The impressive proliferation of Social Location Applications has been hard to ignore with the recent tech media and blogosphere’s enamourment of the space. Facilitated by the ground-braking usability of the iPhone and Android platforms, a number of start-ups have been able to combine geo-location with social and gaming features to launch several new applications which range from clever to useful. I’ve enjoyed tracking the space for some time so the following is a snapshot on a handful of the more interesting applications and a brief future outlook on the space in general.

When thinking of an ideal social location service a few questions are automatic: Does it facilitate my meeting and staying in contact with friends? Is it fun and engaging? Does it help me discover what’s around me in terms of places, events and activities? Is it easy to use and available everywhere I go? Does it have long-term usefulness? Ultimately these questions address the Stickiness and Usability of an application – in this case as follows:

Stickiness = usefulness + entertainment + social interaction

Usability = available content + locations + devices + ease of use

Foursquare – The first to combine clever gaming features with location updates, Foursquare has enjoyed the advantages of being the media’s favourite throughout 2009. Backed by the same investors of giants like Twitter and Zynga, they’ve also led their social location competitors in terms of user-acquisition.

Stickiness (3.5 out of 5) – The Foursquare application allows people to earn points by “checking-into” locations and sharing that information with their friends – cleverly including those on Facebook and Twitter. Title badges (mayor-ships) are earned for being the most frequent visitor to a single location, which encourages competition among users – though initially fun, this model’s appeal is arguably short-term. The information shared among users is a pin-on-a-map visual with a brief “I’ve just checked into” message – useful to nearby friends who may want to meet-up or compete for a mayor-ship, but not ideal for those who are interested in discovering nearby places, events or activities.

Usability (3 out of 5) – As I write, Foursquare has announced a new upgrade that will enable check-ins anywhere in the world as opposed to the current list of a few dozen cities worldwide – which is currently a huge limitation to its growth and appeal. The application is slick and easy to use, is available for both iPhone and Android, with a full functionality mobile browser version for other smart-phones.

Gowalla – Though very similar to Foursquare with its focus on gaming and friend-tracking, Gowalla has managed to nail Foursquare’s shortfalls from day one: Unlimited locations, a slicker application and most importantly – the ability to scrape friends from Facebook and Twitter.

Stickiness (3.5 out of 5) – Gowalla, like Foursquare, relies heavily on a gaming approach to create its appeal. Users stamp their “Passports” when visiting places and compete for a mayorship-like Top 10 ranking at each location. Users can also pick-up or drop-off items (virtual goods) at different locations, with the ability to track who has “owned” an item previously. Gaming aspects aside, Gowalla’s virtual goods model is interesting as one can easily foresee how virtual items could eventually be traded-in for real items. Gowalla is initially fun and engaging but as with Foursquare – its focus on gaming and friend-tracking is less ideal for truly discovering what’s around you.

Usability (3.5 out of 5) – Gowalla can be used anywhere, users can simply enter new locations when these are not automatically detected by the application – which is currently available for the iPhone, with a near-full functionality mobile web browser version for Android and other smart-phones.

Flook – Launched in November 2009, Flook is the newest entry in the social geo-location space. Founded by the team who built Symbian (disclaimer: whom I’ve had the pleasure of meeting), they have taken a completely different approach from the gaming and friend-tracking model of other social location apps: a usefully serendipitous discovery of nearby places, events, activities and “things” via picture/information cards.

Stickiness (4 out of 5) – Flook allows users to take a picture of anything, add some text and a “Card” is automatically created with the picture, description, location map and creator info – which can then be shared on Twitter. Users can browse Cards from their friends, from a nearby location or search specific categories. “Flookers” can also collect points, introducing a light competitive gaming aspect and potentially, a future virtual goods business model. In its initial release, Flook has placed a lesser emphasis on the friend management features commonly found on other apps.

Usability (4 out of 5) – Another appealing aspect of Flook is that most content is created by its users and as a consequence – locations are unlimited and discovery is a pleasantly unpredictable experience. By browsing Cards, one is just as likely to find a hidden flower garden, a free power socket, a major landmark, a cozy restaurant or a local farmers market. A current limitation of Flook is its iPhone-only availability – but the application looks great and is intuitive to use.

