Highlight (http://highlig.ht/), an ambient location-based social network and social discovery tool, was poised to be the breakout app of SXSW 2012.[1][2] Highlight is a mobile app that runs in the background on users’ smartphones, alerting them to interesting people nearby–friends, friends of friends, and people with similar interests–using push notifications. Highlight promises to help users meet interesting people in a frictionless way.

Given the level of hype surrounding Highlight ahead of the conference, the general consensus was that Highlight and similar apps like Glancee failed to breakout at SXSW[3], and may have missed their chance to succeed entirely. Why did Highlight fail and what could they have done differently?

 

Highlight screenshot

 

Problems

 Highlight exhibits strong network effects; as more users join the service, users are more likely to discover interesting people using the app around them. To help facilitate interactions despite a small early user base, Highlight made their service extremely sensitive (i.e., they would send notifications even for the most tenuous of connections). At SXSW, a conference filled with tech early adopters that had almost all signed up for the service, this level of sensitivity proved overwhelming for users, who were flooded with notifications. Outside of SXSW, users found that notifications, when they did pop up, were uninteresting and unactionable.

Highlight also quickly developed a reputation as a battery killer, despite the app’s use of Apple’s battery-conserving background location services[4]. This dampened the app’s appeal[5], especially at a conference where people rely on their phones to stay connected throughout the day. Even outside of SXSW, people with smartphones rely on their phones to stay connected while out and about, and will be reluctant to use an app that reduces battery life.

Solutions

Highlight can overcome network effects in its early stages by providing standalone value independent of network effects. Perhaps Highlight could provide info about interesting places nearby, sourced from a robust location database like Foursquare’s Venues Platform (https://developer.foursquare.com/overview/venues). Highlight might show popular landmarks nearby. It could even go a step further, showing only landmarks most likely to be interesting to users given their interests, incentivizing users to input their interests during signup. Though Highlight’s long-term goal would still be to facilitate social discovery, the addition of standalone value could keep users coming back until a critical mass of users is reached, and incentivize them to input valuable data in the process.

With standalone value established, Highlight can keep the bar high for notifications, only notifying users when a truly interesting and actionable person is nearby (i.e., someone with a significant number of friends and interests in common). This will ensure that the social discovery feature is actually useful and compelling, and will rarely be a nuisance.

Finally, Highlight should make it easier for users to take action once they’ve discovered someone that they want to meet. Users should be allowed to silently “tap” nearby users that they find interesting. In the event of a mutual tap, Highlight should reveal the mutual interest to both users, reveal richer information about each user, and allow the users to set a meeting place and time and/or actively guide them to each other using GPS. Without such a feature, it might be too overwhelming to approach another stranger discovered through the service, and notifications might simply go ignored.

Closing thoughts

Highlight is an exciting concept, and it’s not dead yet. In fact, the team released an updated app with “expanded profiles, ‘high fives,’ and improved notifications” just yesterday[6]. The prospect of more easily discovering and interacting with interesting people nearby (in a non-creepy way) is an exciting one. But maybe Highlight needs to try a different tack to succeed. Or, maybe it’s just ahead of its time.

 

[1] Foursquare And Glancee Are Cool, But Here’s Why I’m So Excited About Using Highlight At SXSW, Eric Eldon, TechCrunch, http://techcrunch.com/2012/03/03/myhighlight/, written 3/3/12, accessed 11/21/12
[2] The two hottest apps you’ll “run into” at SXSW, Robert Scoble, The Next Web, http://thenextweb.com/apps/2012/02/24/the-two-hottest-apps-youll-run-into-at-sxsw/, written 2/24/12, accessed 11/21/12
[3] How Glancee And Highlight Are Fixing Those Background Location And Notification Problems, Eric Eldon, TechCrunch, http://techcrunch.com/2012/03/13/locationsignals/, written 3/13/12, accessed 11/21/12
[4] Location Awareness Programming Guide – iOS Developer Library, http://developer.apple.com/library/ios/#documentation/userexperience/conceptual/LocationAwarenessPG/CoreLocation/CoreLocation.html, accessed 11/21/12
[5] The Real SXSW “Winner” Is The Mophie Juice Pack, http://techcrunch.com/2012/03/17/the-real-sxsw-winner-is-the-mophie-juice-pack/, written 3/17/12, accessed 11/21/12
[6] Highlight Launches Android App And New iOS App With Expanded Profiles, “High Fives,” And Improved Notifications, Ryan Lawler, TechCrunch, http://techcrunch.com/2012/11/20/une-autre-version-de-highlight/, written 11/20/12, accessed 11/21/12


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It was bound to happen. Facing mounting pressure to find new ways to monetize against its massive base of over a billion users, Facebook announced in September that it would be launching Facebook Gifts, a new service that allows users to send physical gifts and gift cards to their friends through Facebook. Starbucks, Warby Parker, 1-800 Flowers, Brookstone, Hulu, Robert Mondavi, and Gap represent just a sample of the hundreds of retail partners that Facebook has lined up as part of its initial launch. But Facebook promises that it’s just getting started.
 
