Credit card companies are the original location-based service

Decades before Foursquare trained us to check  in on our mobile phones, the credit card companies trained us to swipe our cards. Before NFC was even a concept, the card companies had infrastructure in place to read cards and phone home in real-time with answers to where, when and how much. The result? A treasure trove of data on user behavior and purchases.

Fast forward to today’s world, where game mechanics, social graphs and mobile apps are all the rage. Everyone’s trying to build a killer product, get lots of eyeballs, and then monetize. How do most of them monetize? Advertising. And what makes for good advertising? Insight into user behavior.

The bottom line: most “social networking” companies are trying to get at the same data that credit card companies already have.

They’re just coming at it from a different direction.

Credit card companies access behavioral data directly through purchase histories, while social media companies use game mechanics and psychology to encourage users to self-report their interests and actions.

A company like Foursquare or Facebook builds a killer product, with a social graph and game mechanics to get people hooked and keep them engaged. Human nature, psychology and network effects bring in tons of eyeballs. Part of the product experience includes fun activities like checking in, sharing tips, and becoming a “fan” of your favorite products and celebrities.

While playing with these fun social technologies, the user gets a cool new way to stay in touch with friends, discover new places and things, and share her social status with her network. In return, the company gets a mountain of data on what its users do, where they go, and what they love. It’s marketing gold.

As I wrote in another post, the future of advertising and social commerce will likely be tied to measurable user behavior. Now imagine what you could do if you layered the social graph and online actions on top of real-time purchase data!

Foursquare + Amex: A Match Made in Heaven

For those who don’t already know, Foursquare announced a partnership with American Express just before SXSW in which you could save $5 when you spent $5 or more at one of their approved merchants in Austin. It was also the first public use of Amex’s Smart Offer API.

This as a brilliant move for both parties for all the reasons I alluded to above, and then some.

Most credit card companies are freaking out right now because of the Durbin Amendment (interesting infographic at the bottom of that link), which would severely limit interchange fees and will probably harm consumers and credit issuers alike (say bye-bye to your credit card rewards programs). It will also likely increase debit card transactions, which would leave Amex out in the cold, since they have no debit business.

So most credit card companies are scrambling for ways to: 1) make new use of existing assets (transaction & user data, anyone?), and 2) innovate (to get more business)!

On the flip side, Foursquare needs a way to monetize. And while Foursquare is well positioned to monetize in many different ways (advertising, travel guides, loyalty programs, discount deals, etc.), partnering with a payment provider is a genius next step.

Everyone in the payments business is trying to figure out mobile payments right now. Pure payments companies like Amex or Paypal, however, can currently only offer a way to process transactions. They might try to add a social layer on top of that, or partner with companies to create deal programs, but they’re not experts at social. Foursquare already has the social graph, user behavior data, and a lot of merchant goodwill.

A combined Foursquare + Amex solution could be a killer payments app, combining the robust features of a payment processor with: game mechanics; loyalty; a social graph; and established relationships/deals with merchants.

It’s the holy grail of mobile, social payments.

Imagine getting cash rewards for loyalty, or being pushed a coupon for a latte when you check in to the shoe store next to Starbucks. Swipe your Amex card and get a discount while automatically checking in to Foursquare. Boom! You just played Foursquare and grew Amex’s credit business in one fluid motion.

Of course, there’s little stopping Facebook Places or other competitors from trying the same. Partnerships between social media companies and payments processors would give both sides the missing data they each are longing for. Payment companies get data on their users, and social media companies get access to the real money transactions.

Then, once your payment account is tied to your favorite social networking app, the logical next step is paying your friends directly from within your Facebook or Foursquare mobile apps. Pay Johnny for your share of the pizza party with debit, credit, or… Facebook Credits?

No doubt this is why some posit that Facebook might become a bank. It certainly has enough users for critical mass, but building a payments system is a really hard problem, and one that is outside of social companies’ core expertise. A much quicker solution — and one that could also provide access to transaction data in the offline world — would be to partner with existing payment processors. Ignoring for a moment the pesky details of consumer privacy, the marriage of social media and traditional payments processors could be an amazingly powerful thing.

I have no doubt that we will see the marriage of social and mobile apps with payment providers in the very near future. The only question is what exact form these partnerships will take.

I’m loving Foursquare right now, not only because they have a great app and a stellar team of people, but also because they are incredibly well positioned. They have a two-sided market (creating value for both consumers and merchants), a growing base of very loyal users, and a lot of goodwill – not to mention an early partner on the payments side of things.

