What Square’s new Register and Card Case means for small businesses

Square today announced its Register and Card Case products to complement the existing Square reader and smartphone applications. While Square has been focused on the merchant experience, this move expands its role on the consumer side. (Consumers have been able to receive receipts by email or text message when making purchases at Square merchants.)

With the new application, customers will be able to search for nearby Square merchants, see what’s on their menu and view receipts for previous transactions. Customers can also pay right from their mobile phone and the payment is confirmed on the merchant’s iPad.

Merchants will have the ability to accept a payment without swiping a card. They can also keep better track of what they’re selling. A loyalty program allows businesses to reward loyal customers. Unlike check in based systems which involve users to self-report, this system would be harder to cheat.

One open question is whether these transactions will be treated as card present transactions for Square. I expect that Square will charge merchants the swipe rate for these transactions. If they’re paying out the card-not-present rates, this will eat into their margins.

What we’re seeing here is only the beginning. There are a lot of important problems that can be solved with the data that Square will be collecting:

Consumer problems

  • It’s 2 a.m. and I’m hungry. What’s open? This is a problem that search generally handles poorly. Yelp has done the best job of collecting this among anyone I’ve seen. (Google tries, but its data is less comprehensive.) Even when the data are collected, they are often inaccurate. (Holidays, business was slow so we closed early, etc.) The Square Register could contain a virtual Open and Closed indicator that is visible to consumers.
  • I have a craving for a dosa. Where can I get one? With menu item data, Square could answer that question — at least for its merchants.
  • I have a receipt, but I can’t remember who I was with. The Square app could allow users to flag tax-related transactions and record notes like who you ate with.
  • I want to tell someone about a place I ate at, but can’t remember the name. (And want credit.) People are generally bad at remembering place names. Merchants could also offer rewards for new customer referrals, much like online merchants do.
  • I’m in a hurry and I need an order to go. Consumers could order right from their mobile phones, the order would pop up on the merchant’s screen and the merchant could select an estimated pickup time. For the merchant, this also reduces the risk of nonpayment for phone orders that aren’t picked up.

Merchant problems

  • Updating Web sites is hard. Most local business Web sites I go to are horribly out-of-date. Menu items and pricing can be more than a year old. Hours are often wrong. Maps are hard to find. Square could take the data from the Register system and generate Web pages with dynamic information, including today’s specials and hours. Some card issuers and payment processors have offered Web site creation, but these have mostly been low quality efforts.
  • I don’t have a mobile presence. Very few local businesses have dedicated mobile sites. At best, you get a hard-to-read version of the main site. At worst, you see sites created by incompetent flash designers who knew nothing about user experience. These render blank on an iPhone. Square-generated mobile Web pages would provide easy access to key info such as location, hours and menus. Google says about 40% of searches on mobile devices are local in nature — as a result, this is becoming increasingly critical.
  • I don’t have time to enter data multiple times. Square could also generate a PDF that could be printed for in-store menus. Data entered once gets used for POS, paper menus, Web site, mobile site and promotions. This not only saves on work, it eliminates inconsistencies which can cause customer service problems. Getting a bit crazier and thinking further out into the future, a Square app on an Apple TV could show promotions in store.
  • I want to get people to try new items. Square could use transaction history to entice regular customers to try things on the menu that they haven’t tried before. With promotions, you want to spend your promotion dollars on transactions that wouldn’t happen otherwise. Paper coupons are dumb in this regard. Say you’ve got a raspberry tart that you think is amazing. You could find all of the customers who haven’t ordered it and send them a promotion.
  • I want to know what my customers think of me. An email after the fact could prompt users for feedback and generating a net promoter score. It can also be a way of drumming up more business. For example: “Would you recommend us to a friend?” If the customer says, no, you can ask why. If yes, you can ask for friends right then and there. “Whom would like to recommend us to?” The referral can be coded so that the business can thank the original customer for the referral. A Square app could also provide more actionable data than the typical Yelp review — a restaurant would know when they ate, what they ordered, etc. This would make it easier to identify problem employees or dishes.
  • I want to know how I’m doing compared with other businesses in my area. I charge $3.50 for a slice of pizza. How does that compare with others? How does my revenue compare? Of course, this all needs to be done in a way that protects business anonymity. Data would only be available when there is enough participation so that a single businesses’ information can’t be identified. Participation should be opt in, with the carrot being access to data. The key here is that data needs to be in a meaningful context. I’ve seen many startups that just want to throw data at businesses. That’s not good enough. Square will also need to answer the “So what?” What decisions should I make based on that data?