While dozens of startups – Wrapp, Giftly, YouGift, and Giftivo to name a few – have battled for dominance in the growing, multi-billion dollar sector of eCommerce (as a point of reference, the gift card industry is $100B a year in the US alone) known as “social gifting,” Facebook’s entry represents – by far – the largest foray into this space that any major tech company has made. Despite its share of critics (we are talking about Facebook, after all), I’m quite bullish on Facebook’s latest move. Here’s why:

We’re talking a billion users.
Let’s say Facebook can convert even just 1% of its users to use its gifting service (a conservative estimate given ~5% of Facebook’s users have already paid for third party apps that run on the Facebook platform). If each of these users spends $50 a year on Facebook gifts (that’s just two average-priced gifts per year) and if Facebook collects 15% royalties on each gift purchased, that’s already $750M in additional revenue for the tech giant. Even if just 0.5% of users or 0.1% of users end up buying into Gifts, the revenue potential – based on Facebook’s scale alone – is enormous.

Facebook knows what we want better than anyone else – including ourselves.
Through our status updates, check-ins, photo uploads, “likes,” and wall posts, Facebook has amassed an unparalleled amount of data on all of us. It knows which brands we interact with, the lifestyles we likely lead, and thus, I will argue, which gifts we’d likely want for our birthdays. No other eCommerce website understands our social profile nearly as well as Facebook does to recommend the gifts that are most relevant to us – and thus the ones that we are most likely to buy. Talk about the perfect curated gift experience – Facebook’s got that covered.

It strengthens Facebook’s mobile play.
As more and more of its users migrate from desktop computers to iPhones and tablets, Facebook is under an immense amount of pressure to build and monetize a mobile audience. And while mobile ad revenue has increased steadily, investors are still not satisfied. By integrating Facebook Gifts’ full functionality onto its mobile application, Facebook hopes to increase overall mobile engagement and find new ways to generate revenue via its mobile users.

It’s a natural extension of what people use Facebook for already.
Logging onto Facebook to wish our friends “happy birthday” has become a common social norm. In fact, analysts estimate that approximately 50 million “happy birthday” messages are posted on Facebook each day. Facebook Gifts is a natural way to monetize on this phenomenon, one that is designed to enhance the greeting experience by taking it one step further. Such behavior may be particularly attractive to last-minute “impulse” shoppers. According to SF Gate, “Facebook could be easing members into a more comfortable level of trust, starting with small, inexpensive “impulse” gifts that “don’t require a lot of planning or a lot of research,” Chiagouris said. “Small-ticket apparel items, like scarves and gloves, can be a big hit for Christmas,” he said. “Little by little, they’ll be more comfortable doing it for bigger ticket items.”

It’s all about the data.
According to Wedbush Securities, Gifts will help strengthen Facebook’s core business – advertising. “When you buy your friend a gift, you’re giving Facebook information about yourself and your friend. Suddenly, the person who received a subscription to Bon Appetit could see cooking-related ads. It’s all part of Facebook’s effort to sell the most targeted ads on the Internet — for now that means on Facebook, but potentially it could extend across sites everywhere on the Internet.” Furthermore, Gifts gives Facebook access to one of the last valuable pieces of data it might not yet have already: our credit card information. The more payments data Facebook has on its users, the easier it will be for users to buy physical and virtual goods through Facebook, further expanding the company’s eCommerce platform.

Retailers and advertisers are on board.
Facebook has already signed up over a hundred retailers – nearly all of whom are also Facebook advertisers – and hundreds more are in the queue. Initial reactions from retailers suggest that they are enthusiastic about the brand exposure to hundreds of millions of users that its products are getting from simply being on the Gifts platform.  Furthermore, after a Gift is purchased, users can opt to share that Gift on his or her timeline, further promoting the brand within a more social, and thus less intrusive context.

