haven't found it already. 

So what are you actually paying for?  Volume?  Is it impossible to fill 200 nursing positions anywhere else?  How long does that last?  Seems to me that being "big" isn't a really sustainable competitive advantage on the web unless you have some kind of network effect--something that Monster and the big job boards definitely do not have.

Sponsorship is different.  Sponsorship means you're getting to the top, getting front and center in front of the right candidates, but also paying on a per click basis.  It's a web model with a clear ROI and it charges for what you really want, traffic, not the commodity, publishing.  The incremental publishing/hosting cost on the web for a job should be near zero, so it seems silly that it's being charged for.

Is there anyone that you can't find via search that will come to you via a job post that is any good?  Does that remain the case in five years?

Recently, there have been some predictions that printed newspapers will die in the next ten years.

Anyone want to make a bet that the paid job post dies before that?  If not, when is the last paid post?

The Startup Revenue Experiment - Go sell it

Charlie O'Donnell
Venture Capital & Technology

Consider this theoretical exercise...

I met a company the other day with a live social networking product that could be easily whitelabeled for brands and publishers.  They were also looking to raise between 500k and 1m. 

My suggestion to them was to go out and charge some brands to whitelabel their product at 50k a pop--generate revenue instead of raising capital. 

Here's the thinking:

If you're telling me that gathering your audience or doing whatever it is that you do solves someone's problem, than selling it is really the only proof.  What happens when a big company has a problem that costs them 200k a year?  They budget out 50k of either internal or contract resources to fix it if there's no good solution on the market.  In other words, they pay money to a team of people who haven't built product yet to fix their problem. 

On top of that, interactive advertising shops get paid tens of thousands of dollars all the time to build microsites and apps for brands and publishers.

Therefore, the idea that you can't get *somebody* to pay for a future solution to be delivered in a few months seems like a flimsy argument, given the right terms.  Sure, they won't pay a fifty dollar a month subscription for a product that doesn't exist, but they routinely pay 50k for custom built solutions.

Here's the problem with that, and what you need to convince companies out of.  Custom solutions are always a nightmare to maintain.  Domain expertise on what companies build internally is nearly non-existent, so you'll always be overpaying to retain employees to maintain it.  There's no direct incentive and certainly no budget to continually improve and iterate on the product, so it's bound to get stale and become obsolete.  The problem is so bad that you have to imagine that companies might be better off seeding lots of little ISVs to build efficient, flexible software that other companies could use rather than attempt to homegrow anything.

And that's your pitch:  Pay us to do this--we'll be focused on it, iterate on it, incorporate the good feedback from other customers, and in the long run, we'll be cheaper to maintain.  Perhaps with that comes some warrants, options, or even some equity. 

If you scour the market and one out of the top 100 companies isn't willing to pay you for your solution or to attach their brand to you, then I have to wonder one of the following things:

Is this just not enough of a pain point for these customers or their audience? 

Does this other company not see your tool as a compelling enough way to monetize their audience--which is also your audience--one that they know, conceivably just as well if not better than you?  If it was, you'd have to believe that some kind of revenue share or equity agreement would make sense to them.  If you're doing something amazing for the auto market, and Car & Driver doesn't want to be a part of it, you have to wonder how amazing what you're doing is.

In this or any economy, you need champions--and your best champions are your paying customers.  Angels and VCs don't mind being second in line behind someone actually paying to use the product that will ultimately drive your success.

Are there exceptions to this?  Sure.  There are certainly pain in the ass situations where you're doing so much custom development all day for other people that you're no longer actually selling you're product--you're a development shop.  Still, the exercise of talking to customers and seeing what they would pay for is sure to be an informative one.

Beantown VCs shorting Boston and going long NYC?

Charlie O'Donnell
Venture Capital & Technology

Has anyone noticed the increased interest that Boston VCs are taking in NYC these days?   It's not just Bijan from Spark anymore--Beantown investors are flocking to NYC in a big way, and being very public about it.

In addition to deals like .406's investment in EnergyHub, Boston firms have recently shown a penchant for participating in NYC community events and support--perhaps even more than NY firms have.

General Catalyst sponsored Alley Insider's Startup 2009.  More recently, a bunch of investors and entrepreneurs have gotten together to great a venture education and mentoring program called First Growth Venture Network right here in NYC, not Boston. 

Check out the Sawx-lovin' VC firms on the executive committee:

Flybridge Capital Partners

Polaris Venture Partners

North Bridge Venture Partners

Charles River Ventures

Battery Ventures

Highland Capital Partners

 

On top of that, there are a number of firms putting feet on the ground here.  Mo Koyfman of Spark is based out of NYC.  General Catalyst give Facebook co-founder Chris Hughes the nod to hangout in NYC and drum up some deals.  MIT MBA candidate Amanda Peyton is in NYC for the summer on behalf of New Atlantic Ventures--a recent backer of Brooklyn-based Pontiflex to go with their investment in NY's ContextWeb.

Claire Cain Miller asked whether or not Boston was dying as a VC hotbed, but positioned that it was being abandoned in favor of the valley after Greylock went out west.  It seems more logical to me that any Boston exodus would naturally lead down I-95 first before it jumped across the country.

Unfortunately, and typically, the continuing buzz (which is what... three years old now?) around NYC's surging startup economy seems to have escaped the WSJ's Scott Denne, who covered the First Growth story by leading with the following: 

"...start-up founders in New York City are a relatively solitary lot. With fewer firms and no particular geographic nexus, entrepreneurs rarely have the kinds of chance encounters that can jump-start a start-up."

Dear anyone who can't find the NYC tech scene or still doesn't know it exists...   You are cordially invited to join nextNY, the NY Tech Meetup, show up at a Digital Dumbo, the Entrepreneurs Roundtable, or follow @shakeshack.

 

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