See also:

Shop talk: Square and Groupon

Today I had the opportunity to talk with Dave from Chili Inside / Chili Outside a food cart operating in Portland. Chili Inside recently ran a Groupon and also uses Square to take credit card payments.

The key takeaway here is that simplicity sells. The credit card acceptance market has been complicated to understand, with setup fees, monthly fees, minimums, upcharges for certain types of cards, etc.

Not only does simplicity make the initial sale, it makes it easier for those customers to evangelize your product because they’re comfortable explaining it to others.

Square

  • Dave found out about Square when his son, Alex, spotted it at another food cart in Portland.
  • Other providers “seemed more daunting to even look into.”
  • “When Square came along and it looked easy and simple. It was.”
  • Before Square, he would try to get customers to pay with cash on hand or direct them to a mini-mart to get cash. One of Chili Inside’s older Yelp reviews says, “Only cons were they are not set up to take cards which cost me $2.50 around the corner to use the ATM.”
  • Customers have reacted very positively to seeing the iPhone with the Square reader. “Most everybody is pretty dazzled by it. It’s really fun to show it off.” Dave also showed me his technique to get it to swipe the first time every time.
  • He uses the Square reader daily. About 1/3 of his transactions are by credit card. During the time I was at the cart, at least three people paid with Square.
  • Square’s pricing was lower and less complicated than other vendors.
  • He is pleased with the real-time reporting capability. “We’ve got real time feedback virtually on every credit card swipe we take.” He showed me the screen with transactions that had just happened.
  • He was pleasantly surprised that a Square representative gave him a phone number to call with questions.
  • He would like to see the tipping option more prominent in the interface.
  • He has evangelized Square to other businesses locally. Square sent him a bunch of readers and he has been handing them out.

Groupon

  • Chili Inside ran a Groupon promotion on the same day as several as other Portland food cards.
  • 533 Chili Inside Groupons were sold. A normal day is 20-30 customers. Groupons were about a month worth of business.
  • In the week since the Groupon ran, about 35 have been redeemed. Dave estimated that 20 of them were from people who hadn’t heard about Chili Inside before.
  • Dave’s primary goal in running the Groupon was to introduce customers to his food and inspire repeat business. As a new business in the area, it was important to reach an audience. (See 5 cases when it makes sense to run a Groupon.) “Most of the people that purchased the Groupon didn’t know we were here and they live within blocks. We believe when people have our food, they’ll come back.”
  • Chili Inside uses an iPhone to scan the bar code on Groupons to redeem them.
  • He had approached Groupon months ago and never heard back. Then a rep called him about the food cart day.
  • Groupon has approximately 500,000 people on its mailing list in Portland. Chili Inside sales were 0.1% of that.
  • He has been approached by other deals sites, including LivingSocial.
  • Dave wouldn’t disclose the terms of the Groupon deal.

Google

Other

  • His wife monitors Yelp reviews and updates Facebook and Twitter pages.
  • Dave wasn’t aware of foursquare.

Note: As with most such research, when I mention that someone isn’t aware of something, it isn’t a criticism. It’s meant to highlight that even though people in the industry talk regularly about services like they’re ubiquitous, they aren’t.

See also:

PayPal + Where set to take on Square

eBay announced today its purchase of Where, a mobile location service. Where has been in the mobile location space for a long time — well before today’s media darlings. (See my initial Where story from 2007.) While others have sucked up much of the media oxygen, Where has been the little engine that could, hitting 4 million unique users per month.

