Pokémon Go and Local: Why Now?

It seems like we’ve reached peak Pokémon Go.

The phenomenon will likely escalate then eventually flame out, but for now it’s the most downloaded iOS game in history and has eclipsed Twitter, Pandora and Netflix in active usage.

Beyond thousands of headlines and millions of hazard-prone players roaming the streets like zombies, what does it all mean for local commerce? The game’s architecture is built on the physical world after all.

That question was partially answered last week when Niantic Labs CEO and mapping veteran John Hanke, announced the company will launch in-game sponsored ads on a cost-per-visit basis. More on that in a minute.

Even before that, clever SMBs devised marketing hacks like paying for in-game lures and “incense” to attract Pokémon, and thus hordes of real-life players. We’ll continue to see lots of SMB creativity like this.

But the key question is why now? Watching the local space for more than ten years, I’ve always wondered why we haven’t seen a location-based scavenger hunt-like app come along and blow everything up.

SCVNGR is probably the closest we’ve come, while Foursquare and Swarm have elements of a competitive local hunt. And of course there was Pokémon Go’s forbear — built on the same architecture — Ingress.

But Pokémon Go now brings a combination of execution and timing, each of which are worth examining for anyone looking to build engagement and monetization around location-based content today.

First, its game mechanics and luring UI create stratospheric engagement levels. Social and viral components amplify that, while it’s all built on a massive and long-anticipated global game franchise.

The timing is also right, given excitement and anticipation around VR/AR. VR will come first, and is in the process of enchanting the tech world. But its cousin AR — the central UI of Pokémon Go — is closely linked.

Back to the ad model, the timing is also ripe for native in-game ads. A backlash to overpopulated mobile banners (and hence ad blockers), has pushed the ad world to content-based sponsorships and native placement.

This rings true in local and can be seen with Facebook News Feed ads, Snapchat Stories and others. Branded placements in the Pokémon Go-verse will tap into similar temporal and geographic relevance.

But perhaps most interesting is how Pokémon Go has swayed millions of gamers to opt-in to GPS location sharing. That’s basically the holy grail of location-based ad targeting, without which we see lots of misfires.

The challenge is getting users to share location when it has nothing to do with the actual app (often). But there’s a clear value exchange for location sharing in Pokémon Go because… you can’t play without it.

The lesson isn’t to build the next Pokémon Go, but to build a justifiable value exchange for sharing location. Advertisers and ad networks should likewise work with apps that have that higher likelihood of user opt-in.

There should also be commercial intent in the app. One downside to Pokémon Go, despite such active and location-enabled usage, is a distracted and low-intent user base. They want Pokémon… not appliances.

The other dirty little secret is that any potential ad revenue will be relatively marginal. The game pulls in $2 million per day on in-app purchases alone — a revenue stream which usually eclipses advertising.

That makes the smarter play for Niantic and Nintendo to extend or license the platform by replicating its mechanics in other themes. Look for Super Mario Brothers Go (finally, a local ad model for plumbers).

In all seriousness, a location-based ad play — though minor in the the gaming world — will impact the $9.8B mobile local ad market. There will be lots of lessons for local media to observe in the coming months.

Meanwhile, it’s the essence of O2O: Legions of Pokémon Go players will continue roaming the streets to “catch them all.” The stores they pass — seeing a zombie herd of consumers — will look to do the same.

Michael Boland is chief analyst and vice president of content at BIA/Kelsey. Previously, he was a tech journalist for Forbes, Red Herring, Business 2.0, and other outlets.