July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

Three billion check-ins and tens of millions of tips ought to add up to something. In Foursquare’s case, that means the “Best of” series, which highlights “the most awesome places in cities across the U.S.”

The location-based social network, which has downplayed the competitive aspect of its service in which users get “points” for checking into various locations, has been focusing on local exploration and discovery. This new part of its website, launched today, helps people explore other places as well.

That means, apparently, that Mi Cocina is the best Mexican restaurant in Dallas. And that the 3 Crow Bar is the best nightspot in Nashville, Tenn.

“We use signals like tips, likes, dislikes, popularity, local expertise, and nearly three billion check-ins from over 30 million people worldwide to determine how much people love a place,” Foursquare said in a blog post. “The Best of Foursquare pulls together lists of the places people love most in cities across the U.S., from cafés and pizzerias to museums and bookstores.”

The new service is great for checking out what might be a good place to visit when you travel. But it’s also yet another nail in the traditional Yellow Pages-style directory — and a direct shot across the bow of a Yelp, which has owned local business recommendations, especially in the entertainment space.

Frankly, it also makes even clearer the competition between Foursquare and the more hotels-and-flights focused TripAdvisor as well as even the new graph-search-enabled Facebook.

Now, if only Foursquare could figure out a truly viable business model to go with all its wonderful data.

The new app for business owners, which allows them to monitor Foursquare check-in activity, check out top customers, and monitor analytics data, and the recently added feature enabling businesses to promote events might help with this.

Locals know best. That’s the new mantra of community-powered hotel alternative Airbnb and the primary reason behind its acquisition of two-year-old startup Localmind, an expert at connecting inquisitive travelers to locals in the know.

Airbnb announced today that it has acquired Localmind’s technology and team for an undisclosed sum. The deal closed earlier this year. Localmind creators Lenny Rachitsky, Beau Haugh, and Nelson Gauthier have already joined the Airbnb team to work on social initiatives.

Localmind is a small, seed-funded company from San Francisco that specializes in connecting people with questions about places to people who have the answers. The startup makes iPhone and Android applications to facilitate these location-based question-and-answer exchanges. It also connects to Foursquare and uses members’ check-in history to determine how knowledgeable they are about a particular venue — such as a bar, restaurant, conference hall, or gym.

Airbnb’s pickup may seem a bit peculiar at first. What does the company want with a little startup that makes Q&A apps? Simple. Local expertise. Airbnb, as we know, is currently investing its resources to help customers find the best neighborhoods when they travel.

In November, the four-year-old company launched a featured called Neighborhoods to help travelers select destinations that match their particular tastes. The Neighborhoods launch signaled its desire to rework its booking experience around these digital brochures and expose the knowledge its cultivated from locals with insights into the personalities and styles of their towns. Neighborhoods is only live for seven destination cities, but Airbnb has said it wants to introduce the feature to additional markets around the world.

Clearly, Airbnb views Localmind as a pivotal piece to understanding neighborhoods and better connecting its travelers to locals. A spokesperson said it can’t share specifics on how Localmind’s technology will be used, but it added that “connections to authentic, local experiences are foundational to Airbnb’s offering.”

“The role of social in travel is more important than ever,” Airbnb CEO and cofounder Brian Chesky said in a statement e-mailed to VentureBeat. “We’ve seen connections shape the experience for our community, so we’re excited to have the Localmind team join us and lead this next wave of social products.”

Terms of the deal were not disclosed. The Localmind application will remain operational, the Airbnb spokesperson said.

Photo credit: claydevoute/Flickr

As much as I would like to regularly patronize a farmer’s market, time, location, and availability often stand in my way. Farmigo is opening a farmer’s market platform today which connects farmers with local communities to make procuring fresh, seasonal, local products as easy as possible. The company also announced securing $8 million in financing.

Farmigo started in 2009 as an online software provider to help farms manage their Community Supported Agriculture (CSA) programs. By subscribing to a CSA programs, people can receive weekly boxes of produce directly from the farmers. Their popularity has increased over the years with the growth of the slow food movement and awareness surrounding healthy eating practices, but there was no software system to help the farmers track their operations.

Founder Benzi Ronen spent years working at enterprise software corporation SAP and left in 2000 to start his own companies. After having their first daughter, Ronen and his wife began to play closer attention to the food they ate as a family and grew familiar with the obstacles that existed for distributing local, seasonal, sustainable food. He set out to apply his logistics and software background to this market which was for the most part, devoid of technology.

“I saw that our food system is broken- this is making us sicker as people and making our planet sicker,” he said in an interview. “It isn’t that we need a shift in the industrial food system, we need to create a new food system based on different principles, and that alternative system needs infrastructure. We are already seeing an uptick in the number of local farms and CSA programs and the younger generation is getting back to farming. Now is the perfect time to introduce the consumer side to make eating farm fresh food more convenient.”

And thus, the team set out to create an online marketplace that eliminates the friction from buying fresh-from-harvest food. Farmigo takes a community-focused approach. Groups of people band together around a common location, like a workplace, school, or public meeting place. Through Farmigo’s network, they have access to a customized online farmer’s market, with a range of seasonal fruit, vegetables, eggs, meats, fish, baked goods, dairy, and even wine and coffee. Every week, each member of the community places an order and the orders are delivered at the same time and same place for pickup. This model offers convenience and variety, without sacrificing the degree of quality of sustainability.

“Only 1% of the population participates in CSAs, and that one-to-one relationship with the farm means you are limited to specifically what they grew that week,” he said. “Our mission was to make healthy food accessible to all households while also preserving the community feeling of farmer’s markets. We are about an economy of community instead of an economy of scale. We want the community members to rise up and be a part of the solution.”

To set up a Farmigo initiative, each community needs a “champion” to spearhead the effort. Groups must consist of 30 people or more, spending roughly $20 each. It has taken off within the startup community and early adopters include companies like Kiva, Etsy, and Carrot Creative.

“We are finding that young companies between 100 to 500 employees tend to have the spirit of willingness to try new things, they are the early adopters of the corporate world,” Ronen said. “In these companies, creativity and entrepreneurship are welcome and we are seeing that companies are starting to innovate around this. Many are integrating it into their health and wellness programs, using Farmigo credits as rewards for achieving milestones, and hold cooking competitions or recipe sharing events.”

Setting up a Farmigo community is currently available in Northern California and New York City. In conjunction with the initiative’s launch, Farmigo also announced the $8 million investment to continue spreading its platform nationwide. This is a hefty round for a food startup, which Ronen attributes to the company’s emphasis on the “non-sexy side of food.”

Farmigo’s back end enables farms to track what they are harvesting, manage their orders, organize distribution and packing, and facilitate delivery. This consumer-facing side closes the whole loop and investors trust in the potential for stability and growth. This second round was led by Sherbrooke Capital and RSF Social Finance, and joined by Benchmark Capital, which led the Series A of $2 million in 2009.

July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

Yelp, Foursquare is gunning for you.

The social network is adding to its iOS app and website a fairly minor yet hugely significant feature: Ratings. With the addition, Foursquare says its service will tell users where people actually like to go, not just the places they’ve visited.

To get the numbers, Foursquare uses a secret formula that combines seemingly every feature in its toolbox: likes, popularity, loyalty, tips, and, of course, the data from its 3 billion check ins.

Yelp should be horrified.

Instead of being the app that people use once they get somewhere, Foursquare now wants to be the app that sends them there. This means its going after the same market as Yelp and Google Places, both of which have controlled local listings until now.

While Foursquare is a newbie to the space, its massive data trove means it knows things that Yelp and Google don’t. And the social network is clearly exploiting that data with its recent updates.

Photo: Flickr/Dpstyles

July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

Yesterday, I wrote about why analysts are wrong when they consider mobile a threat to Facebook and Google. It’s actually a great opportunity that allows the companies to expand their dominance in Web advertising onto an increasingly important platform.

But mobile also opens up a few more doors for both companies.

Out of home

Businesses in the U.S. spend between $6 billion and $7 billion annually on what’s called out-of-home advertising. This includes things like billboards, transit, airports, and street benches. Some of this is brand advertising and some is direct-response advertising. Although people will have their own definitions of what falls into which bucket, let’s consider the roadside billboard. As you’re driving along the interstate you’ll see ads for restaurants, gas stations, and nearby attractions. Right now, much of the decision to run these ads is driven by size and placement. Billboards compete on being bigger and more obnoxious. Signs are sometimes mounted hundreds of feet in the air so they can be seen from far away. But this advertising can’t take into account a customer’s preference.

Mobile can. With mobile, your phone knows where you are and the direction you’re headed. It knows (or will know) what kind of food you like to eat. Mobile can create a better advertising experience that compares your interests with the capabilities of nearby advertisers and presents you with the best option.

Mobile can also give you a much richer experience than typical out-of-home advertising. If you’re out and you’re thinking about a movie, you can watch the trailer on your phone. I haven’t seen a billboard that does that.