It has a large installed base of users across not only smartphone platforms like iPhone and Android, but also featurephones. Where has gone through a number of incarnations, including a local portal, local platform provider, mobile ad network and buddy finder. Its current consumer product offers a wide array of location-based services. Where has also been experimenting with Groupon-like deals.

The combined resources of Where and PayPal would give eBay a terrific way to attack the multibillion-dollar untapped local opportunity that Square has been gunning for.

As I’ve written before, payments processing isn’t the end game for Square — it’s an entry point into the much more lucrative demand-generation space.

Payments processors generally take between 1% and 3% of the sale. Demand generators, like Groupon, are currently taking 50%. (I expect that this will drop dramatically, but there’s still a lot of room in between.)

At its current pricing, Square is likely to be losing money on each transaction because it no longer charges a fixed rate per swipe.

Square’s merchant offerings are excellent. It offers a dead simple way for small and micromerchants to take credit cards. Its recently announced presence in Apple retail stores makes signing up for Square even simpler than it already was.

But we haven’t seen much activity on the consumer side. Consumers get an elegantly formatted receipt, but there’s no other mechanism for interacting with them. (Square is undoubtedly amassing a mailing list to do this in the future.)

A combined Where and PayPal would give eBay the ability to offer both payments processing and demand generation. With an existing base of more than 4 million users, Where is a good way to prime the pump. Local merchants who take PayPal could be highlighted in search results. They could have ads placed automatically across Where’s ad network.

The key thing to remember about local merchants is that they are incredibly pressed for time. A simple, integrated offering would have tremendous appeal.

Have doubts about eBay’s ability to succeed in mobile? Erase them. They’re already claiming to generate nearly $2 billion in mobile purchases a year.

See previous coverage of Where.

Disclosure: I have consulted for Where in the past. I know the team, including Walt, Dan and Ivan. Congratulations, guys!


How Color can chart a course to avoid being the next Wave

Yesterday, I wrote about Color, a new app that has the promise to become a ubiquitous, location-aware sensor network. It’s first incarnation is as a photo sharing application available on iPhone and Android.

The initial launch has met with much criticism, including comparisons to Wave — a doomed social effort from Google.

Consider the similarities:

  • Enormous expectations. Wave was hyped by Google and given high profile executive attention at Google I/O. Color’s expectations have been set by having raised $41 million.
  • Poor out-of-the-box experience. Both Wave and Color have poor first experiences for the casual user. Even industry luminaries are scratching their heads.
  • Big change in user behavior. Both Wave and Color go against established patterns of user behavior. Wave tried to replace email. Color is challenging the notion of manually creating friend lists.

Google made a number of key execution mistakes in the launch of Wave. Fortunately, Color has avoided the biggest one: Wave was opened slowly on an invite-only basis. Despite the fact that the product was based on group interactions, you couldn’t get enough invites. I know. I tried to get my entire team to use Google Wave, but I couldn’t secure enough invites. Color doesn’t require a special invite.

The Color app should provide an easy way for viewers to see where a picture was taken.

The Color app should provide an easy way for viewers to see where a picture was taken.

There are a couple of other key mistakes Google made. Here’s  how Color can avoid them:

  • Lack of notifications. When I would make a change in Google Wave, the other participants had no way of knowing that I made the change. (Short of logging back into the service.) After I did this a few times and got no response, I stopped using it. The same exists with Color. I will see people’s photos randomly added to my Color application, but I don’t get notified when it happens. Getting notified when other people nearby are using Color would increase usage because you wouldn’t feel like you were talking to an empty room. It would also make face-to-face interactions easier. Notifications are an important part of ramping up any social network. At some point, your product will become so popular that people will use it all day unprompted. (I shut off Facebook email notifications long ago.) Until then, you need to nudge people to use it.
  • Lack of clear use cases. Most people have a really difficult time adopting radically new product concepts. You need to hold their hands and show them how it could apply to their lives. Wave didn’t do that. You were dumped into a blank canvas with a lot of unfamiliar controls. Color is much the same. There’s little guidance as to how Color can improve your life. The initial controls are so tight that you also can’t easily see how other people are using the product.

