STRATEGY ANALYTICS: THE TOTAL MARKET FOR LOCATION-BASED SERVICES WILL BE WORTH $10 BILLION BY 2016

 

According to research firm Strategy Analytics, cocation-based services for consumer and advertiser expenditure will approach $10 Billion in revenue by 2016.  The biggest chunk, just over 50 percent, will come from location-based search advertising.

The firm said the biggest obstacle is consumer privacy concerns about location data, something that has been stoked lately by recent questions about GPS tracking from iPhones and Android devices. But if location services provide enough transparency about how they use and store this information, it should not derail the approaching money train.

It’s still too early,  but I agree there’s going to be a lot of money in location-based services, particularly advertising.  That’s where things get interesting:  We’re seeing that location-based ads can demand a premium because they’re more targeted and often more relevant to users. There’s a big opportunity in being able to use a very personal device like a smartphone to deliver tailored, very local ads. That’s still a ways off but that’s something Google, the recently acquired WHERE, and a host of other mobile advertising companies are banking on.

Search ads, however, are just one part of the mix. There’s a whole business brewing about pushing ads, offers and deals to consumers based on their preferences, location, shopping history and other signals. Groupon and Living Social are testing more real-time local offers to users. Increasingly ad and marketing offers won’t wait for someone to search for something.  Companies are going to try and anticipate user wants and provide it for them. That’s the future that Google’s Eric Schmidt has talked a lot about.

But there are a lot of other opportunities in location. I recently talked with Location Labs about how they're building toward an IPO by providing security and safety features for families. There will be other more "boring" utility plays that leverage location and can gather in revenue without being a sexy check-in app.

And to be sure, consumers are getting more comfortable with location-based services, especially when those services are dressed up with offers and discounts. That will be the key — to provide consumers with clear value and information that is relevant to them.

At this point, it’s hard to say what the revenue potential for location-based service is going to be. Mobile advertising overall generated $550 to $650 million in the U.S. last year, far behind online advertising. But as smartphone penetration rises (it’s expected to account for half of all phones this year) and people start to think of their phones as personal computers and real-world sensors unlocking valuable information around them, there could be a huge bonanza waiting. It’s up to location companies to come clean about the way they use location data, as Skyhook’s Ted Morgan recently told me. But if that happens, there could be a lot of winners.

COMMENTARY:   Mohamed Kahlain, an expert on location-based social services has been fol­lowing the LBS indus­try for the past cou­ple of years and noticed some­thing was miss­ing:  the big pic­ture. Every new player wants to stand out from the com­pe­ti­tion, but they often fail to develop an ecosys­tem to make their busi­ness model viable.

As loca­tion based ser­vices keep grow­ing in pop­u­lar­ity, two key ques­tions need to be answered: What exactly is the LBS ecosys­tem, and what is the big pic­ture?

Location-Based Ecosys­tem

The location-based services ecosystem consists of six key strate­gic lay­ers which I have sum­ma­rized in one easy-to-understand image. 

1) Geo-Data or Geoin­for­ma­tion - Wikipedia defines “geoin­for­ma­tion” (a port­man­teau for geo­graphic infor­ma­tion) as fol­lows:

“Geo­graphic infor­ma­tion is cre­ated by manip­u­lat­ing geo­graphic (or spa­tial) data (gen­er­ally known by the abbre­vi­a­tion geo­data) in a com­put­er­ized sys­tem. Sys­tems can include com­put­ers and net­works, stan­dards and pro­to­cols for data use and exchange between users within a range of dif­fer­ent appli­ca­tions.”

With­out geo-information (list­ings, phone num­bers, reviews, etc.), inter­ac­tion is impos­si­ble. It is the most impor­tant kind of infor­ma­tion and rep­re­sents the raw data of an LBS app.

2) Location-Based Busi­ness Rules (Geofenc­ing)

Wikipedia defines a “geofence” as:

“A vir­tual perime­ter for a real-world geo­graphic area. A geofence could be dynam­i­cally gen­er­ated — as in a radius around a store or point loca­tion. Or a geofence can be a pre­de­fined set of bound­aries, like school atten­dance zones or neigh­bor­hood bound­aries. Custom-digitized geofences are also in use. When the location-aware device of a location-based ser­vice (LBS) user enters or exits a geo-fence, the device receives a gen­er­ated noti­fi­ca­tion. This noti­fi­ca­tion might con­tain infor­ma­tion about the loca­tion of the device. The geofence notice might be sent to a mobile tele­phone or an email account. Geofenc­ing, used with child loca­tion ser­vices, can notify par­ents when a child leaves a des­ig­nated area.”

There are three types of geo-fencing (set-up bound­aries and alerts):

1. Those that define an inter­ac­tion with an object or product;
2. Those that define an inter­ac­tion with an area or zone (see Shopkick below);
3. Those that define an inter­ac­tion when two peo­ple or two objects are in the same area.

To find out more about geofenc­ing, visit the Wave­Mar­ket web­site at Locationlabs.com.