Loopt – One of the first to enter the social location space with a simplistic  check-in and friend tracking approach – which has been replicated by a dozen or so other companies (Google Latitude included). Loopt claims millions of users across hundreds of devices, though suffering the recent media hype around Foursquare and Gowalla’s gaming model.

Stickiness (3 out of 5) – Loopt is currently focused on what can be considered the foundation service or starting point for any social location app: the ability to share your real time location with friends and track who else is nearby. Their first step in expanding beyond that is a recently added restaurant and event discovery feature.

Usability (2 out of 5) – The application is currently available on iPhone, Android, Blackberry and hundreds of other smart-phones…but only in major cities around the United States. Their map visual shows icons of nearby friends, restaurants and events and the app is extremely easy to use.

FUTURE OUTLOOK (Functionality, Monetization, Consolidation and Acquisition)

Functionality – Today’s Social Location apps can be broken down into three functional categories: Gaming-Centric (Foursquare, Gowalla), Discovery-Centric (Flook) and Basic Friend Management (Loopt, Brightkite, Google Latitude, etc). Most have understandably been focused on user-acquisition rather than monetization but surprisingly, only Gowalla has gone directly where users reside today to import people’s existing relationships – Facebook and Twitter. With the availability of Facebook Connect and Twitter APIs I expect most applications to implement a similar feature in the short term (most have already included the ability to share content across Facebook and Twitter).Privacy-oriented friends lists will become important once this happens as one may not want to share his/her location with everyone. Though I currently enjoy the competitive gaming features of the likes of Foursquare and Gowalla – we’ve learned from the social gaming space that social gamers typically remain active for three to four months – I would therefore expect the Gaming-Centric companies to expand their reason for being very quickly, particularly in the areas of usefulness and monetization.

Monetization – The social gaming space has reached profitability faster than any other social media business and they’ve done so by implementing a virtual-good centric revenue model. A model that can be easily adopted by the Social Location companies. Virtual goods/points, from a gaming perspective, are what determine “bragging rights” among friends. Users can earn virtual goods based on activities undertaken (check-ins, flooks, invites, viral activities like tweeting, etc), by selecting sponsored offers or by purchasing them directly. Virtual goods could be also converted into real-world products or vouchers. Brands could easily sponsor virtual goods in exchange for crowdsourced content (flooked cards, check-ins, first at a location, etc). Bookings could be integrated for places like restaurants, theatres, cinemas – which already exist for other types of applications. The same way users can choose to discover people, places and events based on location – they could choose to discover vouchers and special offers near-by: non-intrusive, truly opt-in and actually useful, with the added bonus of not having to deal with the intrusive targeted ads model so dear to most media buyers.

Consolidation and acquisition – Social location apps may be the one case where user-base has less of an impact on company valuation than what we’ve been used to across the social media space. Social relationships currently reside on Facebook and Twitter – which are also the most probable giants to move into the social location space as adding geo-tagging and friend location management features to their existing social networks is trivial – and potentially very disruptive. Either company is more likely to acquire a social location app which has nailed usefulness or monetization rather than a large user-base that they possibly own already. On the other hand, both Google (Google Maps, Google Earth, Google Latitude, Android) and Microsoft (Bing Maps, Messenger, Windows Mobile) already own interesting location, friend management, mapping, directory,  augmented reality assets and mobile operating systems but are lacking true social relationships and mobile-centric location applications. Social location companies across the three functional categories with a significant user-count may be their acquisition candidate of choice. Consolidation between two or more social location companies is also a strong possibility – Interestingly, a Flook-like approach to places, activities and events highly complements a gaming and friends-centric approach a la Foursquare and Gowalla. At the same time, a high-user base friends location management service like a global version of Loopt could be combined with a Flook for a killer service and company.

As always, opinions are free and debates are what blogging is all about – very much looking forward to your views.