Then there a few things that are specific to Color and its goals that should be improved:

  • Lack of location/time liquidity. Color matches you with people based on photos being taken at the same place at the same time. That’s overly restrictive. Outside of major events and cities like San Francisco, this is going to be infrequent at best in this stage of the product’s adoption. It’s as if you launched foursquare and could only see tips left by users in the last 5 minutes. Older content has value. A few years ago, I took a set of pictures at Liberty Tavern. These pictures are valuable even now. And they’re certainly better than showing nothing. Showing older content would also encourage more people to take pictures. If privacy is a concern, older pictures with faces could be excluded with face detection software.
  • Locations aren’t visible. For a product that is focused on location, it doesn’t do a good job of showing it. I have random people in my Color feed, but I don’t know where I might have bumped into them — I have to guess at that. It would be better if I could select a person and see a map of where I met them with the date and time. Someone commented on one of my pictures asking where it was taken. That’s not a question they should have to ask. The data is already in the network; it should be accessible. (With the caveat that private places should be obscured so that someone doesn’t follow you home.)
  • People can’t connect with experts. One of the big reasons for the success of Twitter is that it works even if you don’t have any friends. When I’ve done user research on social products in the past, I inevitably had people who said “I don’t have any friends” or “my friends are stupid.” Social products need to work even in these scenarios. In fact, most of my real friends aren’t on Twitter. But I can still derive value from the people who are. With any social product, you’ll have a few people who are on the bleeding edge who can seed content for you. Exploit that. To fit into Color’s model of not requiring explicit follows, they could be added automatically if someone browses their pictures.

See also:


Foursquare 3.0 takes mobile ball to a whole new level

I remember seeing Dennis Crowley at SXSW in 2009 shortly after he had finished a panel on location services. He was on the phone and giddy that they had just reached 3,000 users. Two years and more than 7 million users later, foursquare’s latest pivot is its most important.

Foursquare 3.0 is the most efficient way to get recommendations for places to go in a city. The new release hits many of the themes that I’ve covered in my series on local search, especially user and merchant engagement and the importance of recommendations. (See How the battle for local search will be won for an overview.)

Lately, foursquare has been afflicted by a form of reverse network effects. It’s become so popular among some segments that the game elements of foursquare weren’t appealing to many users. Most people don’t want to play games that they will suck at. When you check in somewhere and see that you’ll need 28 more visits to become mayor, there’s less incentive to participate. (See this discussion of two-sided markets.) In my research, I found that the average number of check ins per unique user at businesses was 1.56. Given that some places require 12 or more checkins in 60 days to become mayor, that’s a clear indicator that repeat checkin activity is being driven by a very small number of people.

Recommendations

In foursquare's new Explore tab, the recommendations clearly explain why a business was selected. In this example, my "friend" Portland Monthly magazine has left a tip.

In foursquare's new Explore tab, the recommendations clearly explain why a business was selected. In this example, my "friend" Portland Monthly magazine has left a tip.

Foursquare added a new “Explore” tab that provides recommendations of nearby businesses. Recommendations provide a real incentive to use foursquare even if you have no shot at becoming mayor. Foursquare will filter through thousands of local businesses to identify those that you might be interested in. (See my post on recommendation engines.) Much like Google’s Hotpot, recommendations come from a number of different sources:

  • Your friends. If you have friends on foursquare, you’ll see tips that they’ve left at businesses. Because you can friend or follow organizations, this can also show you “expert” recommendations.
  • A place graph. Places will be suggested based on other places that you’ve been.
  • Popular places on foursquare.
  • Preferred categories.
  • Time of day.

