10 Mar

Foursquare 3.0, Square and Augmented Business Reality: Casting Web-Based Business Models Over the Real World

Stage 1: Offline > Online

Just a few days ago, a friend offered some advice about our book on internet business models: “Why write a book about internet business models, everything is internet business these days.” At first, we did not get it.

Wait a minute, we thought, there still is a lot of difference between offline and online business. Just think of the different cost structures and competence requirements when running offline compared to online retail.

In fact, the relationship works the other way. It is not internet business which is shaping offline business. On the contrary, our buying experience from the offline world has shaped the way we perceive online commerce. This is why we have a limited number of seven basic building blocks of web business, the Simply Seven, in the first place. In our head, we carry around real-world metaphors for how we buy online.

Stage 2: Advanced Web Business

This is changing fast, however. Let’s call this Stage 2 for the sake of argument. As people are becoming more familiar with online business, they are accepting more sophisticated online business models. Fremium models are becoming ever more advanced. Business building blocks are being offered ready-made as web services on platforms and combined in innovative ways. For example, subscription systems available within the Apple Apps shop. Virtual currencies such as Facebook credits will lead to fascinating new business model innovations, including financial ones. There will be fewer “pure” building blocks used for monetization – as in the early Stage 1 days of Amazon, eBay and Google. Digital business is becoming more exciting all the time.

Stage 3: Online > Offline

In Stage 3, through mobile technologies and devices, web-based business is being cast over the real world. One could call this “augmented business reality.” We associate augmented reality with superimposed data over real world, real time images. Here, we are talking about superimposing digital business transactions over the real world, real time. The new device-based mobile payments systems by Square, Inc. are part of this development, but so is mobile advertising and mobile commissions. As a start date for Stage 3, maybe we should pick the 1st of December 2009, the day Co-Founder Jack Dorsey (@jack) posted to Twitter: “Announcing our new company, called @Square, which I’m thrilled to be a part of …” (Source: MIT Technology Review)

There has, of course, always been significant interaction between the real world and the web. But it has increased continually and has now reached the next level. In the beginning, catalogues like Yahoo! or search engines such as Google provided aids to navigate the internet world. Craigslist and Groupon are navigational aids which help us localize deals in the real world. Facebook connects real world people together and creates a social graph.

The next level we are talking about is the superimposition of digital business on the local, real-world environment. Some would call this mobile business, but mobile makes us think of mobile devices, which is only one part of the story. Maybe local commerce is a better term.

The observation that everything will have an IP-address and communicates with each other increasingly is nothing new. Kevin Kelly wrote about “the new biology of machines” in 1994. This is about the combination of a wired world and increasingly sophisticated web-based business models.

Square Inc. is not just enabling mobile payments, it is providing offline retailers with the rich data only an online retailer so far had access to. In a video for Stanford University’s Entrepreneurship Corner (dated 09.02.11), Jack Dorsey describes the dearth of data real world coffee shops live with every day. They know they made $400, but have no idea with what products, at what times, sold to which clients. There is no way to recontact customers with special offers and use these offers to build a relationship. Square is making money by realizing commissions for itself, but in the process, it is making offline retail become more like online retail.

TechCrunch and others have reported on Foursquare’s 3.0 version, launched on March the 8th, just in time for the SXSW conference in Austin. In a pilot carried out in cooperation with American Express, people can use their credit cards to unlock local merchant deals during the conference. The future of local deals are real time offers provided as bypassers move through a street. A street’s business will thus be reflected in augmented reality as one walks through it. Not everyone will enjoy being bombarded with coupons. But its not only about walking.

In automotive-obsessed Germany, a recent study found that younger clients don’t seek cars for status any more, but as mobile, wired platforms communicating online for purposes of entertainment, safety (with other cars) and, yes, to point out special commercial offers on the way (Source: “Nur voll vernetzte Autos locken junge Kunden an,” Die Welt, 10.03.11, page 12).

Our friend Max had it right after all, real world business is rapidly being subsumed by web-based business models.