Facebook doesn’t want you to leave.
By launching into eCommerce, Facebook gives its users one more reason to stay on its site rather than to divert to an Amazon or an eBay. The longer you stay on Facebook, the more ads you see. And the more ads you see, the more money goes into Facebook’s already deep pockets.

A final word.
As you can tell, I am quite optimistic about Facebook’s foray into eCommerce. However, only time will tell how Gifts fares among a growing number of risks and concerns that have emerged: privacy concerns over data security (especially as it relates to payment and shipping info), dissatisfaction with an increasing share of commercial content on Facebook’s site, and potential competitive reactions from more established eCommerce players like Amazon and eBay as they consider entering the social gifting space.

Wired says, “It’s a smart approach. If anyone is better positioned than Amazon to recommend products to people, it’s Facebook, and the company is off to an auspicious start.”

It’s a small start, but then so was Facebook itself.

 

Facebook Gifts

 

Sources (all accessed November 19, 2012)

[1] http://www.forbes.com/sites/tomiogeron/2012/09/27/with-facebook-gift-giving-service-is-more-e-commerce-to-come/

[2] http://techcrunch.com/2012/09/27/facebook-gifts/

[3] http://gigaom.com/2012/11/15/facebook-recruits-retail-partners-for-big-gifts-holiday-push/

[4] http://pandodaily.com/2012/11/08/how-many-startups-will-facebook-gifts-kill/

[5] http://techcrunch.com/2012/11/15/facebook-gifts-available-to-tens-of-millions-of-users-in-time-for-holidays-fab-lindt-pandora-and-others-on-board/

[6] http://www.wired.co.uk/news/archive/2012-09/28/facebook-online-store

 


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 The Initial Disruption:

e-commerce has arguably been the most disruptive force in retail. Over the past 15 years, business models have evolved to the point where the fear of Amazon crushing traditional retail doesn’t seem too farfetched. Yet even with rampant internet penetration and snazzy ecommerce sites transforming the way we consume, approximately 90% of retail continues to remain offline (Table 1). What’s more interesting is that web-influenced purchases account for more than 50% of total sales (Table 2).[1]

Table 1

Table 2

These figures suggest that a majority of consumers are researching products online but purchasing instore. There is something inherently appealing about instore purchases – immediacy, socialization, payment options, service, and product engagement (e.g. trying clothes on, touching a flat screen TV etc). From a quantitative perspective compare the conversion rates of a physical retail outlet with an online store: For online, 2-6% is standard while in physical stores, conversion rates of 30 to 50% are considered the norm. [2] The resilience and even attractiveness of brick and mortar stores can be seen in recent trends: Online retail pioneer Net-a-Porter recently launched pop-up shops to complement its virtual experience. Warby Parker runs real-world showrooms in key cities. In April 2012, Bonobos, announced a partnership with Nordstrom, an “old school” department store. Clearly, a number of pioneering e-tailers, who once sold exclusively online, are now seeing the advantages of playing in the physical world. [4]

The Next Generation:

While the proliferation of e-commerce have indeed threatened the necessity and viability of particular categories (think books and music), the resilience of brick-and-mortar stores reveal that people still value in-person, instore purchases – or that e-commerce is still lacking to fully fulfill consumer needs.  Then perhaps the next generation of commerce is not a zero-sum takeover of e or even m-commerce but one that integrates the two seemingly incompatible worlds. What would emerge is simply “new” commerce – an omnichannel experience that leverages mobile technology, localized and targeted marketing as well as socialization to integrate offline and online shopping

Evidence of these trends already exist:

Mobile & Local: It’s no secret that mobile is hot, particularly its potential to dive into the “local” world. For example, eBay’s recent acquisition of RedLaser, a mobile start-up based on bar-code scanning allows users to price compare instore and online prices. Ostensibly, this move may cannibalize eBay’s online business by potentially pushing away customers to other sites or even brick and mortar stores. Similarly Milo, another recent acquisition by eBay searches for relevant products in the user’s local vicinity – a geo-fenced shopping tool that promotes offline transactions. Once again, Milo will potentially steal business away from the online space.  Yet this strategic play reveals that eBay wants a piece of the bigger pie; it hopes this will link eBay into the offline world.