It is really easy to scroll through the recommendations. Unlike Yelp and Hotpot, you don’t have to flip back and forth among pages. Unlike Hotpot, non-recommended places aren’t mixed into this list.

Are the recommendations perfect? No. Recommendations never are. I’ve gotten plenty of bad recommendations when talking to friends or hotel concierges. But they sure beat scrolling through an undifferentiated list with no guidance at all.

There are two areas for improvement:

The explore view doesn’t incorporate pictures. This will be an increasingly important part of local search. Visuals are a critical element of how people make decisions, especially when it comes to restaurants and nightlife.

With the new recommendations, foursquare would benefit from a much broader social graph. Many people are stricter about who they will become friends with in foursquare because of its real-time nature. But they really don’t care if other friends, co-workers and acquaintances see tips from visits in the past. In my case, I’ve only friended half of the potential Facebook friends on foursquare. These additional people would dramatically improve coverage of social recommendations.

Specials

Deals are an important part of the new app. Although foursquare deals have been around for nearly two years, they get a big makeover in Foursquare 3.0. The new application makes specials more prominent in the user interface. A big challenge with the old specials was that mayor deals were out of reach for many consumers and didn’t provide an incentive for trial. See my post, Maximizing the value of deals on Facebook and foursquare.

Four new deal structures allow for better serving both end user and business needs:

  • Flash specials. These are the equivalent of door busters. Once activated, the first X people who check in can claim the deal. These are also especially well suited for use as yield management tools. Slow night at the bar? Offer a special for one night only.
  • Friends specials. Check in with a set number of friends to get the deal. These promote behaviors that are important for foursquare’s growth. They serve as both user acquisition tools and product improvement tools. The more friends that you have actively using the platform, the more useful the recommendations become.
  • Swarm specials. These kick in after a certain number of foursquare users check in at a place. These could be important for future friend discovery tools.
  • Newbie specials. These specials allow businesses to incent trial by new customers. Because they are tied to a relatively persistent identity, they can be much more generous than paper coupons (which might be abused by unscrupulous customers).

As important as a deal platform is, having actual deals is critical. Foursquare is launching the new platform with deals from Barnes & Noble, H&M, Toys R Us, Arby’s, Coffee Bean, H&M, Sports Authority, Whole Foods, Chili’s and Radio Shack.

There’s no word on notification regarding specials. Foursquare currently requires users to actively seek them out within the app. Being able to get alerts of new specials (especially flash specials) will be important.

Foursquare claims more than 250,000 businesses on its platform. This is quite a bit less than the 4 million businesses claimed by Google Places. 5% of businesses I looked at had claimed their foursquare presence, compared with 61% on Google and Yelp.

Best is yet to come

As much as I like foursquare 3.0, there is a lot of opportunity left. The biggest of this is collecting more data to make better, more intelligent recommendations. Foursquare will be launching a new partnership with American Express at SXSW. The initial scope is limited to special offers for AMEX cardholders.

AMEX has the absolute best data of any company in America on where a large portion of the population transacts. Consider these pieces:

  • Many businesses set up a merchant account ahead of time, so they know when a business is going to open.
  • They can estimate hours of operation with reasonable accuracy. (Based on swipe data.)
  • They know the average purchase amount.
  • They know the mix of locals vs. out-of-towners.
  • They know the mix of personal cards vs. corporate cards.
  • They know if a business goes out of business. (The swipes stop happening.)
  • They know which businesses people return to and which they don’t. (Implicit quality rating.)

All of this data could be fed into a recommendation engine like foursquare’s.

A hypothetical foursquare AMEX.

A hypothetical foursquare AMEX.

With the way AMEX issues secondary cards, it would be possible to create a card that would automatically check you in on foursquare when you swipe your card. (While protecting your privacy on other purchases.)

At the extreme, you could have a co-branded foursquare card designed around social features. These could include automatic check ins, cardmember specials and a rewards program based on purchase and check in activity.

