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ScreenHunter_02 Apr. 23 16.52

One of the hottest topics across the tech media and blogosphere (besides iPad and Facebook updates) continues to be social location based services. It was a big theme at Twitter’s seminal Chirp event, Foursquare’s escalating valuation, and continued speculation over Facebook as the location “category killer.”

The problem is that the revenue opportunities and assessment of the overall challenges are often misguided by generalist reporters and start-ups flooding into the space. Part of this is simply laziness to examine the issues facing the companies that have lived on this island for years. In other words, we’ve seen this movie before.

Those Who Don’t Study History

Specifically, some of the exuberance results from the wide-eyed optimism toward the long-tail SMB segment: Tens of millions of mom-and-pops waiting to sign over their ad budgets. The line is usually the same from reporters as well as companies briefing me on such products: “Why wouldn’t any small business want to sign up to drive people into their store?”

Here’s an example from TechCrunch of the type of thinking I see all over the place. The author’s counterpoint in the second paragraph is what I’m talking about:

He predicts that it will take two to five years for an LBS to reach a critical mass of users and small businesses. It’s no small task to sign up a lot of businesses large or small in 50 metros across the country, McClure says. That will take years for many people. The advantage in those situations is going to go to the larger brands, more recognized brands, like Google, Apple and Facebook and maybe Twitter.

I don’t fully agree with McClure’s conclusions. For example, I don’t think Foursquare, Gowalla, etc., will have to shell out $5+ per head (and $50+ per offline business) to solidify their user base there is an obvious incentive for offline businesses to get into the LBS game and voluntarily offer users coupons.

In theory, I agree. But the thinking falls apart with the reality (shown in our data) that many SMBs don’t have the time, technical competence and inclination to launch and manage their own campaigns. Just ask Google, which has gone further than anyone else in this respect and continues to grapple with getting SMBs to self serve.

Mom-and-pops’ competence and time management aside, let’s not forget limited ad budgets and unlimited salespeople coming at them from all angles for every form of traditional media advertising. And that’s exactly what they need: to have their hands held by a sweet-talking salesperson — which none of these platforms offers.

[Update: See our recent conference panel with real life SMBs]

Destined to Repeat It

This isn’t anything new. But that’s exactly my point. Why is everyone ignoring such a large gating factor to one of the biggest future sources of value on which these investments are based? Is it simply a Silicon Valley effect — the tendency to assume that the rest of the population gets the same rush of geek excitement over these products as we do?

I use Foursquare. So do most of my friends. But tens of millions of Americans have never heard of it — most of which are the SMBs presumed to jump all over it. In fairness, it’s growing fast — just having reached 1 million users (in half the time it took Twitter to do the same thing). And its deals with Bravo and other large advertisers are putting it on the mainstream map.

I bet Dennis Crowley and team are well aware of these challenges, and they’re starting to take steps to make it as easy as possible for SMBs to sign up and start using Foursquare as a promotional vehicle (for free). But that still doesn’t stop the “of course every business will want to sign up for this” attitude that I see from most other companies and tech journalists.

It’s definitely an exciting and exploding space. But don’t believe it’s going to be so easy to monetize.

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