Local 

As Facebook COO Sheryl Sandberg said on the company’s earnings call, local advertising has been the Holy Grail for online advertising. In the offline world, it’s been dominated by newspapers, Yellow Pages, direct mail, and radio. To date, there has been little that’s made a meaningful impact in local advertising online. Players have fallen into two general buckets:

• Plunder and pillage. These are companies like Groupon and Yelp that extract extraordinary rents while delivering little value in return. No local business should ever advertise on Yelp given its current astronomical pricing. For most local businesses, Groupon is also a terrible idea. (But there are some cases where I recommend Groupon.) Part of the reason these companies have to charge so much is that their cost of sales is so high. In Groupon’s case, it has thousands of people calling up small businesses. That’s expensive. The other reason is that because they are standalone public companies, they can’t afford to build the right product for the long term. They have to show revenue now.
• Data-driven, self-serve startups. I see lots of startups tackling the small business market, and many of them make the pitch that they’ll build great self-serve tools and businesses will flock to adopt them. They won’t. Most small business owners don’t have the time to try out every new fad under the sun. Too many startups treat small businesses like they’re big brand marketers with teams that study analytics every day. Most don’t care about reports on the demographics of their business — they’re too busy making cupcakes or snaking drains. Part of the reason for the relative success of Groupon and Yelp is that businesses haven’t been doing ROI analysis! Even if those problems were solved, you’re left with the problem that you need enormous scale in order to support a business. If you’re only charging $30-$40 a month, you need to have a lot of businesses paying you!

That’s where Facebook and Google come in. They don’t have to plunder and pillage small businesses because they have other successful revenue streams. They can afford to design the right experience that works for consumers, businesses, and the company in the long term. They also have massive scale when it comes to consumers and merchants. With Android, Google often knows where the consumer is. The same is true for Facebook, which reaches 600 million people on mobile devices.

One of the problems with local advertising online is that it hasn’t been local enough. Advertising at a DMA (designated market area) level is meaningless for most restaurants and dry cleaners. They need to reach far smaller audiences.

Google and Facebook each has their own strengths. Google has hundreds of millions of Android handsets with consumers who are looking for goods and services. Facebook knows your social graph. Personal recommendations are still incredibly powerful. Facebook also has businesses signed up. According to Sandberg, 12.8 million local businesses have Facebook pages. Create a simple enough ad product and that can turn into a lot of revenue.

Google has largely taken the wrong approach so far with local advertising. It’s tried to reach small businesses by taking the AdWords product that was created for big direct response and brand advertisers and simplifying it for small businesses. The better approach is to figure out the needs of small businesses and build the product for them. (Hint: Small businesses typically are closer in their buying behavior to consumer than they are to big businesses.)

They’re both in a position to help educate local businesses about the right ways to use mobile advertising to reach their customers. To date, a lot of the pitches to local business have been about price. Lower your price for us and we’ll get more people to walk in the door! Smarter businesses focus on value. I’d like to see Google and Facebook use mobile to drive higher quality customers through the door, not just more customers.

Imagine that you run a Tigers bar in San Francisco. Facebook could offer you the ability to reach people who have “liked” the Detroit Tigers and live within a few miles. (I did that search on Facebook and came up with 1,520 people who live in San Francisco and are Tigers fans.) Those customers are much more likely to return than someone who came in from 20 miles away just to get 50% off. Even better, Facebook could use your status updates to help you figure out which customers to target. You just posted about an author event with James Freeman of Blue Bottle coffee? Here are 5,600 Blue Bottle fans in San Francisco. Just click here to buy an ad and promote it to them.

Part of any transition is going to involve some ad dollars simply going away. When Craig Newmark started his classifieds business Craigslist, it didn’t get all of the revenue that newspapers used to make selling overpriced listings in tiny print. A lot of that ad spend just disappeared.

Some out-of-home and local dollars will get Newmarked. If I’m a fan of Friendly’s and I’m driving down the interstate, and your local search tool shows me where the nearest Friendly’s is, you might not get paid for that search.

But that’s OK — there are still billions more dollars that Facebook and Google are in a great position to tap into with the right mobile products.

Disclosure: I own Google stock. I’m temporarily short Facebook. I’m short Groupon and Yelp. I’m a Giants fan despite the fact that I grew up in Michigan. I used the Tigers purely as example to show the kind of reach Facebook has. Go Giants!

[Top image credit: Greg Ward NZ/Shutterstock]

And by getting out of Silicon Valley and moving to Detroit, where, chief executive Jay Gierak says, he can get twice the talent for half the price. Of course, it also helps to be announcing a $2.5 million first institutional round of funding from Draper Associates and others, including Detroit Venture Partners.

“Recruitment wars are great for buzz but bad for business,” says Gierak. “There’s no reason to fight for talent in the Valley when you can find great talent elsewhere.”

Every six months, Gierak told me, a new class of Y Combinator graduates would be recruiting his CTO and engineers. In Detroit he can find great talent, pay less for it, and count on better retention as well.

Succeeding in any industry is easier when you focus on massive differentiation from your rivals.

A sample Stik personalized results page

“We replicate the word-of-mouth referral experience offline and bring it online,” says chief executive Jay Gierak. “But we do it with three key differentiations.”

The differentiation part is important, because a lot of companies want to own local, from FourSquare to Google to legacy iYPs to scammy-looking page scrapers.

The differences Gierak is talking about include a strong category focus on mortgage, insurance, and real estate verticals — the very definition of infrequent, expensive, and high cost of failure transactions. Plus, Stik developes its user reviews differently, focusing on the business first, not the end user … an extremely unusual tactic. And finally, Stik offers a very deep Facebook integration that affects everything users see on the site.

“We focus on small businesses first,” says Gierak. “Small businesses are willing to hustle for the reviews, and people are really eager to help small businesses that served them well.”

That focus has helped Stik build an inventory of 150,000 businesses in its extremely limited categories, with more than 2.5 million reviews cumulatively.

That’s a significant number because the verticals Stik serves are not typical categories with huge numbers of reviews, like restaurants, entertainment venues, and coffee shops. As Gierak says, “Yelp is built on restaurant hobbyists … but it turns out there are no mortgage broker hobbyists.”

Gierak attributes the traction Stik has within its verticals to its minimal expectations from users. Business owners, he says, can get value from Stik within two minutes of signing up, and users don’t need a lot of time, effort, or expertise. He’s not impressed with the typical dashboard model that most local search companies follow.

“Everyone wants to do a dashboard,” he told me. “It’s a classic engineering approach … but there’s no way you’re going to get a guy who’s running a dry cleaner to sit in front of a dashboard with charts and graphs.”

The deep Facebook integration solves a massive problem in local: fake reviews.

In some local search applications — Yelp, we’re looking at you — reviews are too easy to game or purchase. But it’s not just a Yelp problem; it’s industry-wide. Stik avoids fake positive reviews and fake competitor-dissing reviews by tying all reviews to a Facebook identity, which is much harder to game.

I’ve been in Detroit covering the tech startup scene here, and Stik is a significant local success story. Gierak started building the site in Silicon Valley a few years ago and took a seed round investment from Tim Draper. Now he’s back in Detroit and will be announcing a $2.5 million series A round of funding by Detroit Venture Partners and Tim Draper.

Dan Gilbert, billionaire entrepreneur and principal in Detroit Venture Partners, sees it as a significant win for Detroit:

“The fact that Stik.com is moving to the M@dison Building from Silicon Valley is more proof that downtown Detroit’s energetic tech core has something to offer up-and-coming technology companies.”

Gierak plans to use the funding round to expand his team. And while he’s currently in a coworking-style space owned by Detroit Venture Partners in downtown Detroit, he’s looking for other space already.

Given the availability of cheap prime real estate in the area, Gierak is thinking of acquiring a funky old warehouse, with half for his and other companies, and half for an indoor basketball court.

Try getting that in San Francisco.

photo credit: Dunechaser via photo pin cc

Dear Andrew,

After more than a year on the Groupon beat, I’m retiring. Pop the champagne!

I’m almost done. I have one more story to write, and then I’m done writing about Groupon. (It’s a story that I’ve been working on for the last few months.)

It’s not because there isn’t more I can say. Trust me, it’s taking every ounce of restraint I have not to do a point-by-point rebuttal of your interview with Julia Boorstin on CNBC. Groupon Payments? No, I won’t write a full analysis of that, either. It’s actually a pretty good product, but it won’t come close to offsetting all of the massive revenue growth you promised investors that didn’t materialize. By my math, you can make more money running one daily deal for a a couple of days then you can processing all of a Groupon Payments customer’s transactions for five years.

My primary goal in writing about Groupon was to help small businesses understand the complexity of what they were actually signing up for when deciding to run a Groupon. When I first started writing, there wasn’t a lot of information that a business could tap, aside from the information provided by Groupon sales reps. Today, a lot of information is available just by Googling. As for investors, if they had believed me when I said Groupon stock would go to zero when I was on CNBC in April, they would have made a lot of money by now.

I haven’t been paid anything for all of my writing about Groupon or any of my TV appearances. I did it because I believed that helping small businesses was the right thing to do. Through my interactions with hundreds of small business owners while researching Groupon, I’ve sharpened my understanding of what doesn’t work for small businesses. I think I’ve figured out how to crack local in a way that truly will work for small businesses in the long run and help them better connect with customers. So I’m going to focus the energy I’ve spent on Groupon on that and some angel investing.

But enough about me. Before retiring, I wanted to give you one more opportunity to have a Q&A. Given what’s happened to Groupon’s stock during the last nine months, it’s clear that Wall Street has lost all confidence in the abilities of Groupon’s management team. (Today’s bump notwithstanding.)

I can’t think of a better way to rebuild confidence in your company than to go head-to-head with your biggest critic.