Sound crazy? Maybe. But back in the mid 2000s, AMEX launched city-centric cards for New York (IN:NYC) and Los Angeles (IN:LA) in a bid to attract younger customers. These cards weren’t successful and are no longer available.

But back then, foursquare didn’t exist.

Part 1: Local search is starting to get more social
Part 2: How the battle for local search will be won
Part 3: Google Hotpot a strong competitor to Yelp
Part 4: Statistics on business and consumer engagement in local search
Part 5: Foursquare 3.0 takes mobile ball to a whole new level

See also:

 

Local restaurant tries do-it-yourself Groupon

I was checking Twitter today and came across this local restaurant trying a Groupon-like offer on its own:

 

Wildwood in Portland is trying a do-it-yourself Groupon with its Twitter and Facebook followers.

Wildwood in Portland is trying a do-it-yourself Groupon with its Twitter and Facebook followers.

Wildwood is an upscale and top-rated restaurant in Portland. It has 4 stars and 101 reviews on Yelp and 5 “Best Ever” awards on Hotpot.

It has 745 likes on Facebook and 632 followers on Twitter. These are well above the market medians of 398 and 352. (It’s impossible to say what the unduplicated reach is across Facebook and Twitter.)

So how is this different from running a Groupon?

  • More revenue for Wildwood. It gets to keep all of the revenue generated. In a typical Groupon deal, Wildwood would get about $15 for each $50 gift certificate sold. Here, it keeps the entire $30. Given that food costs are typically 30% of a restaurant’s expenses, Groupons are break-even at best just on incremental cost.
  • More restrictions on redemptions. Groupons usually have longer redemption times and fewer restrictions on redemption. They are often valid for a year and can be used at almost any time. These certificates are only valid for dinner on Sunday, Monday and Tuesday and not valid for alcohol. It’s essentially a yield-management play, used to fill seats when the restaurant would otherwise be empty. Some restaurants use OpenTable’s Dining Rewards to accomplish this. These factors combine to increase the restaurant’s profitability on the deal.
  • More qualified customers. The restaurant is essentially reaching people who have already expressed some interest in it. Some of these are undoubtedly existing customers.Groupon brings in a much broader range of customers. That is both a blessing and a curse: some will be potentially new customers who will become repeat visitors; some will just be deal seekers who are unlikely to return. For many businesses, the primary market area is a 5-mile radius. Groupon’s coarse geographic targeting amounts to casting too broad a net for many local businesses.
  • No online purchases. The deal requires that customers visit Wildwood to buy and pick up the gift certificate. This is both good and bad: it means that customers are more qualified because they have to visit twice. They are more likely to live nearby and thus more likely to be repeat customers. But it also serves as a significant deterrent to purchase.
  • Limited viral distribution. Wildwood may reach some new prospects as other retweet/share the link. Twitter accounts like EaterPDX sometimes share such announcements. At the time of this writing, two people had retweeted the offer, for an additional 1,000 potential impressions. But it’s not likely to spread as virally as deals on Groupon and LivingSocial do. Both platforms offer built-in financial incentives for sharing deals with others.

I’ll check in with the business later in the week to see if they’re willing to share the results.

As I wrote earlier, businesses and consumers are directly connecting with each other online. In some ways, you can consider Groupon an arbitrage business — using its skill in marketing and online customer acquisition to deliver traffic to local businesses. (Much like ServiceMagic and 800-DENTIST.) As local businesses get more sophisticated and adopt tools like Facebook and Twitter, this will put margin pressure on Groupon and its peers.

Google Hotpot a strong competitor to Yelp

Part 1: Local search is starting to get more social
Part 2: How the battle for local search will be won
Part 3: Google Hotpot a strong competitor to Yelp
Part 4: Statistics on business and consumer engagement in local search
Part 5: Foursquare 3.0 takes mobile ball to a whole new level

Google’s Hotpot is a head on challenge to Yelp, the long-standing leader in gathering local reviews in the U.S. Although Google has been soliciting local reviews for years, Hotpot is the biggest effort by Google to gather local reviews. Google is accompanying the new product with a large marketing push in the Portland area.

