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Summary:

There’s no question location-based services such as Foursquare and Gowalla are hot properties, with Foursquare reportedly the subject of multiple acquisition offers, including one from Yahoo estimated at $100 million. But are these services really standalone businesses, or are they features that belong inside other businesses?

If there was any doubt that location-based services such as Foursquare, Gowalla and Hot Potato are the next hot web thing, the South by Southwest Interactive conference in Austin in March hammered the point home (Om has called 2010 “the year of location”). The annual gathering of technology geeks was the site of thousands of “check-ins” from different venues, and the emergence of “flash mobs” as all the attendees saw crowds forming at various spots and rushed to join them. Watching a time-lapse visualization of those check-ins is like watching the outbreak of a virus on a medical show, or the firing of synapses in a brain.

Foursquare has gotten the most attention of all the location-based mobile applications, with Gowalla and Brightkite taking second and third place, although Hot Potato is coming up in popularity quickly. In part, Foursquare’s profile is a result of having attracted the most users — it recently hit one million users, a number that doubled in less than three weeks, and it only launched a year ago. There have been unconfirmed reports recently that some Internet giants are looking to acquire the startup: one rumor has Yahoo looking to pay as much as $100 million for the company.

So there’s no question that such services are popular — but are they a business, or are they just a feature that belongs inside another business or service? And if they are a business on their own, how do they make money? I’ve explored these questions and more in a report for GigaOM Pro (subscription required), looking at the major players and their prospects. At the moment, none of them are likely generating much revenue, since they are focused on building out their user base, but several have signed deals with media companies and other partners. Foursquare has done deals with services such as Zagat, the travel guide company, as well as several entertainment companies including HBO and Warner Brothers — and recently formed a partnership with the Wall Street Journal.

Meanwhile, two of the giants of social networking — Twitter and Facebook — are also busy integrating location into their networks and services. Twitter has implemented geo-tagging of tweets, partly by buying MixerLabs for its geolocation API, and Facebook is widely expected to launch some form of location-based features (although it didn’t do so at its f8 conference, as some anticipated).

As Om described in a post earlier this year about location, many mobile industry insiders believe that location will eventually become a core offering of major platforms such as iPhone, Android and BlackBerry, or major web platforms such as Twitter or Facebook or Google. With that kind of integration, users will be able to use location in virtually any app — such as watching a movie and checking in with Flixster or checking in at a restaurant with your Urbanspoon app — instead of using a specific app like Foursquare or Gowalla.

For a more in-depth look at this market, see my GigaOM Pro report. We’re also discussing these issues and others at our GigaOM Bunker Session today; you can view a live stream of this exclusive event here.

Post and thumbnail photos courtesy of Flickr user Dunechaser

  1. The growth and popularity of Foursquare and Gowalla proves that they can be a standalone business with a revenue model. They have become the kleenex of location nbased services and that is why it should be able to survive as a stand alone.
    The challenge for them however is to ramp up even more and provide enhanced valsue to their user base. Getting a badge on Foursquare is fine for now but soon users will need to associate that badge with something which is tangible and of use to them.

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  6. @Sanjay, I completely agree. As of right now many location based services do not offer nearly enough value to their users. I use buzzd, which is a real-time social city guide for your mobile device. It offers one comprehensive source to see the most popular places around them based on happenings and check-ins from across multiple sources. Much more value for you when you know whats the most happening place in town!

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  8. Matt asks some really great questions in this article. I think we are beginning to see the evolution of a business model that surrounds customer value as:

    1) entertainment : enter Foursquare and SCVNGR. These services make location on your mobile fun. It’s playing a game in real time and being able to share your moves with your social network.

    2) value based incentives: some platforms are already going in this direction where users are rewarded with special discounts and value for participating in the game. Local businesses will start to see a greater draw of foot traffic if this marketing plan is executed appropriately.

    What will be very interesting to watch is how many niche industries pick up on the value of geolocation. Users will start to turn to specifically crafted applications in their decision making process, and value decisions.

    –Sean Z.
    @iamhungry

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