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Summary:

Though they’re still emerging, location-based services are expected to bring in $10 billion in revenue from consumers and advertisers by 2016, according to research firm Strategy Analytics. The biggest chunk, just over 50 percent, will come from location-based search advertising.

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Location-based services are expected to bring in $10 billion in revenue by 2016, according to research firm Strategy Analytics. 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 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 early days 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 what a 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.

  1. There is more than just advertising in this space. Here at Explorer.io, we’re tapping into data sets and delivering analytics back to retailers that fill in the gap. I think there are still lots of location-based services that could feed large amounts of new data into the market.

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    1. Thanks for the comment. Cool stuff. You’re right, lot of interesting ways to use location data.

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  2. Brian-TeleNav Friday, June 10, 2011

    LBS is definitely growing and it will continue. Location seems to be the most relevant part of what’s happening these days because besides the “who” and “what” – “where” is the next most important piece of the puzzle and advertisers, businesses and social networking alike have realized that.

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  3. I think we’ll reach the $5B advertising number by harvesting the traditional LBS axes and drawing a few new ones. Today’s ripening revenue streams are geofence triggered advertising (ala Placecast), LBS game triggered advertising (ala MyTown) and utility based sponsorship (ala GeoQons). We’re drafting a new axes in the micro-location space and are excited to see what other axes pop up over the next five years. What other axes are up for expansion?

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  4. There is a growing opportunity for advertisers to engage and understand consumers by customizing ads to the individual consumer based on not just their location but other cues. Customization based on a consumer’s social graph is becoming increasingly easy. Location is a very powerful and critical signal but the most meaningful ads will leverage other signals to deliver relevant content.

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  5. You do get the feeling that we are all only scratching at the surface of what can be done in this space. It feels like actual mobile was a couple of years ago. Sure you could go online etc but using maps and browsing the web etc was impossible for a user until Apple came along with the iPhone. I think we are just at that stage where LBS are cool and useful to some but they haven’t quite hitting that tipping point yet. They will though and interesting to see these numbers.

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