Ratings and reviews

Google’s initial goal seems to be to get as many ratings as possible. To that end, it has made giving your opinion very easy. While Yelp encourages long-form reviews with a lot of detail, Google encourages basic star ratings. It’s primary Web interface makes it easy to quickly rate many places. Animations when you’ve completed a rating add a touch of fun to the process; once you’ve rated a business, the card flip over to allow you to write a review. The box is sized for about four sentences. Restaurants can also be sub-rated on Food, Service, Atmosphere and Value with a smiley face or frowny face.

Hotpot's rating screen allows you to quickly rate many local businesses.

Hotpot's rating screen allows you to quickly rate many local businesses.

On Android devices, a widget makes rating possible without launching the Google Places app.

As you can see at the top of the screenshot, the ease of rating has the potential to generate a lot of quick hits of data — my ratio is about 4 ratings to each review. See my earlier post about using lots of small nuggets of data to make intelligent recommendations.

Hotpot integrates with your search history on Google. This serves as a reminder to rate places you may have recently visited. Given Google’s vast query volume, this is another important differentiator.

Hotpot also shows ratings and reviews. While Google builds up its ratings and review corpus, the page focuses on aggregated reviews from other local sites, including Yelp, insiderpages, CitySearch and others. This has been a bone of contention for Yelp’s CEO, Jeremy Stoppelman.

Recommendations

Google hopes to make intelligent recommendations with all of your ratings data. Instead of having users sift through mounds of data to find the right business, Google does the lifting for you.

Recommendations come in two forms:

  • Recommendations based on your previous ratings. These span venue types. For example, Ikea was recommended for me because I rated Voodoo Donuts highly.
  • Recommendations based on the ratings of your friends.

The quality of recommendations seems to be hit-and-miss so far. Some seem entirely logical; others, like the Ikea recommendation were baffling.

A few examples to allow you to judge for yourself:

The advantage of such recommendations over, say, answering Jeopardy! questions, is that it’s hard to prove them wrong immediately.

Recommendations don’t currently span metro areas. For example, if you rate places in San Francisco and then visit Chicago, the San Francisco data don’t seem to be used to make recommendations in Chicago. Google could use data like cuisine and price preferences to make at least a first cut at recommendations.

 

Hotpot recommendations in Google search results.

Hotpot recommendations in Google search results.

Recommendations are surfaced in a variety of places, such at the Google Places app, Google Maps and most importantly, Google search. In the screenshot above, you can see a recommendation embedded right in the search results.

This placement and personalization is an important differentiator that may drive users to Google Hotpot over Yelp and other competitors. Here, you can see a review from my friend Adam embedded in the search results:

Google Hotpot shows reviews from friends.

Google Hotpot shows reviews from friends.

Local is the perfect place for social search: It reflects how we do things In Real Life. Friends and family are often the first places we look for advice on restaurants and nightlife. Even reviews from people whose tastes we disagree with are helpful.

Google’s big challenge with social recommendations is the lack of a good social graph. I have exactly one friend feeding into my Hotpot recommendations. Other players such as Yelp and foursquare have piggy backed on Facebook’s social graph. Google can’t. And after last year’s Buzz privacy issues, Google is likely being more cautious in using other Google-collected data for a social graph.

A significant problem with the recommendations is that they aren’t used as a filter. This is especially important in mobile, where screen sizes are smaller and patience is usually shorter. In one search, the top results was a recommended place. The next results that were recommended were in positions 14 and 30. In between were places that were farther away and even some places that were closed.

When I searched for a restaurant in downtown San Francisco from my Android phone, the first personalized result was Adam’s Osha Thai restaurant, in position 16.

The stated purpose of Hotpot is a ratings and recommendations tool; the recommended places should be at the top of the list.

Mobile app

Google Places app for Android.

Google Places app for Android.