It will be very interesting to see how things evolve, and how even bigger players like Facebook, Google and Apple try to get into the payments space. This is an exciting time, and I think we’re only just at the beginning.

Be that as it may, Twitter just launched a redesigned homepage a few minutes ago, and it features search and topic trending front and center.  As I just tweeted, if there was any doubt about the direction Twitter might be headed as a company, I think the new design clears that right up.

Regular Twitter watchers should not find this surprising. Frankly, I think it makes a ton of sense. Real-time search is the new black here Silicon Valley, and Twitter is uniquely positioned to do something interesting in this space. Of course, the challenges are still great, because simply searching what people are saying or doing in real time doesn’t solve the problem of relevance, context or accuracy.

I’ve long been interested in both social search (e.g. mining one’s network for data) and real-time search, and I’m really excited to see what Twitter has up its sleeves.

P.S. Perhaps fittingly, it was launched on @Ev and @Sara‘s anniversary. Hooray for new beginnings!

This past weekend Seesmic CEO Loic Le Meur caused a bit of a fracas when he made a simple feature request for Twitter search. He wanted to be able to sort Twitter searches by the number of followers that a given user has, using that measure as some sort of indication of a user’s “authority”. That comment generated a surprisingly large and passionate amount of feedback from bloggers and Twitter users. Frankly, I was shocked that people felt so strongly about it, and I think Michael Arrington said it all with this post title: “Bloggers lose the plot over Twitter search“.

Be that as it may, it brings up a point that has long been talked about in the Twitterverse: how does one determine a Twitter user’s influence or authority?

Setting aside for a moment the question of whether or not we should even care about “authority” or influence on Twitter, I think that anyone advancing the notion of followers or followees as an accurate measure of influence is completely missing the mark. Twitter is social and interactive. The follower/followee model is overly simplistic. Sure, number of followers is interesting, since anyone with 15,000 followers has a “louder” voice than someone with 7, but what we still need is a dynamic, interactive measure.

Om Malik just posted an article about a study carried out by Bernardo Huberman (et al.) from HP’s Social Computing lab which examined the relationship between followers, followees (people a Twitter user follows), and “friends”. The study defined friends as people to whom a user has sent at least two @-replies.

As I have long suspected, measuring “friends”, as defined in the study, proved more meaningful a metric than simply counting followers or followees. A brief excerpt from Om’s post summarizes the study’s results:

On Twitter, [Huberman] found that regardless of the number of followers or followees, there were very few friends in a personal Twitter circle. He used a very weak definition of “friend” — anyone to whom a user has directed a post at least twice. And because of that, Huberman says that in order to “influence a person’s absorption of content, there is a need to find the hidden social network; the one that matters when trying to rely on word of mouth to spread an idea, a belief, or a trend.”

Huberman’s study found that:

• Users with a large number of followers are not necessarily those with very large number of total posts.
• Even though the number of friends initially increases as the number of followees increases, after a while the number of friends starts to saturate and stays nearly constant.
• The number of people a user actually communicates with eventually stops increasing while the number of followees can continue to grow indefinitely.

Interesting results, but still pretty obvious/intuitive. At least this study is getting closer to the heart of Twitter interaction and the influence its users have. After all, Twitter is a social tool, so just counting followers or followees doesn’t nearly capture the interactive nature of the service. Measuring “friends” (as defined above) gets closer, but I maintain that this still misses two very important measures. If, as Om assumes, we’re using the traditional definition of authority as the “power to influence or command thought, opinion or behavior”, then I propose that the following metrics are even more useful:

• Number of @-replies per post for a given user
• Number of “retweets” per post

As I stated in my comment on Om’s original post, I believe that one of the most important factors in a measure of authority or influence is the extent to which a user is able to get people thinking or talking about a topic. By that logic, a tweet which sparks a conversation and/or a large volume of replies should be given more weight than a tweet which goes out quietly and generates no responses.

To create a normalized metric which translates well across users with different numbers of followers we would ultimately need to collect data and see what kind of conclusions can be drawn from the metric above. We might find that it’s best to take the number of replies per post and multiply it by the ratio of followers who replied to the total number of followers. Or we might come to a different conclusion altogether.

The second metric I mentioned above is the number of re-tweets that a given post generates. Although they are less conversational in nature, re-tweets are interesting because they highlight tweets which someone not only found worthwhile, but found so compelling that (s)he wanted to pass it on to others. In fact, re-tweets are the core of Twitter’s ability to spread news at lightning speed. For example, in the recent terrorist attacks in Mumbai, Twitter was as good (if not better) a source of breaking news than any major cable news network.