Little did I know at the time of writing Dissecting the Success of Social Gaming - that only a few days later, Michael Arrington of TechCrunch would send the industry into a frenzy with his blowing the whistle on offer-scams (the shady lead-gen and subscription offers provided by some advertisers in exchange of points to be spent in-game on virtual goods).

While Michael deserves huge kudos for bringing attention to the issue and for triggering action (Zynga and MySpace have since announced tighter controls on 3rd party offers), much confusion has arisen across the media from the cyber-echo of his points. Here’s an attempt to clarify:

• Scams are not generated by the gaming companies. They come in through the third party suppliers of lead-generation offers that allow players to gain virtual points without having to pay for them.

• Offering free points to players for filling out surveys, signing up for newsletters, etc is not a scam nor is it unethical business in principle. What is a scam and absolutely unethical is for advertisers to ask for mobile phone numbers as a way to sneak-in a charge or a monthly subscription fee to the unaware user.

• The social gaming business model is still sound. As reported by Zynga, about 1/3 of its revenue comes from offer suppliers. To understand what impact scams have on a gaming company’s business, the more relevant figure would be the percentage of that 1/3 that are scams.

There is no doubt everyone in the supply chain needs to recognize the issue of scams and eliminate them by doing their part in vetting the advertisers: Facebook, the gaming companies and the third party offer suppliers (OfferPal, SuperRewards, etc). Well done Mark Pincus of Zynga for being the first to act.

For a balanced reaction to this loud debate check out this article on Inside Social Games.

With its Platform Roadmap announcement on Wednesday and judging by the headlines, Facebook seems to have launched its own version of a H1N1 crisis in the application development community.

Though under the auspices of giving app developers “new ways to attract and engage” users, Facebook has actually taken away the tools they have most relied on to grow their user-bases: status updates and notifications. In exchange, access to email addresses and the Inbox have been introduced through the API – virtually eliminating the viral one-to-many communication that has been essential to the success of gaming and other app developers.  As the success of social gaming companies is as much about stickiness and retention as it is about viral marketing, I’m not subscribing to the call for a crisis. With respect to Facebook’s strategy though, a few inquisitive considerations are in order:

Is this about improving the user experience? Nah, I don’t buy it. It was already easy enough to “Hide” updates from games and third party apps. Plus, has anyone figured out what qualifies a status update as a “News Feed”?

Is this about Facebook wanting a piece of the gaming success? Absolutely. By eliminating the viral marketing tools that have been vital to user acquisition, Facebook is basically pushing app developers towards promoting via paid advertising.

Does Facebook have a business model dilemma? Advertising has been the primary business strategy to date, one that’s worth in excess of $500M in 2009. With the micro-payments for virtual goods market set to clear $1B in 2009 in the US alone, and with the astounding success of social gaming companies on Facebook – shouldn’t Facebook try to capitalize on its applications platform position by introducing a micro-payments solution of its own rather than stifle the growth of these companies to maximize ad revenue?

So what’s so fascinating about the Social Gaming space beyond the entertainment factor for those of us who enjoy the occasional game?

Simple: just about every company in the space is astoundingly profitable.

In dissecting the success of companies like Playfish, Zynga, Playdom, MindJolt, etc – a few things become clear very quickly: Their expertise is more about viral marketing than it is about game development. They’ve mastered massive user acquisition at lowest possible costs while introducing simple business models to generate revenue. Even more importantly, they own the relationship with users/players which is not only critical to their promotional strategies but also to game development and future business models.  In other words, their success formula looks something like this:

SUCCESS = SIMPLE GAMING + CLONING + VIRALITY + FREEMIUM BUSINESS MODEL + DIRECT USER RELATIONSHIP

Simple Gaming – The simplicity approach taken on by game developers, both in terms of access and game mechanics, has significantly facilitated user adoption and repeat visits. Access, which for all companies is browser-based, is also about being on or off platform.  On-platform games (those on Facebook, MySpace, etc) get to leverage massive and easy-to-target user bases. Off-platform games have more flexibility with game development at the expense of “viral-ability”. On the game mechanics front, enabling users to quickly understand game play, making that game play light touch, interactive and competitive have been key aspects in triggering user adoption and return. The light and casual approach to game mechanics has also dramatically reduced game development times (3-6 months for most developers), but has also facilitated a cloning wildfire.

