29 Nov 2010
Facebook is a force to be reckoned with. With 500 million users, it can make any potential competitors quake in their boots. Not content at just being a social network, it has entered the world of advertising, check-ins, photo sharing and now email. It has already raced ahead of other social networks – MySpace and Friendster have been hit hard1 – but will it be a threat to all smaller startups that get in its way?
The main reason that Facebook threatens smaller competitors is its reach; any new gizmo that Facebook introduces instantly goes out to half a billion people. Add to this the time poor generation that has a need for one-stop shopping, and it is obvious why this spells danger for startups.
Facebook has recently marched into check-in territory with ‘Places’. This prompted questions about the survival of Foursquare, Gowalla and other check-in services. These fears have grown louder with Facebook’s introduction of ‘Deals’, which allows businesses to offer promotions through ‘Places’2. But are these concerns justified? Perhaps. Research suggests that ¼ of consumers would choose Facebook as the place to receive information about brands3. Facebook’s reach also gives businesses an incentive to work with it over any competitor, which then gives consumers the motivation to stick with Facebook – a pretty virtuous circle. It seems to have “found the perfect recipe for encouraging people to check-in”4 in this way. On top of this, Facebook is not charging businesses for the service. This could also seriously harm deals sites like Groupon5.
But is there anything these competitors can do? Quite possibly, yes. And real-world markets might provide the answer. Tesco has caused outrage by barging into towns, setting up shop, and crushing the smaller shops nearby. Evidence suggests that in 2009, Tesco directly caused 12,000 independent shops to close6, which “shows the devastating effect that multinationals have on local economies”7. However, some would say that although smaller shops cannot compete with Tesco directly, they should adapt their strategy and offer something unique – luxury boutiques, art galleries, restaurants – to stay competitive8.
Foursquare and Gowalla take note! There is no need for these companies to close their doors as evidence so far suggests that they have not been badly affected9. What digital startups should do though, is to work hard to maintain an edge in the market, and be different to Facebook. For example, Foursquare should focus on the gaming aspect of checking in, just as SCVNGR has done. Shopkick is also using a really interesting points-based incentive system for checking in10. Alternatively, some would say “if you can’t beat ‘em, join ‘em!”; one possibility available to these businesses is to make their service fully integrate with Facebook, just as Loopt has done. On top of this, there may be an effect of Facebook Deals that we wouldn’t have seen with Tesco; it might actually help smaller location-based businesses by bringing check-ins to the wider public attention. Some figures even suggest that Foursquare sign-ups went up when Facebook announced Places11.
So, small competitors may be able to hold their own in a battle with Facebook. And there is also another giant player in the digital solar system that we can’t ignore; Google. Yes it may be true that 1/5 of Facebook employees are ex-Google, yes Facebook can also provide targeted ads, and yes Facebook’s “Titan” email project could threaten Gmail12. But Google is still powerful, it still has unrivalled reach, scale and the ability to constantly innovate. It also has it’s own location services, including ‘Places’ – location-based searches, reviews and now recommendations13 – which could be just as successful, if not more so, than Facebook Places. After all, only 4% of online adults are using check-in services already14. So really, it’s anybody’s game.
Why hasn’t location reached the mainstream yet?