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Geolocation-based Messaging

October 20, 2014 - strategy
Geolocation-based Messaging

The news that Firechat went viral during protests in Hong Kong reminded me of a topic I am interested – geolocation-based messaging. When we think about chat apps we typically recall WhatsApp, SnapChat, and WeChat. These apps are an evolution of their desktop-based cousins, also known as instant messaging, which included technologies such as ICQ, AIM, Yahoo Messenger, Skype, and others. Some of these apps focus on text and others include voice and video. Most importantly, these apps are based on each user knowing the recipient of the message. In other words, these apps focus on messaging between friends and family within someone’s social network.

With the growth of GPS and Bluetooth-enabled smartphones a new use case is enabled which I will call geolocation-based messaging, or geo chat. Instead of messaging among peers in one’s social network we can now exchange message with individuals around us, whether they are our friends or not.

The way I think about these opportunities is 1) how much can they go viral and 2) how much of the user base can they lock in.

As far as going viral I think there is no shortage of use cases – think about concerts, workshops, business functions, conferences, and … sporting games. Imagine going to a Red Sox game and being able to talk to everyone around you (and share pictures) about what’s going on in real time. I think this can be powerful. I looked at the Apple app store and found some entrants in this space, mostly focused on verticals such as meeting nearby friends and dating (see below).

chat-apps

The list above is not meant to be exhaustive. There are far fewer pure-play chat apps than vertical apps which I view as an opportunity for new pure-play entrants. Among pure-plays Firechat uses new Multipeer Connectivity and Local Chat uses GPS, both with interesting trade-offs and use cases.

One of the biggest challenges is locking in the user. Think Groupon – low switching costs and low multi-homing costs. They lost much of their valuation after realizing that retailers could just as easily launch promotions on several discount sites at the same time. In the case of geo-based chat apps the user doesn’t necessarily need a profile at the most basic level (all the app needs is the phone location) so switching costs are even lower. This key element makes the need to aggressively build a local user base even more important. App developers also need to strategically implement mechanisms to lock in users and advertisers. For users they could use a log in (either their own or via Facebook, etc.), give them the ability to share posts in Facebook and Twitter, give them a history at a specific location, top discussions, show locations with high conversation density, etc. For advertisers they can offer user and location data, ad analytics, better targeting, etc. Keep in mind that focusing only on a great user experience doesn’t count – everyone does that so a great user experience is level-playing. If you look at the apps above they all use a combination of ephemeral messages, custom messaging range, add friends, sharing, and map features.

I also don’t think there is a strong return on investing in intellectual property. In general, technology entrepreneurs have been very good at inventing ways around patents and this is a chat app. There are several chat apps out there already. The technology barrier of entry is very low so I am not even sure there is a first mover advantage. Furthermore, I probably wouldn’t worry about competition from the major chat apps (i.e. WhatsApp and Snapchat). Just don’t step on their toes. For example, if you launch an geo chat app that uses people’s cellphone numbers as “login” you will be entering into WhatsApp territory. If the messages in your app disappear then Snapchat may look at you as a competitor. I think the untapped space is geo chat apps that are use agnostic and allow users to broadcast messages to all users within range.

Ultimately this is a growth story that takes years to build (WhatsApp took five years to be successful). That means the most aggressive team will win. They will raise the most money, attract the best engineers, and will expand into most geographies. In a way, geolocation-based messaging behaves like hyperlocal sites and you have to grow geography by geography. The direct and indirect network effects are still there, but at the geographic level. If I am an advertiser in Boston it doesn’t matter to me that you have millions of users in San Francisco. This is great if you can develop strong local bases but it is harder to scale globally as you will be constantly playing the chicken-and-egg game between users and advertisers. From an advertisement ROI perspective app developers will likely need to report number of users by metropolitan area instead of total users. I still like this space but it won’t be long before it gets saturated.