I figure we can chat for 30 to 60 minutes on video. I’m happy to present the entire unedited conversation to my audience. I can even talk to some folks I know in the TV business and see if they’d be willing to feature it. (I can’t guarantee that will happen, but I do have a decent track record in talking about Groupon on TV.)

I won’t tell you the questions ahead of time and I won’t agree to any restrictions on the questions I will ask. But you probably have a very good idea already. It would be a good way to rebuild credibility with Wall Street. Maybe we could even do it in front of students at our alma mater, Northwestern. It’s been a while since I’ve been back on campus.

I’ve always been impressed at the number of small business you have activated. There are ways to correct the imbalance in the value proposition you have.

I hope that we’ll have the opportunity to finally meet. If not, best of luck in turning around your company.

Rocky

This comes just a month after the local shopping startup integrated with The Fancy to enable social commerce on that Pinterest competitor.

Zaarly users have already requested $30 million in custom projects, such as building a custom treehouse or setting up Christmas lights. But the new initiative broadens the reach of Zaarly-style local commerce to every site on the internet, significantly extending the number of internet users who can participate and enabling publishers to monetize their content in new ways.

“For example,” Zaarly chief executive Bo Fishback told VentureBeat, “someone might see a recipe on the EveryDay Health website, which has millions of unique monthly visitors, and click the Zaarly button to get it made for them.”

Source: Cookstr

Zaarly on a recipe at Cookstr … right with the like and tweet buttons

When users see an interesting item on a participating website — perhaps a custom-made table, or an amazing cake — they can click the Zaarly button. That creates a request on Zaarly’s website that skilled local creators can bid on. When the potential buyer picks one of the bids, a deal will be consummated, and the original participating site gets a share of the revenue.

Early partners using the Zaarly API also include the LA Times, Cookstr, and IKEA Hackers. But Fishback told VentureBeat that it’s simple for any site to join.

“It’s as simple as putting a Facebook-like button up,” Fishback said. “You could literally put it up on your personal blog … and even match the colors of your site.”

Fishback has eaten his own dogfood … he used the service to get a raised garden built in his backyard. The expert who built it for him turned out to be a farmer for 30 years and an expert in raised gardens.

The service is designed for custom, personalized items and services, not products you can buy at Amazon.com.

“Sites like The Fancy have their own e-commerce for commercial items like a Rolex watch,” Fishback says. “But other things, such as home improvement projects … there’s nowhere to go for that.”

That’s exactly where Zaarly excels.

Zaarly was founded in 2011 and has investments from Kleiner Perkins as well as super-angels such as Ron Conway and Paul Buchheit. The company is based in San Francisco.

Image credit: PixelBliss/ShutterStock

July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

Since the mid-1990s, entrepreneurs have been trying to tackle the local market. Many have failed. Others, like Yelp and Groupon, have been successful selling services to small businesses, but those services are of dubious value. (Disclosure: I have puts against Yelp and Groupon.)

But mobile is going to bring new life to local. Mobile local offerings — such as restaurant-booking service OpenTable and hotel-deals service HotelTonight — are leveraging real-time information about availability and pricing to create a more efficient market.

When I was in New Orleans, I did a search on Yelp on my computer for restaurants in New Orleans. This should be an easy ad request to fill for a site that has as much restaurant content as Yelp.

I got an ad for On the Border, a mediocre Mexican chain in the spirit of Chili’s. There are two big problems with that. With all of the great restaurants in New Orleans, there’s no way I’d go to On the Border. (Though if forced, I’d choose it over Applebee’s.) The second problem was that this On the Border wasn’t in New Orleans, it was in Baton Rouge, about 80 miles away.

It’s likely that that was an impression-based ad — Yelp got paid just for showing it.  That’s the only way I can justify such an irrelevant ad on a local site.

I tried doing other searches that leverage real-time data. This was in the middle of Jazz Fest, so I expected that most restaurants and hotels would be booked.

One of the services I tried, OpenTable, delivered very practical results — see the screenshot above.

OpenTable showed me plenty of restaurants within a couple of miles. No need to go all the way to Baton Rouge! The real-time information solved another problem: I knew that these restaurants were open and available immediately. This is especially useful late at night or during periods of peak demand. (I ended up at Me’Lange. Their raspberry BBQ pulled pork sandwiches on rosemary cheddar biscuits are to die for. Way better than anything on the menu at On the Border.)

If I had needed a hotel, I could have pulled up HotelTonight. Despite it being one of the busiest weeks in New Orleans, I found hotels with availability:

I checked availability throughout Jazz Fest and HotelTonight had some availability each day, though in some cases their rooms sold out as the day went along.

According to OpenTable CEO Matt Roberts, 20% of diners seated on OpenTable come through the service’s mobile apps (including tablets). He expects mobile reservations to become the majority. HotelTonight only works on mobile.

Mobile provides new opportunities for generating business. Potentially, hotels and restaurants could know how many people are in the market for their services right now. If a service like OpenTable sees unusually high demand for restaurants on a given night, it could alert restaurants, which could choose to stay open later to take advantage of the unusual demand.  Because mobile provides a two-way, real time communication mechanism, I can envision that hotels and other providers could reach back with new offers later in the evening. If I check at noon and don’t like the price I see, maybe around 11 p.m. the hotel could ping me again with a last-minute offer.

The rise of mobile also works on the supply side. Tools such as Twitter allow providers like food trucks to provide real-time information to customers. That was one of the first small business uses of Twitter I envisioned when I started using Twitter in 2007. I’ve talked to many small businesses that love using mobile tools because they’re much easier than updating their Web site. Services like Uber and Postmates leverage location information of suppliers to create more efficient services.

Because many of these services get paid for completing a task, there’s also an incentive for the provider to only show relevant results. There’s no point in OpenTable showing me an On the Border 80 miles away because they get paid for bookings. The small screen size of mobile makes this sticking-to-what’s-relevant even more important.

Over time, I expect real-time, performance-based services to crowd out $600 CPM publishing models like Yelp’s.

The real-time availability data can also be turned into performance-based ad units. Each restaurant and hotel availability is a potential ad that could be made available to Twitter, Facebook, and other networks with large mobile audiences. Most importantly, when it comes to small businesses, this can be done without the business having to lift a finger.

Bing and Yelp have cozied up to bring a sweet, sweet search baby into the world. Now, Bing searches will feature brief reviews and more relevant information for decision-making for all kinds of local businesses.

The new “Powered by Yelp” Bing search experience will start rolling out to users today, and the rollout should be complete within the next few weeks. For now, this feature is available in the U.S. only.

In addition to snippets from full Yelp reviews, Bing Local will serve up photos and business attributes on all relevant Bing Local pages.

Bing Local already features some similar data from Citysearch, including ratings and review snippets, business hours, and photos. However, Yelp will bring far more data to the table; it currently gathers many millions of reviews each month, and the rate of reviews per month is rising all the time.

Yelp reviews used to appear in Google Places search results; however, since the search giant acquired restaurant review oldster Zagat, it’s been using Zagat’s reviews to power its local search offering. Google’s local search also features reviews from Yahoo Local, Citysearch, and a few other sources. But they’re no Yelp.

“Yelp has become the leading destination for local information and we’re thrilled that established brands like Bing recognize the value that Yelp communities bring to the local search experience,” said Yelp CEO and co-founder Jeremy Stoppelman in an official statement today.

“We are excited to see how Bing fans respond to this new local search experience powered by Yelp.”

Top image courtesy of conrado, Shutterstock

Zervas looked at deals in New York, Boston, San Francisco, and Seattle. The analysis was based on nearly 12,000 deals that ran from January 1, 2010 to March 31, 2012.

“The slope of the trend line is negative in all four cases; indicating Groupon deal quality is, on average, decreasing over time,” Zervas wrote. “In all four cases, the correlation between time and expected Yelp rating is negative, and statistically significant.”

The study also looked specifically at low-rated deals, defined as those with three or fewer stars on Yelp. “Low-rated deals appear to be increasing in frequency,” Zervas wrote.

Zervas’ study shows that this is happening; it doesn’t offer a conclusion as to why it is happening. The study cites the following possibilities:

1. The population of merchants willing to run a Groupon deal remains, more or less, constant over time, but as Groupon is expanding the number of deals it offers, it has to work with some lower-rated merchants;

2. The population of merchants is changing; better-rated are merchants dropping out of running Groupon deals, and Groupon has to substitute merchants with lower Yelp ratings who are offering the sames kinds of deals;

3. Yelp ratings are naturally eroding over time.
As a long-time observer of both Groupon and the local-business ratings space, my assessment is that Groupon is suffering from what economists call an adverse selection problem.

In some ways, this is a problem that affects all businesses going after the local market. The very best restaurants never have to advertise. They are fully booked based on word of mouth.

I was talking to Bill Gurley of Benchmark Capital on Friday. He related a story of a locksmith he found on Yelp. (30:16 in the audio recording.) “He had 46 positive reviews,” Gurley said. “I call him, he comes to my house at 7 p.m. and stays there for three hours and changes every lock. And, of course, then I go write this huge positive review. He doesn’t need any other form of marketing. … He’s got a little mini network effect going.”

Although the best businesses had no reason to do any form of marketing, the next group of businesses who had to do some marketing considered Groupon because it was perceived as the next big thing. In the earlier days of Groupon, the company was highly lauded in the press. The horror stories of businesses with bad experiences weren’t out there. So this group of merchants would have been more likely to run Groupon when the risks weren’t as well known. This leaves the least successful businesses.