I maintain, then, that any credible measure of Twitter authority has to take into account the spread of a re-tweeted post throughout the “Twitterverse”.

One of the main reasons I think my metrics are better than the “friend” metric defined in the HP study is because one can directly control (or even game) the friend count, whereas the reply/retweet metric is dependent on how other people perceive a given user.

For example, since “friends” are defined simply as people to whom one has directed two or more replies, I could start replying to tons of people throughout the Twitterverse, thereby increasing my friend count, but not really adding anything substantive to the community. Conversely, the reply/retweet metric is dependent on my ability to inspire and influence others. If I’m blathering on about pocket lint all day, my followers probably won’t find that noteworthy. Whereas if I’m funny, or a thought leader, or offering breaking news stories, my ability to inspire replies and retweets is likely to be much higher.

The bottom line is that while the study from HP’s Social Computing Lab is getting much closer to determining the influence of any given Twitter user, we really need more data to fully understand the interactive nature of Twitter and its users’ influence.

I would really like to see a more complete study which looks at the metrics I identified above. In fact, I have half a mind to get back to my statistics roots and put that ol’ masters degree to use in analyzing these metrics to see what conclusions can be drawn. If anyone wants to collaborate, drop me a line!

[UPDATE 12/29/08 - 13:45 PST]
It might not be obvious from my post above, so I wanted to go one step further and say that I don’t really think any single metric is sufficient to measure Twitter influence. While I strongly believe that two measures that I highlight above are more meaningful than follower count in a search for a proper influence metric, I think that they need to be looked at in context, and in combination with other measures (including follow numbers, total reach of a given tweet, etc.).

As a simple example, take the tweet from Loic which started this whole mess. Clearly it’s had a pretty major impact among the “Twitterati” and has elicited passionate feedback. But that didn’t just play out on Twitter. No, it’s been blogged, and retweeted, and remixed, and discussed both online and off (some would say ad nauseam). So perhaps any measure of Twitter “authority” is incomplete if it is confined to only measuring activity that plays out on Twitter.

One can extrapolate this problem even further and say that it’s directly related to the problem of measuring the full impact of anything that takes place on a blog, social network, or perhaps even the Internet. How does one measure the full impact of pay-per-impression advertising? Or a viral YouTube video? Or a popular blog post? Perhaps the best we can hope for is a good approximation.

Here’s a video of their demo:

For all you party animals out there, here’s a quick list of the Web 2.0 parties going on this week. Compiled with some help. You can also find more info on the whole week’s schedule (both parties and expo stuff).

Monday, April 21

What: Pownce Brunch
Where: Dottie’s True Blue (522 Jones St)
When: Monday, April 21, 11:00AM -
Info: http://pownce.com/DigitalKNK/notes/1817275/

What: Pre-Web 2.0 meet-up with Flickr, Moo
Where: Kate O’Brien’s (579 Howard St)
When: Monday, April 21, 5:00PM – 8:00PM
Info: http://upcoming.yahoo.com/event/469348

What: The Finns Are Coming to Web 2.0 Expo!
Where: Foreign Cinema (2534 Mission St)
When: Monday, April 21, 6:00PM – 8:00PM
Info: http://upcoming.yahoo.com/event/491643/ (RSVP)

What: Social Media Club – San Francisco
Where: Adobe (601 Townsend at 7th St)
When: Monday, April 21, 6:30PM – 8:30PM
Info: http://www.eventbrite.com/event/110484462

What: Web Monday Silicon Valley
Where: Citizen Space (425 2nd St)
When: Monday, April 21, 6:30PM – 9:30PM
Info: http://www.facebook.com/event.php?eid=7959317099

What: Love 2.0
Where: Harlot (46 Minna St)
When: Monday, April 21, 8:00PM – 11:00PM
Info: http://www.facebook.com/event.php?eid=11322066771

Tuesday, April 22

What: British beer tasting & European networking
Where: Hiller Aviation Museum (San Carlos Airport)
When: Tuesday, April 22, 5:30PM – 8:00PM
Info: http://crossingtheocean.net/seeda/hiller_event.html

What: GAB and Blogtropolis launch party
Where: Gray Area Gallery (1515 Folsom St)
When: Tuesday, April 22, 6:00PM – 11:00PM
Info: http://www.grayareagallery.org/