 

As loca­tion based ser­vices keep grow­ing in pop­u­lar­ity, two key ques­tions need to be answered: What exactly is the LBS ecosys­tem, and what is the big pic­ture?

3) Inter­ac­tions Lay­ers - Make Your Pres­ence Known - When it comes to inter­act­ing with a loca­tion, a user and a prod­uct or ser­vice, one ele­ment we can use is Cheking-In or Social Check-in.

Since the LBS indus­try is gain­ing momen­tum and will con­tinue to grow and develop in the future, it is impor­tant to 1) clearly define what the LBS ecosys­tem is and 2) to explore the “big picture.”

Wikipedia explains social check-in tools as fol­lows:

“Many social net­work­ing ser­vices such as foursquare, Facebook Places, Gowalla and Brightkite allow users to “check in” to a phys­i­cal place and share their loca­tion with their friends. Users can check into a spe­cific loca­tion by text mes­sag­ing or by using a mobile appli­ca­tion on a smart­phone — the appli­ca­tion will use the phone’s GPS to find the cur­rent loca­tion. Many appli­ca­tions have a “Places” but­ton or tab where a user can see a list of nearby places into which the user can check in. If a loca­tion is not on the nearby places list, the user can add the loca­tion directly from the phone. Once a user has checked in, they have the option of shar­ing their loca­tion with friends in ser­vices such as Twitter or Facebook.”

4) Rewards & Loy­alty Pro­grams - Loy­alty pro­grams are struc­tured mar­ket­ing efforts that encour­age and reward buy­ing behav­iour in the LBS world. TopGuest.com and Shop­kick are two mod­els that have added an impor­tant rewards fea­ture to max­i­mize user value.

Read more about the Pepsi-Co expe­ri­ence here: Pepsi rolls out multifaceted LBS mobile loyalty initiatives.

5) Location-Based Analytics - It is impos­si­ble to even talk about location-based mar­ket­ing, or to enhance per­for­mance, with­out hav­ing a clear strat­egy and the right tools to fol­low per­for­mance per location.

6) Trans­ac­tions (NFC chips) - Trans­ac­tions — this is the most promis­ing ele­ment of an LBS strat­egy and is some­thing banks and credit card com­pa­nies should famil­iar­ize them­selves with. Trans­ac­tions are avail­able today as a result of the NFC chips Google imple­mented in Gin­ger­bread Phones and Apple in the iPhone 5.

 

Wikipedia defines NFC as: “A set of short-range wire­less tech­nolo­gies, typ­i­cally requir­ing a dis­tance of 4cm or less. NFC oper­ates at 13.56 MHz and at rates rang­ing from 106 kbit/s to 848 kbit/s. NFC com­mu­ni­ca­tion always involves an ini­tia­tor and a tar­get: the ini­tia­tor actively gen­er­ates an RF field that can power a pas­sive tar­get. This enables NFC tar­gets to take very sim­ple form fac­tors such as tags, stick­ers, key fobs, or cards that do not require bat­ter­ies. NFC peer-to-peer com­mu­ni­ca­tion is also pos­si­ble, where both devices are pow­ered.” Learn more at wikipedia.

An important point that this article missed is that location-based services have a huge adoption issue especially among females (men outnumber females 2-to-1).  According to a recent PEW report, only 17% of all internet consumers use LBS services, and most of them are not using those services regularly.  As mentioned, privacy remains a major concern among consumers, but the conumdrum of LBS services is that they are intrusive and require information about our consumer behaviors in order to work.    

I have often referred to LBS check-in services (in particular), as "social networking on steroids", and I have theorized that LBS will never reach mainstream adoption because consumer's simply do not want that level of intrusion and tracking into their personal lives and buying habits. Consumer's simply cannot conduct their daily lives being served one deal or special after another. There are even some LBS services that will walk you through a store to find an item. That's simply crazy.  

Research shows that 67% of purchasing decisions are made at the point-of-sale, when the consumer is in the store, which is why I believe that Shopkick, a zone-based LBS service that awards "kickbucks" (that accumulate and can be redeemed for merchandise) simply for entering a shopping mall or merchants store or scanning the barcode for an item, is a better solution. Shopkick tracks all my merchant store visits and kickbucks earned automatically, and once I have earned enough kickbucks, can redeem them for real merchandise while I am at the store.   Shopkick is clean, non-itrusive and everything goes on behind the scene.  The chances of being tracked by others are nil, since the technology used by Shopkick is nothing like LBS check-in services like foursquare or Facebook Places, that will notify others in your LBS network where you are and what you bought. Personally, I really don't care to know if you just had a cup of coffee at Starbucks. 

I have no doubt that LBS will become an integral part of our lives, and is already quite useful and informative. LBS tracking is used by mapping services, provides driving instructions, used by tourist, travel and weather services, to name a few.  

Courtesy of an article June 8, 2011 appearing in Gigaom and an article by Mohamed Kahlain dated April 8, 2011 appearing in The Results People