As a marketing company, this would be a problem. But it’s an even bigger problem for Groupon because Groupon also acts a financier in the U.S. and Canada. It provides money to merchants before all services are delivered. Groupon is, in effect, insuring the services of small businesses.

In economic terms, Groupon is the equivalent of a health insurance company that only insures cancer patients. That’s not a business that is going to be profitable in the long term.

Disclosure: I have short interests in Groupon and Yelp.

[Image credit: Ronald Sumners/Shutterstock]

Getting enough data to make local recommendations has proved tough. A restaurant reviewer writing for a local newspaper might write a hundred or so reviews a year. Zagat might cover several thousand in its printed books. Yelp provides near universal coverage in the United States, but it still doesn’t have enough information to provide useful recommendations.

But American Express is sitting on top of some of the best data in the world with which to make recommendations: transaction histories of millions of cardholders. (Disclosure: I have a very tiny stake in AmEx.) I’ve been an American Express cardmember since 1993. In theory, AmEx has 18 years of data on me. (AmEx spokeswoman Charlotte Fuller declined to comment on how far back AmEx keeps transaction data.)

Last month, AmEx collected 60 data points on me from my transactions. If you view everyone of those as a check in, you realize how powerful that is. Very few companies have as much data on me. The likely suspects are Facebook, Google, Twitter, and the various ad networks. Most startups certainly don’t. And other credit card networks like Visa and MasterCard don’t own the relationship with the card holders — Citibank, Chase, Bank of America and other issuers do — so the data is spread thin.

The data that AmEx has is much higher quality than what Facebook, Google and the others have:

• It’s complete, not aspirational. On social networks, we like to project how cool and special we are. We check in at the fancy places. AmEx knows that sometimes I will eat at Taco Bell at 2 in the morning. (But I have never eaten at Applebee’s.)
• It’s validated. I walked by Commander’s Palace the other day in New Orleans. I checked in on Foursquare and posted that to Twitter and Facebook. It was a fake check in. I didn’t actually eat or drink there. AmEx knows that.
• It includes dollars spent. Not only does AmEx know I went someplace, it knows how much I spent there.
• It is harder to spam. Restaurant owners and competitors can’t manipulate their ratings given the volume of data.
• It doesn’t suffer from a sample bias like Yelp does. Everyone with an AmEx card is contributing data, not a very small subset of people.

For each transaction, AmEx knows who made it, the dollar amount, and the time. This may not seem like enough data, but if you get it in the volume that AmEx does, it gets really interesting. Although AmEx does not disclose the number of transactions on its network, last year it processed $822.2 billion in transactions. By my estimates, it is processing between 5 and 10 billion transactions a year. That’s a lot of data! By contrast, Yelp has 27.6 million reviews in its entire history, about 20% of which are spam. AmEx has 98 million cards in force. That is a lot of unique users contributing data.

In addition to the data AmEx gets from each transaction, it has relationships with cardmembers and merchants. For each card, it knows the billing address, user’s age, affinity (for example, my primary card is the Starwood AmEx) and type of card (personal, small business or corporate). For each merchant, it knows the location and typical volume. With its partnerships with Twitter, Facebook, and Foursquare, AmEx is also connecting its records with social media identities.

Here are some of the things that AmEx could do with all of these data:

• Recommend restaurants based on other restaurants you’ve visited. People who regularly go to Applebee’s might get more chain restaurants, people who eat at fancy places will get more fancy places.
• Make recommendations based on budget. Unlike local sites that rely on users to give price ranges, AmEx knows what the typical transactions are.
• Separate “locals” places from “tourist” places. Because AmEx knows your billing ZIP code, it can determine whether you live in the area or are just visiting. Taking this a step further, AmEx could distinguish between neighborhood places and finer places. The fact that I keep spending money at a place three blocks from where I live isn’t surprising. But if I keep going back to the same place 20 miles away, that place is probably very good.
• Make recommendations for expense account places. Because AmEx knows corporate cards vs. personal cards, it can make recommendations for a fancy business dinner.
• Tell me what businesses are open on a holiday. It’s Memorial Day and I don’t know what’s open. By collecting and analyzing real-time swipe data, AmEx could tell me where I can go. (Presumably businesses that are swiping transactions are open.)

AmEx knows me well enough to know what I typically buy. It uses this to figure out fraud. I recently tried to make a $245 purchase at Brookstone. Buying overpriced crap doesn’t fit my profile, so AmEx rejected the charge. (Charges for $500 and $1,500 on Amazon fly through.) When you’ve got money on the line, you have to invest in good algorithms.

I would love to see AmEx use all of its data and algorithms to help me make decisions on where to spend my money.

AmEx clearly sees the value in it, too.

“Data is going to be the driving force of commerce going forward,” Dan Schulman, AmEx’s Group President for Enterprise Growth told me back in January. “In many ways, the data associated with making a transaction may very will be more valuable than the value that you get as a financial services company from helping to complete that transaction.”

So why doesn’t it move faster? My sense is that the company is worried about getting too far ahead of consumers. It’s also hyper-concerned about privacy.

“We need to make it clear that while we definitely look at data as a tool to better service our customers and deliver value in new and innovative ways, we have strong privacy policies in place to inform customers of how and when we use their information, as well as offer them the ability to opt-out of ANY information sharing,” Fuller said. I’ve asked AmEx executives at various levels for data and the answer is always the same: no.

Like any large data set, this one has limitations. When I was walking through this concept with someone I know at AmEx, she said that algorithms based on AmEx data would never recommend Peter Luger’s steak house, because Peter Luger’s doesn’t accept any credit cards. That’s not ideal, but the ability to get recommendations without doing all of the work Yelp requires is still highly valuable.

AmEx also does not currently have SKU-level data. It knows I spent $39.95 at Amazon on April 16 but not that I bought the Le Creuset Stoneware Fruit/Pasta Bowl, Casiss. With SKU-level data, AmEx likely would have allowed the Brookstone charge to go through, knowing that Pan Am cufflinks fit with my profile as an aviation buff. AmEx could even have recommended them based on my earlier purchase of Concorde cufflinks.

Large retailers like Amazon are unlikely to share SKU-level data with transaction processors. That data is too valuable. But smaller retailers might. At a much smaller scale, that’s what the small businesses that use Square Register are doing. Square knows that when I’m in San Francisco, I have a fugazetta empanada at El Porteno. Square should be able to recommend other places I would like when I’m traveling.

This can all be done without me writing a single review. Watch what I do, not what I say I do.

[Image credit: paul prescott/Shutterstock]

Disclaimer: Rocky Agrawal holds a variety of short positions in Groupon. You can find a full list of his disclosures here and in his author bio.

After an accounting restatement, a shuffling of its board of directors and Groupon’s stock falling to below 50 percent of its initial public offering price (and 66 percent off the high it reached on its first day of trading), Groupon CEO Andrew Mason wrote a letter to shareholders yesterday to try to swing the momentum back in the company’s favor. Although the stock jumped briefly, it dropped a little today.

Mason uses phrases like “reinvent the multi-trillion-dollar local commerce ecosystem” to paint a rosy picture of Groupon’s future. He’s wrong. The company faces a long, tough road ahead. Here is my analysis of Mason’s comments:

Mason claims that “Groupon is a marketing tool that connects consumers and merchants.” Actually, Groupon’s daily deals business tries to keep consumers from building relationships with merchants. Groupon (like other deal companies) does not provide consumer information to merchants. It’s in Groupon’s best interests to have merchants buy another Groupon rather than reach out to consumers directly through a free mechanism like email or Twitter.

Personalization. Mason cites deal personalization and targeting as something Groupon is doing right. I still get emails for laser hair removal and hair straightening on a regular basis. The fact is that Groupon does not have enough data to do targeting. Companies like Google, Facebook, Twitter, and American Express have substantially more data on users than Groupon does. I’m one of Groupon’s best customers (having purchased at least 20 Groupons), but that data is trivial compared to what Google has on me. The typical Groupon customer has only purchased one Groupon.

Mobile. Mason refers to mobile adoption as an important potential success for Groupon. Here, I partly agree with him. Local commerce will be driven by mobile. But it also gets at one of the biggest flaws I see in Groupon’s path to date: The company spent hundred of millions of dollars on the wrong land grab. It built a giant, very expensive email list; that money should have been spent getting app installs. Now it’s having to spend money again to get the app installs.

Groupon Now. Mason touts Groupon Now, but the numbers in his own letter disprove its success. Groupon Now has sold 1.5 million Groupons compared with 170 million overall in 2011, according to the letter. That is less than 1%. On a revenue basis, I would expect it to be even smaller because Groupon Now deals are frequently for restaurants, which have lower tickets. LivingSocial, which pioneered the real-time deals product that Groupon copied for Groupon Now, recently shut down its product to focus on better opportunities. There are many structural reasons why Groupon Now will not be a success in the near term. I’ll write about those in a future post.

Groupon Rewards. It’s too soon to say how Groupon Rewards will perform. But it is an incredibly crowded space, with companies like Facebook, Foursquare, American Express, and Google all having their own offerings. (There are at least a dozen more.) Regardless, Rewards will have much smaller take rates than the daily deals business.

