Lowenstein: What's next for location-based services?

We are at an important fork in the road with respect to location-based services. LBS has been in our nomenclature for about ten years, even before GPS capabilities were in phones. But we have reached a tipping point recently. The majority of devices being shipped are GPS-capable; vehicle-based and portable navigation devices are closing in on mass market penetration; and a wave of exciting and innovative applications leveraging location is available from the various mobile "app stores."  The wireless industry has been investing in this area big-time, from Nokia's acquisition of Navteq a little over a year ago to Ericsson's recent deal with Networks in Motion and Google's launch of the Latitude service. 

At the same time, location services have proven difficult to monetize. Only about 10 million customers in North America pay a monthly subscription fee for a distinct location-based service, such as Verizon Navigator or AT&T Navigator, the WHERE Widget platform, friend finder, or Loopt. The venture capital community, with whom I work closely, believes location is one of the "next big things" in wireless but has been frustrated by the apparent lack of good investment opportunities in this area. 

What's the next stage? Starting from a glass half-empty perspective, I am not optimistic that there is a large market for subscription-based LBS. To begin with, the growing number of portable and vehicle-based GPS devices compete directly with the services being offered by wireless operators, as are the myriad free navigation services that smartphone users can download.  Beyond navigation, I have not seen any "killer location app" that I believe has the potential for mass-market adoption. Rather, location is a capability that will be woven into a large family of potential applications and services.  I also believe, as a general trend, that the mobile data pricing model is moving away from subscriptions for particular applications to a combination of flat-rate data plan subscription and premium app downloads involving a one-time, rather than a recurring, payment.

That said, I believe there are four primary ways in which location services can be monetized going forward. First, the "app store world" is quickly dividing into free and paid-for ("premium") apps, much like the cable industry's free/pay-per-view model for on-demand services.  There is a lot of potential to develop premium applications and services that, while not based exclusively on location, certainly leverage that capability, as we are seeing today with a number of top-selling iPhone apps. 

Second, location will, over time, become in important element of the "mobile" version of two large areas of market opportunity:  advertising and social networking. With respect to mobile advertising, we can certainly envision higher CPMs for ads that tap into or contextualize the user's location.  I think there will be a fair bit of experimentation around this concept in 2009. On social networking, location is clearly an integral part of the mobile roadmap of MySpace, Facebook and others.  

Third, location is a key asset in wireless operators' place in the mobile ecosystem. Mobile search is an excellent example, as operators have the potential to work closely with their search partners to deliver a highly branded, compelling and value-added experience. Owning the customer relationship, also gives operators the opportunity to be the responsible "broker" of who shares what information with whom.

Finally, I believe there is an untapped opportunity to effectively distill and package information about where customers are and where they go. Of course this would have to be permission-based, but location information can be a significant market research and segmentation tool that multiple parties--brands, media, and so on--would be willing to pay for. I can envision a world where customers are given various incentives (depending on the granularity) to allow their location information to be shared, as long as the proper safeguards are in place. 

This last point leads to one more area we need to consider: consumer education. I am not sure that consumers are all that aware of the two sides of the location coin: how location can enable new applications and improve the experience of things they do with their phone every day; and conversely, the potential implications of this information being shared. If it can be demonstrated that location information enables higher CPMs, click-through rates, and so on, consumers have an important bargaining chip that they might use in some way. 

Mark Lowenstein, a leading industry analyst, consultant, and commentator, is managing director of Mobile Ecosystem.  Click here to subscribe to his free Lens on Wireless monthly newsletter.

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