Hyper-Local and Newton’s 3rd Law
In many ways the power of the web has made physical location irrelevant. We can communicate, shop and consume information from anywhere we can find an Internet connection. While there are clearly links between the online and offline worlds of consumer behavior, the web has mostly existed as a parallel universe that influences, informs and often replaces actions in the physical world.
This online universe has created great efficiencies in consumption processes for information, goods and services and yet it still follows Newton’s third law in that for every action, there is an equal and opposite reaction. By navigating through the web and taking actions on a given page a consumer exposes valuable information that is used to draw them through the purchasing funnel. The simple act of consumption of information by a consumer generates an equal and opposite data consumption activity by advertisers, content publishers and online retailers. The capture of this data has allowed behavioral and contextual targeting to shift from an art practiced by merchandisers and sales people at physical retail locations to a science practiced by statisticians and computer science PhD’s.
The promise of location aware applications and hyper-local online services is the ability to apply contextual and behavior targeting techniques to consumption in the physical world. The challenge lies in the need to observe and record consumer activity in order to inform the targeting strategy and receive credit for transactions motivated by effective strategies. To accomplish this, a service must motivate consumers to reveal their location and thus their intent. Jennifer van Grove has a nice summary of the space on Mashable and makes an endorsement I agree with completely.
As a consumer moves through the traditional online purchasing funnel, the choice to abandon the process serves as a decent proxy for the decision to forego the consumption of the item, or at least to delay the decision to a later date. The relative efficiency of continuing through the online purchasing funnel versus transitioning to the physical retail environment underlies this assumption and allows the traditional online environment to be viewed as a closed system were Newton’s laws can be applied.
In the world of hyper-local services, the friction that used to hold the consumer in the online world is reduced and in the limit it reaches zero. This creates a massive problem for targeted advertising because there is no longer a simple way to capture, measure and record transactions. Consumers do not want to expose their location at all times and the closed system is blown apart. In the current environment of CPC and CPA dominance, ad revenue and lead generation fees are impossible to capture.
Coupons and other redemption schemes are suggested as mechanisms for transaction capture, but this feels like holding together a 747 with duct tape. Given current POS integration, the effort required by the consumer is far more costly than the savings offered by the coupon. Additionally, the experience of receiving spam SMS for 10% off my coffee as I walk down the street with a triple Americano does not seem overly appealing.