Groupon Scheduler. It’s a competent, but not excellent product. (See my detailed review.) Getting merchants to adopt this service will be a challenge. Groupon will be competing with vertical players like OpenTable and MindBody that can provide a product that is much better suited to the needs of each type of merchant. Nearly two months after I called Groupon out on it, the company still hasn’t answered the question of who owns the data that merchants put into the system. If a merchant inputs all of its contacts and appointments, can Groupon use that data to sell competing services? Until Groupon answers that very basic question, I advise all merchants to stay away from this product. Yield management is a smart business strategy that small businesses should take advantage of; Groupon has yet to make a credible case that it is a trustworthy partner.

Groupon seems to be chasing everything that moves without thinking things through. This isn’t surprising given that the company shot up to 11,000 employees (more than three times the number of people Facebook employs) without ever proving its original business model. It needs to focus on 3 or 4 products that it thinks will work, instead of trying everything and hoping it sticks.

Its core business model is in trouble and the other opportunities it’s going after are hard businesses with lots of competitors. From Mason’s letter:

Though our transformation from daily deal provider to local commerce platform will not happen overnight, in the coming quarters, we will release the products that we believe complete the foundation for our ecosystem. We look forward to sharing them soon.

Local has always been an incredibly difficult problem. It doesn’t spin out overnight successes. The companies that have succeeded are relatively small. OpenTable is valued at $823 million. Constant Contact is valued at $679 million. Although the optics of the daily deals business and Groupon’s questionable accounting made it look like a huge success, Groupon will find that the new business lines it is trying to get into take a long time and are highly competitive.

I stand by my estimate from last August when I told Emily Chang on Bloomberg West that Groupon is a $1-$2 billion company.

Mason does have one ace in the hole: Given the company’s ownership structure, he doesn’t really have to care about what Wall Street thinks. He could choose to ignore the stock price and do the right things for the business. That might give the company a fighting chance.

Photo credit: Swanksalot/Flickr

Although it was meant to be a tongue-in-cheek tweet after a particularly disastrous eating experience (not at Applebee’s), it reflects a core consumer problem with Yelp: There is little personalization. Yelp is Digg living in a Facebook and Twitter world. (I documented Yelp’s problems for local advertisers earlier.)

Yelp is still the best source for restaurant and nightlife information in the country thanks to its large database of reviews, but it requires users to do too much work to get information. As with Digg, a tiny group of users provides all of the content on the site. As with Digg, the barriers to participation are too high for casual users. Like Digg, Yelp’s traffic is driven by SEO. And like Digg, Yelp has failed to show any meaningful innovation in the last several years.

Many consumer decisions are based on tastes. A 4-star restaurant for one person may be a 2-star restaurant for another. Something that is the pinnacle of dining for one could be stuffy, pretentious, and overpriced for someone else. I only eat at Pizza Hut or the Olive Garden when I’m really desperate, but those are special occasion places for my parents. I won’t take them to the places I really like to go because I know they would feel uncomfortable there. (I’ve tried.)

Yelp’s default searches make it hard to distinguish between the nice casual places and the truly outstanding restaurants. I’m in New Orleans this week for Jazz Fest and had a wonderful lunch at Satsuma Cafe, which is rated 4 stars. I paid less than $10 for lunch. On Sunday, I’ll be having brunch at Arnaud’s Restaurant, which is rated 3 1/2 stars on Yelp and will likely cost more than $40.

There’s no way that these two places are even remotely comparable. Satsuma is a very accessible place. Arnaud’s is expensive and one that many would consider a bit pretentious. Someone who rates Applebee’s 4-stars is unlikely to appreciate what Arnaud’s is; their opinion is irrelevant to the type of place Arnaud’s is.

Yelp has a lot of data that it doesn’t seem to be using:

• The distribution of ratings by a given rater. I’m a tough grader (as regular readers may have noticed). If I rate something 5-stars, that’s a really big deal. Others give away 5-star ratings like candy. Individual distributions should be factored in.
• Ratings of similar places. Different types of venues should be grouped together, not sorted against an arbitrary scale. I can appreciate a great dive bar like Zeitgeist, but it’s not the same as Press Club.
• Anomalous reviews. If someone regularly reviews low-end places and than has a review at a high-end restaurant, that review should be downweighted versus someone who regularly eats at high-end restaurants.

Yelp can improve dramatically based on the data that it already has.

But it’s missing key pieces of information to make the best recommendations for users: the interests of the reader. More than half of Yelp’s traffic comes from SEO, and Yelp doesn’t know anything about those users, so it has to serve them the same generic content that everyone else gets.

Yelp optimized its site for SEO. There’s a reason that it focuses on long-form reviews with lots of words: It’s great for search. In its S-1, Yelp touted that “We feature full-text reviews, providing detailed, searchable information about local businesses with greater depth of content than most competitive offerings” and that those reviews contained an average of more than 100 words. Yelp’s claims are similar to newspaper restaurant reviewers who looked down on Yelp because they provided higher quality. (The “100 words” stat likely includes the portions of the review spent talking about being dumped by the girlfriend at dinner or the horrible day at the office, which seems to be a staple of many Yelp reviewers.)

Although some mocked Google’s purchase of Zagat as the equivalent of buying Encyclopedia Britannica to fend off Wikipedia, as long as Yelp follows a publishing model, it’s just another point on the same spectrum.

Local needs a low-friction, low-effort way to get recommendations. It needs a model similar to that of Netflix, where each rating is personally relevant, not universally irrelevant.

But that requires scale of data that Yelp doesn’t have. For that reason, companies with real data on their users, such as Google, Twitter, Facebook, and American Express will eventually eat Yelp’s lunch.

[Image credit: Tony Bowler/Shutterstock]

Disclaimer: Rocky Agrawal holds a variety of short positions in Groupon. You can find a full list of his disclosures here and in his author bio.

I’ve spent much of the last year talking about how the sites small businesses rely on to advertise and promote themselves — think Yelp and Groupon – are failing them. In fact, helping small businesses at the local level is extremely challenging for technology companies, for the following reasons:

• Scale. There are millions of small businesses in the country and trying to come up with a product and distribution strategy to reach them can be difficult.
• Lack of technology adoption. Many businesses still do things on pen and paper. Many don’t have Internet connectivity. Business owners are focused on running their business, not trying out Silicon Valley’s flavor of the week.
• Balancing value. Most local products need to create value for consumers, merchants, and the company providing the technology. Getting this balance right is very tricky. You can get massive consumer adoption by playing cash-flow games and spending hundreds of millions on marketing. But in order to build a sustainable business, you need to strike a good balance.

Here are some of my favorite companies in local:

1. Twitter. Most people don’t think of Twitter as a local company, but I think it (along with Facebook) has the most potential to do local right. Although Twitter hasn’t focused on local to date, its new partnership with American Express is a great sign. The massive scale of Twitter and its simplicity mean that small businesses like The Dosa Republic can advertise on the Internet cost effectively. (I’ve been pondering how to conjure dosas with Twitter since 2007.)

2. American Express. Although it’s not a startup, it’s definitely been acting like one. AmEx has had some of the most innovative local products over the last two years. The company has struck important partnerships with Facebook, Twitter and foursquare. Its Small Business Saturday promotion in the fall promotes the idea of shopping locally. Its social media team is on top of Twitter. I’ve met many of AmEx’s top execs, and they understand the future of commerce and online better than many startup execs I meet.

3. Square. Square has successfully credit-card enabled small businesses that were previously cash only. The pricing and product have simplified byzantine credit card rate structures into one easy-to-understand price. Square understands the whole consumer experience like no company other than Apple. Every detail of the experience is nearly perfect, including the packaging they use to ship the Square reader. Square’s Daniel Gatsby is one of the most talented designers I’ve met; I’d work with him on any project, any day.

4-5. Edo Interactive and Swipely. Card-linked offers are the right way to do promotions. Although American Express has made the biggest splash in the space, edo and Swipely are two other companies I like in the space. Edo is approaching the problem by partnering with financial institutions like Ally Bank (more banks are on the way). Swipely is working directly with merchants. Its San Francisco trial is worth checking out.

6. Constant Contact. The email marketing company lets small businesses keep in touch with local businesses. Wayne’s Chicago Red Hots, a Portland bar, had a disastrous experience with Groupon. They are using Constant Contact’s tools to engage with their own list of 1,300 customers. Constant Contact recently introduced a new deals product that is sustainable and makes sense for small businesses.

7-9. Eat24Hours, GrubHub, and Seamless. Ordering takeout and delivery has always been a chore. Menus aren’t readily available. You have to deal with a hurried order-taker who is taking orders in between cooking and serving in-house customers. Eat24Hours, GrubHub, and Seamless provide order-flow services and easy-to-use interfaces for consumers. Seamless’ iPad app is one of the most beautiful I’ve seen. The big challenge for these companies is keeping consumer acquisition costs below lifetime value. LivingSocial recently launched its own entry into the space.

10. Hotel Tonight. Deals can make a lot of sense when you have perishable inventory like a hotel does. Hotel Tonight’s concept is simple: matching last-minute travelers with that perishable inventory to create a win-win. Hotel Tonight also has a beautiful iPad app. CEO Sam Shank is brilliant.

11. OpenTable. The reservation site has been playing the long game in local. It’s my go-to example for success in a tough space. That it’s been around since 1998 is telling. It solves part of the inefficiency in restaurants and makes it easy for consumers to make and change restaurant reservations. In addition to reducing staffing costs and making operations more efficient, it provides an important distribution function. If a restaurant isn’t on OpenTable in San Francisco, it might as well not exist for me when I’m planning a nice meal.

