21 Jul 2016

Pokemon Go and the Physical Web

My last post on Pokemon Go focused on underlying business model innovation -- specifically, Niantic's location-based APIs and the potential of sponsored locations as a lucrative revenue stream. The scale of Pokemon Go's unprecedented success has already made this a reality as its upcoming launch in Japan will see all 3000+ McDonalds outlets in the country become sponsored in-game "PokeGyms". The significance of this event cannot be overstated -- Niantic is on the verge of becoming the first tech company that closes the online-offline loop, i.e. one that can drive measurable real-world foot traffic at scale.

Today's advertising platforms have always faced a challenge when it comes to attribution. Advertisers are primarily interested in driving downstream purchases. This is simple enough to measure for online transactions, but how do brick-and-mortar retailers gauge if an online ad has resulted in driving foot traffic or a purchase? For years, tech companies have invested in Beacon technology to solve this problem by allowing businesses to interact with customers within a store or within a geo-fenced area. However, this has had a minimal impact on the retail industry to date. 

While Niantic's augmented reality platform doesn't address micro location (and yes, geocaching is a subset of AR in this case), it does allow brands to attract foot traffic with a simple press of a button (or rather, a simple payment to Niantic). Of course, Pokemon Go's status as a location-based game allows Niantic to track user location in real-time, making cost-per-visit a viable pricing model for the first time at this volume. Niantic's success will also get smartphone OEMs to play closer attention to augmented reality and location technology and could increase interest in Google's smartphone-based, in-door mapping technology, Project Tango. Increased adoption by smartphone OEMs (another potential second order effect of the sudden interest in AR) could open up micro-location data to developers like Niantic, who in turn could build improved AR experiences to help measure and improve the in-store shopping experience.

As always, the success of this model will depend on Pokemon Go's longevity or for Niantic's future launches to take up that responsibility. This shouldn't be difficult to manage with a scaled roll-out of in-game features, especially those that encourage real-world interaction between players, and expanding the platform to target other segments (e.g. using IP like Harry Potter, Game of Thrones, etc.). Essentially, Niantic's AR platform and Pokemon Go are on the verge on becoming the first large scale physical web project -- one that connects players to each other and to businesses in the real-world and not purely in a digital one. 

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