Even on the the retail end, mobile is quite sexy. As Julie Bornstein, Sephora’s SVP of Digital, puts it “In the cosmetics business, the number one reason people buy a product is because they are sampling it. The physical presence of our store is a role that will never go away.” Nevertheless, Sephora is a pioneering innovating ways to integrate online and offline shopping – evident in their mobile apps that let you scan product barcodes in store for instant product information or in their iPad clad stores in New York that encourage comparison shopping and product engagement. [3]

Walmart recently launched “Site to Store” instore pick-up feature and “Pay with Cash” options allowing further blurring the line between on/offline shopping. Instore pick-up options skip shipping costs and lead-times while encouraging non-credit card holders to shop online. [5] Moreover, additional foot-traffic to brick-and-mortar stores is always beneficial given the aforementioned higher conversion rates for instore purchases.

Mobile payments are also revolutionizing commerce by bridging the two vertical channels. PayPal, Google and start-ups like Square will likely go beyond innovative payment options and dive into data usage. Mobile wallets have incredible potential to gather fragmented consumer data – data points that can be used by vendors as well as APP developers to offer targeted deals and advertisement that lead to both online purchases and offline venues. Point-of-sales data and consumer purchase intent data (i.e. not necessarily transactional data) will continue to drive mobile commerce which in turn will serve as bridging the two worlds.

Social: We’ve seen a true social frenzy in the past few years. Social has now moved into the world of commerce and people are realizing the potential of social commerce. After all, shopping has always had multiple social dimensions; sharing, showcasing, recommending, and gifting to name a few.

The first wave of visually stimulating social platforms like Pinterest identified a key insufficiency of previous platforms: window shopping is a critical element of shopping for many which was previously unavailable online. Pinterest has tried to replicate this experience online via inspirational visuals and sharing across social graphs – except it’s tough to figure out product details or how to purchase the shared item.  On the contrary, The Fancy, a social sharing site that allows artists, fashionists and trendsetters to share tantalizing visuals, fixes this problem. By controlling content generation by a select few, The Fancy provides direct purchase opportunities, translating social sharing into direct transactions. Take that, Facebook.

So what’s missing?           

Even with the likes of The Fancy, no one has quite cracked how to cleanly bring the offline socialization, online. In the future, I would want to use my mobile phone to share products I see in store with friends online with the ability of those friends to purchase that item via online. To make this possible, a mobile platform must combine location tagging, instant product and brand identification visible to the users’ social and interest graphs. Only then would socialization of offline shopping (again still 90% of retail) finally find its way into the virtual world.

Like many great things, the omnichannel isn’t easily attainable. Though retail stores and online start-ups are pushing forward, no one has quite cracked marrying the two verticals (But mobile app Snapette is getting close!). In the future, I imagine walking into a Nordstroms and swiping my mobile phone at a kiosk that 1) knows who I am 2) able to recommend products based on my previous browsing and shopping habits from both on and offline 3) able to curate and suggest products that my friends or those in my interest graph are interested in. In tandem, I’ll snap a photo of a cute pair of Jimmy Choo’s and blast it to my girlfriends – my app would auto-tag my location and product descriptions, allowing my friends to instantly buy that product with one click.

I don’t deny the imminent increase in e-commerce adoption or its disruptive power to guide and ultimately change consumer behavior. Rather, I hope to acknowledge the relative infancy of e-commerce and the short-comings of core elements still desired by many consumers. Offline retail is here to stay and the next generation of successful companies, brick-and-mortar and online companies alike, will be one that provides the best of both worlds.

Sources and References:

[1] Forester Research, Inc

[2] http://retail-revolution.interone.de/en/buying_habits_online_offline_interaction.html

[3] http://www.wired.com/business/2012/07/sephora-bornstein/

[4] http://www.businessoffashion.com/2012/06/online-fashion-retailers-tap-offline-opportunities.html

[5] http://www.walmart.com/cp/Site-to-Store/1087904

[6] http://blog.adility.com/2011/09/10/the-decade-of-online-to-offline-retail-commerce-disruption/

[7] http://www.thefancy.com/

 


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I recently attended Cyberposium (www.cyberposium.com) – the yearly HBS tech conference, with speakers from leading tech companies as well as some of the recently hot startups. One of the panels, “Bridging the Online/Offline disconnect”, described how business models such as Groupon and Skillshare use online tools to enhance and disrupt our offline lives. As I was listening to the panelists, I looked around the room, assessing the online tools used by people around me. This is when I came to realize that the “offline” customer, in this in-person conference, was no customer at all.