What: Official Digg Meet-up
Where: Mighty (119 Utah St)
When: Tuesday, April 22, 6:30PM – 11:30PM
Info: http://upcoming.yahoo.com/event/471398/

What: Ignite Web 2.0 Expo SF II
Where: DNA Lounge (375 11th St)
When: Tuesday, April 22, 7:00PM-
Info: http://upcoming.yahoo.com/event/467652/

Wednesday, April 23

What: Web2Open Takeout Dinner
Where: Yerba Buena Gardens (4th/Mission)
When: Wednesday, April 23, 6:00PM-
Info: http://www.eu.socialtext.net/web2open/index.cgi?schedule

What: Photobucket Developer Party
Where: Roe Bar & Lounge (651 Howard St)
When: Wednesday, April 23, 6:00PM – 9:00PM
Info: http://mashable.com/2008/04/16/photobucket-developer-party-tickets/

What: Evolve – Chi.mp and Mashable’s Web 2.0 After Party
Where: Mighty (119 Utah St)
When: Wednesday, April 23, 7:00PM – 10:00PM
Info: http://upcoming.yahoo.com/event/467885/

What: The Big Open Y! Party
Where: Yahoo! Brickhouse (500 3rd St)
When: Wednesday, April 23, 7:00PM – 10:00PM
Info: http://upcoming.yahoo.com/event/469035/

What: South Park Crawl
Where: South Park (Brannan / Bryant / 3rd / 2nd St)
When: Wednesday, April 23, 7:00PM – 10:00PM
Info: http://upcoming.yahoo.com/event/454850/
Leverage Software: www.facebook.com/event.php?eid=23295987864
Six Apart: http://everything.typepad.com/blog/2008/04/connecting-with.html

What: Web2Open
Where: Moscone West
When: Wednesday, April 23, 8:00PM – 11:00PM
Info: http://upcoming.yahoo.com/event/467423/

Thursday, April 24

SpringMix Party
Where: Ambassador
When: 6:30pm till the sun comes up
http://www.facebook.com/event.php?eid=16723702463

What: Booth Crawl
Where: Moscone West
When: Thursday, April 24, 4:30PM – 6:00PM
Info: http://en.oreilly.com/webexsf2008/public/schedule/detail/3484

What: Amazon.com Networking Party
Where: Jillian’s @ Metreon (101 4th St)
When: Thursday, April 24, 6:00PM – 8:00PM
Info: http://www.facebook.com/topic.php?uid=6972960853&topic=4431

What: After Hours Event
Where: Marriott (55 4th St)
When: Thursday, April 24, 6:00PM – 12:00AM
Info: http://en.oreilly.com/webexsf2008/public/schedule/detail/4238

What: Web2Open
Where: Moscone West
When: Thursday, April 24, 8:00PM – 11:00PM
Info: http://upcoming.yahoo.com/event/467423/

What: Web Mission 2008
Where: Redwood Room at Clift Hotel (495 Geary St)
When: Thursday, April 24, 9:00PM -
Info: http://www.webmission08.com/agenda.html

[my original post]

I just came across an alarming article about Facebook’s Beacon which states that apparently Facebook is receiving data on users activities outside of Facebook.

As if Beacon hasn’t generated enough controversy already, Facebook now admits that it tracks logged-off users through partner sites which send data about users back to Facebook. Their most recent admission contradicts earlier statements which said that Facebook does not track users.

Initially I was of the opinion that Beacon was just the next logical (albeit frightening) step in the whole social network advertising model. It stands to reason that as new adopters (read:young people) sign up for social networks, they will simply be accustomed to fewer and fewer privacy protections. As we slide down the slippery slope of eroding online privacy, things like Beacon will eventually cease to outrage people and will simply become an accepted norm.

I wonder if Beacon would have met with such strong opposition from users if Facebook had cut people in on the revenue. It’s rather alarming to have your picture appear next to your most recent purchase from Fandango or Blockbuster. But what if you got a cut of each purchase that was made thanks to a clickthrough on that ad? Would people still have such a big problem with it then?

And when you really look at who’s protesting, it’s still only a tiny fraction of users. The last time I checked, MoveOn.org’s online petition against Facebook’s privacy violations only had about 50,000 users, which is less than 0.1% of all Facebook users (as of November 2007).

Nevertheless, this latest revelation about the reach of Beacon outside of Facebook’s website and its tracking of logged-out users is very disturbing. Facebook’s contradiction of itself is even more so. I’m waiting eagerly to hear what they have to say for themselves.