Cloning – Very much a legacy of traditional gaming as the Ataris and Nintendos of the world can teach us. Though easy to frown at companies who constantly release obviously cloned games, cloning is arguably a smart business approach in early stage and immature markets. After all, people like to play instantly recognizable concepts just as they like to watch familiar formats on TV (what’s the last original Reality or Game Show format you’ve seen?). Additionally, if the uptake of Facebook games is of any indication, a cloned game is more likely to fulfill areas of the market that haven’t been reached by the original game developer than it is to erode at that developer’s existing market.  For example, when Zynga introduced Café World earlier this month (16M users in its first two weeks), it didn’t visibly impact Playfish’s Restaurant City user and growth counts. As the market matures with users demanding games with more depth and sophistication – cloning will become more difficult and as a consequence, an un-sustainable model. The first test of this may come with the recently announced Facebook version of Sid Meier’s Civilization classic.

Virality – Let’s be clear upfront: Zynga and Playfish have both invested millions in advertising to gain their initial player critical mass. They have also mastered making the most out of that initial investment, using virality to significantly reduce additional user acquisition costs.  As on-platform companies, they have leveraged the numerous embedded viral opportunities Facebook provides – integrating and automating status updates, wall posts, suggestions, friend pokes etc. They have also cleverly turned their games into advertising platforms of their own. Games cross-promote each other (which is half the reason why Zynga reached 16M in the first two weeks after launching Café World) and they encourage user-returns through time-based play, friend challenges and those annoying reminder messages.

Freemium Business Model – Play is free across the most popular games to eliminate barriers to entry. The interactive and competitive characteristics of social games (i.e., friends wanting to top each other) has facilitated the introduction of “virtual currency”.  Virtual currency can either be purchased for cash or acquired free by registering for services offered by advertisers (and in many cases unfortunately, offer-scams) – and is used by players to buy virtual goods that help them reach new levels faster, access advanced play areas, gain special powers or even for vanity purposes (decorating your virtual environments and avatars). Sounds flaky?  Zynga is rumored to be on a $100 million annual run-rate for 2009, while Playfish is allegedly on track for a $75 million result. According to Venture Beat, even the hundred or so garage-shop game developers present on Facebook are making between a quarter and half a million dollars per annum.

Direct User Relationship – Unlike traditional gaming companies who gave up user-relationship to retailers, social gaming companies interact directly with their users. This has given them a couple of invaluable advantages: 1) access to a huge amount of data and metrics, and 2) immediate feedback on game features.  Social Gaming companies are therefore in the position to quickly improve and extend game play (most introduce games at 25% completion), increase virtual good conversions and crucially – provide a set of data that can yield much better value for advertisers and for the creation of new business models.

Looking ahead, new business models and new levels of game sophistication are bound to arise as the market matures.  Media buyers may figure out that engagement is more than clicks and impressions and use social gaming to interact with their audiences over a broader period of time with “advert-games” (imagine a TGI Friday’s own Restaurant City) or integrated advertising (earn enough points for a virtual Audi to move up to the next level).  As users begin to demand better games, gaming companies will need to match their existing skills in viral marketing, with new ones in software development and while we’re at it, patenting. This may also happen through acquisitions led by traditional gaming companies (as I write, EA is in rumored acquisition talks with Playfish for over $250M).  Niche games are likely to arise the way niche social networks are already doing so thanks to Ning and Drupal. A fantastic first example is Mind Candy and their Moshi Monsters game targeting young children. As an off-platform company with a focus on education and parental-control, one of Mind Candy’s potential growth paths could be joining forces with school systems to provide teachers with managed fun environments for assigning and reviewing home-work.

As with any emerging industries, predictability is extremely difficult. Then again, so is instant profitability…

Update: Following TechCrunch blowing the whistle on offer-scams, an update to this post can be found here.