Google’s mobile search app (called Google Places) is in some ways comparable to Yelp, but Yelp’s mobile app is overall still a stronger experience.

Google Places provides a number of filters, including distance, rating, currently open, price and neighborhood. Additional filters (hidden behind the >>) allow you to search by cuisine or ambiance.

The “Open now” filter is especially important on mobile devices, where the focus is often on the here and now. In the listings, you can see annotations such as “Open until 10:00 pm” and “Opens at 4:30 pm” for places where Google has such data. Yelp’s hours data seems to be much more comprehensive.

There’s also a filter to see just the places that have been rated by friends. Oddly, there’s no way to see just the places that are recommended by Hotpot.

Places shows offers from the few businesses who are using Google Offers. There’s no way to show only businesses with offers.

Like Yelp, Facebook and foursquare, the Places app allows users to check in to a business.

The Places app doesn’t allow users to add new businesses or upload photos.

A digital to-do list

Hotpot allows you to “Save for later”, which is a great way to keep a list of places that you may want to visit later. These are integrated with Google Maps (on the desktop and in mobile) and shown as stars whenever you render a Google Map. It can be helpful when planning trips — you may discover that a shopping trip takes you near a restaurant that you’ve been meaning to visit.

I have been using Yelp’s bookmark feature (and Google My Maps before that) to track restaurants I want to visit; the integration with Google Maps may have me switch to Hotpot for that. It would be nice if Hotpot let you record why you saved it for later (e.g. recommended by Epicurious, have Groupon).

Overall experience

The biggest problem with Hotpot right now is that the overall experience doesn’t hold together. There are numerous brands being used, including Hotpot, Google, Maps and Places. In some places, clicking takes you to a map-based page, other places take you to a listings-based page. Icons and terminology are all over the board. The mobile app is similar. Maps, Latitude and Places all seem to point into similar experiences.

What’s missing?

Listing freshness. Having up-to-date listings is an important part of the local search experience. Here, Google lags both Yelp and foursquare, especially when it comes to new businesses and non-standard places such as food carts. Hotpot doesn’t seem to be designed to address this problem. There isn’t an obvious way to add new listings. Hypothetically, Google could algorithmically find new businesses by looking at search patterns and traffic to sites like Yelp.

Photos. Visuals are a large part of the experience when it comes to dining and nightlife. Although Google scrapes some pictures from other sites, they aren’t using mobile apps to collect these. Instead, Google is paying professional photographers to take pictures at selected venues. Not only is this expensive and not scalable, it’s a lot less authentic.

Engaged consumers. Yelp and foursquare have highly engaged users who significantly enhance the quality of the data.

Engaged businesses. Facebook and Twitter have engaged businesses who regularly update content about their businesses. Apparently Google offers a similar feature, but in more than a year since its launch, I’ve only seen one business use it. I found that while doing research for this post.

Tighter integration with Android. There are opportunities to improve the local experience by integrating better with the phone experience. For example, sending a message with location information could be more seamless.

Conclusion

I’ve deliberately avoided doing a feature-by-feature checklist. Having the most features rarely matters. Flickr has been trounced in the photo sharing space by Facebook, despite having many more features for photo lovers. The sheer size of Facebook’s distribution system was enough to overcome its feature gaps.

Google definitely doesn’t have the most features or the most engaged audiences. It’s not (as far as I can tell) trying to build local communities centered around reviewing places.

But Google has three things that are hard to match: incredible distribution from Google search, deep pockets for promotions and Android. Facebook is the only company that can really come close to Google when it comes to distribution.

Google can surely solve the branding and consistency issues that make the current product experience frustrating. The bigger question is whether Google can develop a social graph that will really drive home the benefits of Hotpot.

See also:

Thanks to Mike Blumenthal for the pointer to Google’s business status updates.

Disclosure: I have several good friends who work at Google and went to high school with co-founder and CEO Larry Page. I’ve benefited from free drinks and other Google schwag at various Google promotions in Portland.