12. Savored. The restaurant discount site lets you get 30% off your entire check at restaurants and is still profitable for restaurants. Because the discounts can be restricted to off-peak times, it reduces the risk of cannibalizing full-price traffic for discounted traffic. Interests between consumers and merchants are aligned: the more you spend, the more you save and the more the merchant makes. Contrast that with the daily deal model where consumers have an incentive to spend only up to the voucher value.

[Image of Square Register from Square]

With the rise of mobile marketplaces, outsourcing tedious or mundane tasks to a willing gopher has never been easier. Thursday, one startup seeks to make these mobile conveniences less intimidating for the masses.

Zaarly, one year after making a splash as the mobile app for getting a nearby stranger to bring you a beer, is hitting the reset button and releasing an entirely new 2.0 version that scraps anonymity in favor of identity, expressed through new picture-heavy profiles and reputation stamps. Zaarly, in essence, now hinges around trust.

“This is the culmination of everything that we’ve learned,” co-founder and CEO Bo Fishback told VentureBeat of Zaarly 2.0. “It’s very clearly a different product than it was.”

Zaarly debuted in March of last year as a predominantly mobile and local way for people to make a request for anything (a latte or an iPad, for instance), indicate how much they’d be willing to pay for said request, and specify a time frame for delivery. It’s original model, like Craigslist and Amazon, encouraged anonymity.

With most transactions happening in person, Zaarly discovered early on that identity and reputation would be key factors to its long-term success.

“The whole goal is to get two people together in person,” Fishback said. “We realized that if we did not have the human element inside of our marketplace, then it was never going to be able to turn into what we wanted it to be.”

The new Zaarly, evidenced in the just-released 2.0 versions of the company’s iPhone, Android and web applications, is now a more intuitive marketplace where customers can feel at ease selling to and buying from people who no longer are complete strangers.

Zaarly’s new profiles can be created from scratch or by pulling information from social networks. They feature photos prominently, include basic details about the user (lives at, works at, studies at), and highlight the number of connections a person has on various social networks to establish his or her legitimacy as a real person. Profiles even include reviews of every transaction the person has ever done. The profiles are carried through the entire experience, so that identity is front and center in transactions and member-to-member messages.

“Every listing has a face with it,” Fishback explained. “We’re bringing faces and people to the entire thing.”

Zaarly’s makers also hope to infuse a bit of local serendipity with place-specific recommendations, so that each Austinite launching the application will be greeted with unique recommendations for the best for-hire favors to ask for from their neighboring peers. The idea is to stimulate transactions by making the experience far less intimidating for first-timers.

Zaarly will create custom lists for sellers that include time, date, event, weather, and place-particular suggestions. The recommendations feature is still a work in progress for most regions as the company seeks to glean a better understanding of each locale. Those attending South by Southwest in Austin, however, will get a very rich taste of these recommendations.

“It’s just a really powerful tool for us to start making extremely relevant requests and suggestions to people based on where they are,” Fishback explained.

Altogether, Thursday’s updates represent the startup’s wish to mature into a legitimate marketplace for consumers. “Our eyes are pretty set on Craigslist,” Fishback said of Zaarly’s grown-up ambitions. More than 50 percent of requests are for physical goods, he added.

Zaarly has roughly 300,000 users engaging with its application on a semi-regular basis, Fishback said, making its lofty goal of competing with Craigslist sound like wishful thinking. And then, of course, there’s the competition, an ever-growing crop of anxious upstarts that include the brand-new Exec and the formidable (and well-financed) TaskRabbit.

“The space is super interesting right now,” Fishback nonchalantly said of his competitors. “I think this space is going to be really hot for while.”

San Francisco-based Zaarly has raised $15.1 million and generates a small amount of revenue from credit card transaction fees.

VentureBeat is holding its second annual Mobile Summit this April 2-3 in Sausalito, Calif. The invitation-only event will debate the five key business and technology challenges facing the mobile industry today, and participants — 180 mobile executives, investors, and policymakers — will develop concrete, actionable solutions that will shape the future of the mobile industry. You can find out more at our Mobile Summit site.

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Betaworks founder and CEO John Borthwick wrote to VentureBeat to explain his interest in Vibe, and what he thinks lies ahead. “As political, economic, and social tides continue to shift we hope the use of technology enables any kind of social movement to collaborate without hierarchies.” he told us by e-mail.

The most interesting aspect of the new release is the double hash tag (##) which has the opposite effect from Twitter’s famous trend hashtag. “What is the Double Hashtag? Think group direct messaging. Hashtags allow you to tag your messages to create more visibility. Get the word out to more people. The double hashtag is designed to pull your conversation out of the regular stream, making it invisible to the people who don’t know the double hashtag,” writes Borthwick.

The other interesting aspect of Vibe is that users can set the radius for their message. You can send out a public message, like a Tweet, or restrict it only to those within a mile, or even 160 feet. This becomes crucial when protesters are trying to organize but want to avoid surveillance by police. Vibe is also hoping there will be some less serious applications of this tech at SXSW, such as:

• Share pseudonymous comments during talks and events. Say what your social graph might not want to hear.
• Find out about spontaneous events and parties as they happen with Geolocation.
• Share experiences with the local crowd without knowing them or following them on Twitter or Facebook.

We once attended a Digital Wesleyan panel where Borthwick was asked what keeps him up at night, and he responded that the collision of real-time networks and government surveillance was something that often weighed on his mind. Union Square Ventures’ Fred Wilson has also talked about a desire to invest in the coming cultural revolution, after witnessing the role social media played in the Arab Spring and Occupy Wall Street.

Vibe, a mobile app born at a protest, seems like the first of that new breed of startup. You can check out the Vibe website here and download it from the iTunes store here.

Image via Adrianne Jeffries: Vibe in action at #OWS

The Hyperpublic team

In what could be the deal of the year, Groupon has snatched up a little-known startup to help it do the dirty work of targeting deals to subscribers.

The newly public deals behemoth has bought two-year-old, New York-based Hyperpublic for an undisclosed sum, the companies announced Friday. Hyperpublic aggregates place and deal data and provides developers with a way to monetize their applications. More attractive to Groupon, however, is the company’s growing pool of data that connects people to places.

“We set out to change the way people interacted with the local environment, and are pumped to continue that mission as a part of one of the fastest growing and most disruptive companies in the world,” Hyperpublic said in a note posted to its website Friday.

Hyperpublic amasses publicly available local data, gathered from a variety of sources such as social networks, and spits that data back out to developers who want specialized local data. The startup’s Data on Demand product, for instance, purports to give developers access to whatever local data they desire.

“We have everything. Need Twitter handles of vegans in the East Village? Done. Millions of display ads referencing places in Chicago? Done,” the product description explains.

Hyperpublic co-founder Jordan Cooper insinuated in an interview with the New York Times Bits blog that this type of data is of especial interest to Groupon. While Cooper was unable to go into great detail about HyperPublic’s future, he did say that Groupon, like most companies these days, is trying to mine publicly available social data and relate that data to real-world commercial decisions.

“The better Groupon understands the people and local environment that they are trying to drive traffic to, the better they will do,” Cooper said.

Hyperpublic previously raised $1.15 million in seed funding.

Foursquare, the New York-based location check-in startup, gives merchants the ability to operate their own business and brand pages to share tips and connect with customers.

Now, the company is giving businesses a nearby map that collects all of their venues on a map so would-be patrons can find the closest location. If you’re on a specific venue page, Starbucks for instance, you see other close-by Starbucks locations. The feature is unfortunately web-only for the time being, we’re told.

The update may seem minor, but Foursquare founder and CEO Dennis Crowley told VentureBeat that this improvement points back to the significance of the startup’s growing data pool. Foursquare’s data structure now knows the difference between big chains, small franchises, and mom-and-pop shops, he said, which gives the company the ability to group venues and surface them for members with the appropriate context.

How might something like this come in handy? You could quickly find the nearest Starbucks locale for your coffee fix, visit the closest 24 Hour Fitness on your business trip, or discover that your favorite restaurant has more locations than you realized.

The addition also comes as Foursquare continues to make both incremental and major improvements, including Explore recommendations and menu items, to the overall web experience. Foursquare’s website sees roughly 1 million visitors each day. As such, the property represents an important channel for the startup as it strives to be the go-to source for location-based content.

Nextdoor is creating the “neighborhood graph” by combining the best of  Web 2.0 sites like  Yelp and Facebook, with the features of early Web tools such as Craigslist and Yahoo! Groups to reconnect neighborhoods and re-establish a sense of community, on and offline.

Nextdoor has the look and feel of Facebook, with an activity feed, and tabbed navigation, where you’re able to look for a babysitter, and check out recommendations left by your neighbors. Anyone who has used the Internet during the last decade will feel right at home.

Nextdoor has gone to great lengths to create an experience that is authentic, and where trust and identity are the operative words, says co-founder and chief executive officer Nirav Tolia.

There are four mechanisms for verifying your address, all of which inject significant friction into the sign-up process, he says. You can request postcards with a unique code; your home phone number attached to your home address can be called with a code; you can can enter your credit card for verification; or you can be invited by a verified neighbor.