Around 80% of people around me, including myself had at least one online channel they were heavily interacting with in front of them (quick visual estimation: half smartphones, quarter tablets, quarter laptops).

 We were all using Pigeonhole (http://live.pigeonhole.sg), a really cool conference Q&A tool where you get to submit your questions and everyone votes on all questions in a Digg-like system – top questions then get asked by the moderator live at the end of the panel.

Everyone was also following and participating to the series of @Cyberposium tweets to get other people’s reactions, stay updated on major points from the panels happening in parallel, share comments and takeaways, etc.

 Taking this conference as a reference point, you realize how much technology has enhanced our possibilities.

It has also, however, decreased the possibilities of the offline person. If you did not had an iphone/ipad, if your battery died, if your 3g signal was poor, you were clearly excluded from the party – you had no way to ask questions (except for some brief last mn “live Q&A” occasions that people were reluctant to grasp), no way to follow the Twitter conversation or participate in it, no voice really. All you could do was maybe exchange brief opinions with your neighbor at the end of the panel, assuming the neighbor himself was not busy tweeting.

 This realization raised questions in my mind about business models in general. In this particular case, purely offline customers were not the norm in a tech conference and therefore did not need to be catered for. However, when will we be able, in non-tech environments, to conceive business models that stop bridging the online/offline gap and where it is ok to ignore the offline part? For instance, when should we expect all cash registers to be replaced by smartphone self-checkouts, all restaurant orders to be made via mobile or Microsoft surface-like devices? When will HBS stop requiring all students to speak fluent English because real-time translating devices will be advanced enough? When will the current concept of driver become obsolete?

 Looking around me, and comparing our interaction with technology today to what it was 5-10 years ago, I am confident that many industries will witness the near-death of many of their offline components in the coming decade. The key is for us, tech entrepreneurs, to anticipate these changes, understand how they will affect the dynamics in the industries they touch upon, and capitalize on these changes with disruptive business models that are as focused on widening the online-offline gap as the current ones are focused on bridging it.

 


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Using Social Networks for Fundraising

In the November edition of the HBR, Misiek Piskorski, an associate professor at HBS, describes his findings on what makes some social strategies work and why some fail ( http://hbr.org/2011/11/social-strategies-that-work/ar/1 ).  Failed experiments primarily include companies who “merely imported their digital strategies into social environments by broadcasting commercial messages or seeking customer feedback.”  Successful social strategies do one or more of four things: “Reduce costs by helping people meet, increase willingness to pay by helping people meet, reduce costs by helping people strengthen relationships, increase willingness to pay by helping people strengthen relationships.”

The lessons can be applied to an area in which I took an interest a few years ago – school alumni giving.

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I am very loyal to my high school alma mater, but always wondered why my fellow alums gave less to our school after graduation than do graduates at rival private boys’ schools.  Most friends adored my high school while we were attending.

Fundraising is increasingly important to sustain school operations.  Tuition hikes have made private schools less attractive to middle class and upper-middle class families with talented, would-be applicants.  Therefore, applications have dropped precipitously, leaving mostly students from wealthy families to fill classrooms.  As tuition hikes far outpace inflation, the annual budgets have prompted schools to draw more and more from their (often modest) endowments.  One way to alleviate this problem is through higher alumni giving rates that bolster endowments and fund need-based and merit scholarships.  Given the difficult economic environment, fundraising through standard channels (calls from volunteers and school alumni offices) has become increasingly challenging.

I’ve wondered how social media could help allay the problem.  One company trying to help schools and other organizations raise money is AlumniFidelity.  The company helps alumni and development offices at high schools, universities, churches and other organizations use a cadre of loyal alumni to raise money from disparate networks of alumni.  Hence the firm’s slogan that “The finest way to add is to multiply.”  AlumniFidelity helps individuals construct a website on the company’s platform to raise money for an institution.  The company charges institutions a monthly fee for their services and takes a small percentage fee from all monies raised by individuals.  To date, the company has helped raise over $4,800,000 and boasts over 12,600 active donors.

AlumniFidelity has focused on the fourth of the four tactics for successful social strategies.  The company lets organizations use a large network (active alumni who act like class agents) to strengthen relationships with their own established networks (former classmates/fellow alums), making it more likely alums will make generous donations.  It has made giving a more personal act by coupling the donation with a personal relationship (the fundraiser) that began at the institution receiving the funds.  Contrast this with the mechanical feeling of reading a credit card number over the phone to an alum you’ve never met.


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