Business | Location-based social networks

Where are you?

A tale of fake mayors and real deals

More bargains to the left? Roger that
|SAN FRANCISCO

More bargains to the left? Roger that

MARKETING, its veterans like to say, is all about the “three Rs”: reaching the right person in the right place at the right time. Hence the growing interest in marketing circles for mobile-phone-based social networks such as Foursquare and Gowalla that let users “check in” to shops or restaurants and instantly tell their friends where they are. Fans of such services gush that they will mint money by allowing ads to be targeted at folk who are about to make a purchase. But the networks must negotiate some important hurdles first if such lofty predictions are to come true.

Location-based networking won an important convert recently in the shape of Facebook. For some time, the 800-pound gorilla of social networking had tracked the progress of firms such as Foursquare, which boasts some 3m members. Now it has entered the market with its own service, dubbed “Places”, which is currently available only to American users of its mobile application. Places lets them signal where they are to their friends on the network, in much the same way that they can “tag” themselves in photos.

Several advertisers have already run modest trials on location-based social networks. PepsiCo, a food and drinks giant, is delivering electronic badges to the mobile phones of people who repeatedly visit locations on Foursquare where its products are sold. Its initiative taps into the competitive spirit engendered by the fledgling service, which bestows the preposterous title of “mayor” on people who show up most often at a location.

Bonin Bough, PepsiCo's global director of digital and social media, says the company's initial experience has been encouraging. As well as persuading people to visit sites carrying PepsiCo products, the experiment with Foursquare has also given the firm useful data about, for example, foot traffic to stores, which it can use to tailor promotions. Ford and Starbucks have used location-based networks in a bid to lure in more customers.

There are, however, several reasons why many marketers are still wary of committing big money to Foursquare and its like. One is that even the largest mobile social networks have just a few million members, which limits their appeal. According to a report published last month by Forrester, a research firm, only 4% of American adults have ever used such networks and far fewer do so more than once a week. Other forms of mobile marketing, such as SMS-based promotions and mobile-search ads, already reach far larger audiences.

Another challenge facing location-based networks is to prevent tech-savvy individuals from gaming their systems. The blogosphere is littered with stories of “fake mayors” and other folk who have come up with ways of checking in to places they haven't visited. Foursquare and other networks have been working hard to stamp out such shenanigans, but this is tricky. Then there is the thorny issue of privacy. If they are to grow significantly, mobile social networks will have to work overtime to convince potential users that sensitive information about their movements is being kept safe from, say, burglars.

None of this will deter marketers from launching more trials. “We're still figuring out how best to use these networks,” says Jonathan Nelson, the head of Omnicom Digital, an advertising agency. In future, more of this experimentation will take place on Facebook, which boasts over 150m mobile users and so ought to be the one network capable of creating a massive, location-based service fast. But like its rivals, Facebook will still have to show that Places can deliver the most important “R” of all in marketing: results.

This article appeared in the Business section of the print edition under the headline "Where are you?"

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