“The amount of friction is directly correlated to the value you derive from being in an environment is where everyone is verified,” says Tolia.

Of course there’s a business model somewhere in all of this. It could be merchant services, it could be deals, or something else. Though he wouldn’t specify, he said there are lots of potential opportunities around connecting businesses with customers who live and shop in the area, once they’ve nailed the product, and have grown the user base. ”As we’ve done with everything else, we’ll follow what the users ask for,” says Tolia.

It cost the company $60,000 to buy the domain name, said Tolia, but he thinks it’s definitely worth it. He pointed out that all the most powerful tech companies have two “o’s” in the name. Facebook, Yahoo! Google, — even Microsoft. “And now Nextdoor,” says Tolia.

Nextdoor is backed by Benchmark Capital and Shasta Ventures.

In a world where  information overload is driving us further apart, a startup called Loku has launched a technology to connect neighbors to their community and help people find cool things to do nearby.

Loku boils down huge feeds of data from sources such as local blogs and weekly newspapers, social media, restaurant reviews and deals, arranging them in a gorgeous webzine layout that’s automatically customized for your neighborhood. Currently Loku is rolling out in 15 cities.

Loku was created to solve a very real problem for founder Dan Street. He spent four or five nights per week traveling. Street, who worked in private equity and then as a consultant, says that he turned this road warrior lifestyle into a game and tried to experience life the way a local would. “I became obsessed with the idea of how do you become part of the community,” says Street.

Another issue, Street says, is that people within neighborhoods don’t really feel all that connected to each other, and often there isn’t a good way for them to stay on top of what’s going on around them. ”People don’t feel there’s a problem, because there’s nothing to solve it,” he says. In our mass media age, he says, we are unaware of just how disconnected we our from our neighbors and our neighborhoods.

With Loku, he hopes that people will be able to harness the torrent of social media data and the constant stream of information to have more meaningful local interactions.

Building Loku has taken three years and $350,000 of Street’s own money, with $1 million raised from angel investors, including Dave McClure’s 500 Startups.

“Where I’d like to have the biggest impact is certainly an automated version of Patch, with more tools for discovery,” said Street, referring to Aol’s network of community news sites that has been rolling out across the U.S. over the past two years. ”A little bit of Google, a little bit of Patch and a little bit of Yelp,” says Street of Loku.

According to a new report, Groupon’s supposedly discounted offers — especially for local services such as maid service, home repair or house painting — can be just as expensive as hiring a local laborer yourself.

Thumbtack is an online marketplace for local services, a sort of well-designed and narrowed-down version of Craigslist that lets normal folks get bids from and hire contractors. In a case study, Thumbtack found that the prices offered by Groupon in particular often don’t reflect a true discount.

For example, Groupon recently offered a voucher for housecleaning service in Phoenix at a supposedly discounted rate of $24.50. Groupon claimed that the normal hourly rate for the service was $75; however, Thumbtack says (and local Craigslist ads seem to confirm) that the average hourly rate for housecleaning in Phoenix is closer to $23.50.

In this case and in several others, which we’ll detail below, Groupon’s “discounts” are actually more expensive than hiring a contractor through normal channels.

So what’s the value proposition for consumers?

“Buying a deal in your inbox is easier than shopping around,” said Thumbtack co-founder Sander Daniels. “We think that people buy daily deals for local services because they’re not aware of other ways to easily find a good deal.”

Already, we know that daily deals are sometimes not so great for small or medium-sized local businesses. Yelp cut back its daily deals program due in large part to the fact that “daily deals are uneconomic for [many businesses in popular verticals], which does raise questions around the sustainability of “50% off” daily deals for these types of businesses,” according to CEO Jeremy Stoppelman. And a recent Rice University study showed that around a third of merchants said their forays into daily dealing had been unprofitable.

In fact, the only way a 50-percent-off deal voucher would be profitable for a business is if the business was able to acquire new customers.

But based on Thumbtack’s data, the only way buying a deal voucher would be profitable for a customer is if the customer was already a regular purchaser of the good or service in question or was planning to make the purchase anyhow.

In other words, it is highly likely that in many voucher purchase situations, no one wins.

Let’s take a closer look at some of Thumbtack’s data, which comes from the site’s database of 200,000 local businesses and hourly rates from 80,000 professionals in markets all around the country.

The Phoenix housecleaning deal (a $24.50-per-hour Groupon voucher for a service that might normally cost $23.50 per hour) is just one example Thumbtack found of daily un-deals.

Thumbtack also found a voucher for $79 for two hours of handyman services in Seattle. The discount was said to be 64 percent, with the regular price of service being around $220. However, of the 57 handymen advertising their services on Thumbtack, the same amount of work would have added up to about $84. The rates we found for the same service in the same area were even cheaper, inexpensive enough to make Groupon’s “deal” seem laughable.

This scenario repeats itself regularly in Thumbtack’s research. Two hours of maid service for $45 in Chicago; the actual cost of normal Chicago maid service is $20 per hour, or $40 for two hours. Two hours of handyman services for $75 in Houston; the average local rate is $27.50 per hour or $55 for two hours.

Around 11 percent of daily deal offers are for local services — things like wedding planning, handyman services, photography or housecleaning that are generally performed by a local contractor. But with “deals” like these, who needs rip-offs?

“We think the daily deal fad won’t survive very long in our neck of the woods because consumers are finding that lots of deals for house cleaners, painters and the like aren’t really deals at all,” said Daniels.

Also, Daniels noted that when consumers are really in a buying frame of mind for local services, they’re more likely to use Craiglist, Google or Yelp to find a contractor than to wait for a Groupon email to show up in their inbox.

Image courtesy of quazie.

Social activities website Lifecrowd, which debuted its service today at the DEMO Fall 2011 conference, wants to be the go-to site when you’re looking online for a fun real-life event.

Lifecrowd wants to differentiate itself from sites like Meetup by partnering with reputable experts to create fun group activities rather than letting just anyone create events. A few sample activities include culinary sessions to create sushi rolls, poker gatherings to learn how to count cards, beachside yoga and photography excursions.

“Lifecrowd is what Meetup should be,” Lifecrowd co-founder and CEO Bong Koh told VentureBeat. “Our emphasis is on quality of experts and content above quantity. We want to give users a way to try something new guided by vetted experts.”

The startup plans to start small by debuting officially in the Los Angeles area today and then moving up and down the West Coast. “Next up, we’d like to be in Orange County, San Diego and the Bay Area,” Koh said. “By the end of the year, we hope to launch in New York as our first market outside of California.”

Thus far, Lifecrowd has signed up more than 100 hand-picked experts in the Los Angeles market to create events. The experts use the service as a chance to make money from the activities and Lifecrowd takes a cut of what the experts charge. Initially, Lifecrowd will take 18 percent of the transaction. Eventually, as it scales out and more people use it, the company intends to take a smaller cut.

Los Angeles-based Lifecrowd has nine full-time employees and has thus far raised $2 million in funding, with participation from Bullpen Capital, Baroda Ventures and Prism Ventureworks.

Lifecrowd is one of 80 companies chosen by VentureBeat to launch at the DEMO Fall 2011 event taking place this week in Silicon Valley. After our selection, the companies pay a fee to present. Our coverage of them remains objective.

Terms of the acquisition were not disclosed.

“Moving forward, Zagat will be a cornerstone of our local offering—delighting people with their impressive array of reviews, ratings and insights, while enabling people everywhere to find extraordinary (and ordinary) experiences around the corner and around the world,” wrote Marissa Mayer, VP of Local, Maps and Location Services at Google.

New York-based Zagat has provided consumer-survey-generated reviews for restaurants, bars, hotels and more for 32 years and now offers recommendations around the world. The service operates in 13 categories in more than 100 cities.

“This may be the most important announcement in our 32 years of business,” wrote Nina and Tim Zagat. “Nina and I will continue to be active in the business as co-chairs; however, the merger of our resources, expertise and platforms with those of Google will give us the opportunity to greatly expand. We have spent enough time with Google senior management to know that they fully share our belief in user-generated content, and our commitment to accuracy and fairness in providing consumers with the information necessary to make smart decisions about where to eat, travel and shop.”

The move is a major blow to user-generated reviews website Yelp, which competes with Google Places and Zagat. Google failed to acquire Yelp back in late 2009, with Yelp reportedly walking away from a $550 million deal. Google further distanced itself from Yelp when it removed Yelp’s reviews from Google Places in mid-2010.

What do you think of about the Zagat acquisition?

July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

For Locai, which makes an iPhone app that lets you have conversations around check-in locations, less is more.

The Dallas, Texas-based company is launching the second version of its free iPhone app today, which strips out confusing features from its first iteration and focuses on making it easy for you to start conversations with other people checked-in to locations.

On the chopping block from the first Locai app are Klout-like gamification features that allowed you to earn a reputation at locations, and a “hosting” feature that let you become a major voice at places (similar to how Foursquare’s mayorships work). In an interview with VentureBeat, Locai CEO Taylor Cavanah said he hopes to bring back those features eventually (especially the hosting bit).

“We’re already an added level of complexity above check-ins, so we really didn’t need the added game layer [right now],” Cavanah told me.

The app will continue to track check-in habits so that users will be able to get up and rolling when the gamification features are added back at a later date.

For now, the company is focusing on the core conversation experience. “Foursquare has done a great job of training people to take their phones out and use them at places,” Cavanah said. Locai is aiming to take advantage of that behavior by offering users something beyond the initial check-in. “We want to give people a place to go on their phone that’s linked directly with the place and experience they’re having,” he said.

At first glance, Locai resembles many check-in focused services like Foursquare and Sonar. There’s a feed of news available from your friends, and you can start conversations at locations via the “Find Me” section. Conversations, which involve asking questions, posting pictures, or just sharing your opinion, can be shared with all of your friends, a trusted circle of friends, Facebook and Twitter. Cavanah tells me that the company avoided offering a full-on chat solution because it didn’t want to distract from the experience users were having in the real world.

The company is also working on a conversation discovery tab that will show off the most popular conversations on Locai. It’ll be a new way for you to find nearby conversations, as well as those in your city or across the country. An Android version of the app is on the way as well.

Cavanah said he eventually hopes Locai will be used by local business and brands to start conversations. “There is a tremendous amount of data generated in this space and brands and local businesses will pay for it. We have more interaction between users and places, so we will have richer data. Version 2 of the app has our business offering built in already, and we’ll be rolling it out with partners very soon,” he said in a blog post this morning. Currently, Locai has partnerships with IFC and local businesses in Dallas, Texas.

Locai is currently self-funded with $70,000 from the founders, and it is seeking a $500,000 seed round. Cavanah tells me he plans to head to San Diego next to focus on the LA ad market.

In stealth mode for some time, Hipster first opened its gates for the South by Sotuhwest conference in Austin, Texas, where it received 4,000 signups to its site and 10,000 to its launch mailing list. Attendees to the conference could use Hipster to ask and answer questions about it — for example, “What is the dress code for SXSW?.” While the conference is over, its SXSW page has still been kept online as demo of its concept.

Founder and CEO Doug Ludlow, who previously started MadKast and sold it to sharing widget ShareThis in 2008, told TechCrunch that the company learned a number of things from SXSW. For one thing, it now plans to launch across every city in the U.S. as opposed to expanding by individual cities.

In comparison to Yelp and Foursquare, which operate in a similar territory while not directly offering question and answers, Ludlow said that Foursquare “provides a very poor web experience for accessing, augmenting, editing, or sharing [local information]” while Yelp lacks a good method for “submitting knowledge when it’s freshest in your mind (namely, while you’re currently at a location.)”

With the financing, the Los Angeles-based startup is planning to make the move down to San Francisco. Angel investors in the round included Mitch Kapor, Dave McClure (500 Startups), Lightbank, Charles River Ventures, Max Ventilla, TechStars, Don Dodge, Paige Craig, Ludlow Ventures, and Lerer Ventures.

nSphere

Peekaboo Mobile, which participated in one of VentureBeat editor-in-chief Matt Marshall’s DEMO challenges just weeks after launching, began as an iPhone application that, when launched, would show users local deals around them. Deals were either entered by the company as it signed up local businesses willing to offer a coupon or by other users who might come across an already established deal. The company claims that it has since generated more than 50 million users across its iPhone and Android apps.

One perk from the acquisition is that any local businesses running coupons will now be able to do so for free. All monthly or yearly fees have been waived.

Specifics of the acquisition were not disclosed, but several publications noted it was in the seven figures. The Peekaboo Mobile team, including founder’s Michael Fruzzetti and Ben Dolgoff, will be joining nSphere to manage the company’s mobile initiatives, including several commerce apps that plan to launch in the coming months.

Though founder Ben Dolgoff wouldn’t provide a ton of information on the coming apps, he did say they would would be completely different from the deal app and will be created for different niche categories that will use nSphere’s massive database of information to help deliver an array of information back to the consumer. Dolgoff also noted the company plans on expanding its mobile team to around 15 people, mostly mobile developers.

The Boston-based Peekaboo Mobile, founded in March of 2010, recently secured an angel round of funding for an undisclosed amount from Apricot Capital.

Calling all mobile executives: This April 25-26, VentureBeat is hosting its inaugural VentureBeat Mobile Summit, where we’ll debate the five key business and policy challenges facing the mobile industry today. Participants will develop concrete, actionable solutions that will shape the future of the mobile industry. The invitation-only event, located at the scenic and relaxing Cavallo Point Resort in Sausalito, Calif., is limited to 180 mobile executives, investors and policymakers. We’ve pretty much finalized the invite list, but have a few spots left. Request an invitation.

Scvngr

Traditionally, local deal services such as LevelUp (and more-established players such as Groupon and LivingSocial) feature things like massages or restaurant discounts. However, this local deal, only available in Boston and Philadelphia, will allow entrepreneurs to incorporate, get their books in shape and have lunch with well-known venture capitalists Google Ventures, Highland Capital Partners and Common Angels in Boston and NextStage Capital, Robin Hood Angels and Dreamit Ventures in Philly.

LevelUp is a funded pilot from the founders of Scvngr, a service that asks users to check-in to physical locations and complete activity challenges for incentives. Scvngr founder Seth Priebatsch told me a bit more about the pilot:

The reasons for doing it as a pilot (as opposed to just another feature) is that we wanted to a) see if it could stand on its own (not cheat with our 1MM+ users) and b) not de-stabilize a rocketship (Scvngr) until we’re sure it works like whoa! Which it looks like it is (woot!) but we want to collect data for quite a bit longer before declaring it a win.

The companies and prices involved in the LevelUp include legal services Foley Hoag in Boston and Morgan Lewis in Philly for $250 ($2800 value) as well as accounting firms Raphael & Raphael in Boston and PartenteBeard in Philadelphia for $150 ($2000 value).

The proceeds from this particular LevelUp deal will go to MassChallenge in Boston and Startup Corps in Philly, two organizations that help connect startups with valuable resources, like investors.

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First reported by The Financial Times, Facebook Places is getting a larger percent of businesses using the service compared to location-based competitors Foursquare and Gowalla. The survey suggests that 32 percent of businesses are promoting their services through Facebook Places, while 12 percent plan to over the coming months. Just 9 percent of businesses are currently using Foursquare and Gowalla comes in at around 3 percent, both also have businesses planning to use their services in the near future, though small percentages.

While one might think that Facebook would naturally have an advantage over these startups because businesses are already creating business Pages, the Places check in feature is relatively new, launching in August of 2010. Foursquare and Gowalla were both launched in 2009 and, while first to the scene, it appears that Facebook’s already established presence among businesses is paying off in the space. This may be because there is an easier transition for businesses to go from using Pages to promote themselves to Places.

The survey also noted that 72 percent of local businesses only plan on spending less than $5,000 a year with 34 percent of that number spending less than $1,000. With so much competition for these dollars, it makes one wonder if these startups have alternative business models in mind.

Facebook’s Growth is Fueled By Local Ads
By contrast, Facebook has had tremendous success in the local advertising market. Facebook was the first platform to provide cheap and effective geographic, interest, and age targeting. So the yoga studio in Cleveland can now target college-educated women aged 25-35 who live in Cleveland and have listed yoga as an interest. In a few short years, these local, highly targeted ads have grown Facebook’s ad revenue to over a billion dollars a year from zero. What is amazing about Facebook’s local advertising success is that these local ads are being purchased self-service by businesses, a beautifully scalable model in a business dominated by direct sales organizations. Facebook is soon expected to allow its ads to be displayed on third-party sites like AdSense currently does. These highly-targeted local ads can be placed everywhere you go on the web.

Enter Groupon, the new Valpak
What makes Groupon special is not its much talked about tipping point where a deal does not happen unless a certain number of people sign up. Due to Groupon’s broad traction, virtually every single one of its deals gets sufficient signup to convert. Groupon was the first company to use the tried-and-proven sales technique of the yellow pages and Valpak to target local advertisers — direct, door-to-door salespeople who sign up local services and retailers. Groupon has quickly built a direct salesforce that has signed up local businesses across the country.

While detractors of the Groupon model point out that the net of a Groupon campaign often results in a loss to the local business, they are not considering that all advertising at the outset is typically a loss to a local business. A local TV ad, local newspaper ad, or Valpak coupon also costs money that could be considered a loss and typically does not produce immediate positive cash-flow relative to the ad investment. The value of a Groupon promotion produces cash over time with new repeat customers and should be viewed as a customer acquisition cost, which typically must be amortized over time. In addition, Groupon is also launching a service with 10% discounts that is much more in line with typical couponing systems.

Will Groupon Salvage Google’s Local Ad Hopes?
As a way for Google to quickly enter the nascent online local ads market, Groupon is definitely a better acquisition target than Yelp. Coupons are simple and understandable to local businesses, do not have the baggage of negative reviews like Yelp, and have a very high conversion rate. There are no other advertising companies that can match the rumored multibillion-dollar acquisition price, so Groupon is there for Google’s taking. The challenge for Google as it attempts to maintain its revenue growth is that the Groupon model is not a direct self-serve ad business like Facebook’s or that of Google AdSense. Google’s next step will be to attempt to transition its businesses to doing self-serve ads. The reality here is that Google has to spend $5 billion, whereas Facebook could achieve Groupon scale within a few months by adding a self-service deal a day per geographic region to the right rail of its homepage or directly within a user’s homepage feed with about 2 weeks of coding.

Peter Yared is the vice president and general manager of Webtrend Apps, a platform used to engage customers on Facebook, iPhone and Android. He came to Webtrends via the acquisition of Transpond, a social and mobile marketing company he founded in 2007.