As I mentioned in my previous post, the main components in this chain are the LBS service provider or developer (LBS APP), the data carrier (a mobile operator like T-Mobile, AT&T, etc), and the customer. We can identify 3 basic types of relationships.
In the first one the LBS APP provides an application to the carrier and the carrier provides the service to their customers for a fee – or free of charge to encourage the use of data services. For example companies like Loopt are offering their LBS social networking services through carriers like Verizon Wireless, applications like Autodesk family finder, and others.
Location Based Services Value Chain 1
The main challenge for the LBS APP is to find one of the mobile operators willing to buy and offer the application through their network. Once the service is running, all the promotion, billing and collection is performed by the mobile operator. The LBS APP revenues can be smaller but the risks are reduced as the investment in infrastructure and operations are minimal. On the other hand, the ownership of the customer usually remains with the mobile operator, minimizing the LBS APP possibility to up-sale other products.
On the second scenario the customer pays a fee directly to the LBS APP and they take care of the costs of the wireless service fees. For example companies like ID Conex, Zoombak, Laipac, and other Personal Locator Devices have the customer pay directly to the company.
Location Based Services Value Chain 2
In this case the LBS APP carries most of the obligations, liabilities and risks. They need to develop, promote and market their products, maintain the logistics (delivery, billing, collection, customer support, etc), and create a communication infrastructure that allows them provide the service. If the LBS APP succeeds to establish a large and stable customer base, the business receives a recursive cash flow for the life of the product or the subscription and the company keeps the customers’ ownership.
The third scenario is based on web 2.0 paradigms. The customer pays the cellular carriers for the internet access. The LBS APP offers a free product/service with the vision of creating some collective user value. Most LBS social networks work under this business model.
Location Based Services Value Chain 3
The LBS APP enables a service through internet connection (fixed and or mobile) assuming the customers already have a data plan with their mobile operator. The service is usually mobile operator agnostic, and the LBS APP needs to invest in basic infrastructure and development/maintenance of the application. As the service is free of charge, the LBS APP is investing towards the future value of the network and the information generated by the users such as people’s locations, movement habits, etc. – just figure out what are they going to do with the information collected about your location.
The story doesn’t end here as there are many other factors to consider in the costs. These include among others M2M communication providers, maps providers, and interface to maps developers, who do care about their profits.
In part 2 and 3, I’ll elaborate on the extended Value Chain and Location Based Services models based on Web 2.0 strategies and their specific value chain.
As usual YOUR COMMENTS ARE WELCOMED.
10 Comments
Comment by Steve Harrop — November 28, 2008 @ 12:48 pm
This is probably a facet of the US market (or perhaps in part 2/3), but I’m surprised that you do not identify a “mobile aggregator” in these value-chain scenario’s. Not many LBS application developers in the UK would consider coding to a specific operator’s LBS service, they would instead code to (and have the billing relationship with) an aggregator, and let them deal with the back-end OpCo specific LBS-API’s. This way their app can address the UK market across all operators, if not pan-European (eg: Mobile Commerce).
Steve Harrop
—
Vodafone UK
Comment by Claudio Schapsis — November 28, 2008 @ 1:02 pm
Hi Steve,
You are certainly right!
You took the words right of my keyboard, for I was just finishing part 2 where I extend the value chain to other components including the M2M providers. (and maps, maps APIs, etc)
Thank you for your comment!!!!!
Pingback by Location Based Services Value Chain - Part 2 | Location Based Services Unveiled — November 28, 2008 @ 2:41 pm
[...] you read PART 1? I’ll strongly recommend reading part 1 [...]
Comment by thomas — December 4, 2008 @ 6:06 am
Your definition of M2M is interesting and quite different from the usual one. M2M is usually the overall name for the monitoring industry, from pet to machinery. Here M2M is define as MVNO (mobile Virtual Network Operator), the connectivity aggregators. Although Jasper hates me calling them an MVNO…;-) Still it make sense.
However, looking at the value chain 2, you suggest the App Dev pays the operator. I can’t think of an example when that happens. In most case the connectivity is paid by the customer (sometimes you have telematics service provider that will resell connectivity, but it’s a dangerous model)
What you do have is Appdev using location aggregators (LocAid, Ulocate…). In the US location is mostly owned by the network, so in this case, yes the AppDev is paying the network, but again through an aggregator…
Comment by Claudio Schapsis — December 4, 2008 @ 7:21 pm
I agree with you in some degree. I wanted to show the complete value chain and where the money is going (directly or indirectly) – to understand the possible business models.
In any case, I wonder how WiMAX open access networks will change these models.
Thank you!
Comment by Greg Peckham — December 5, 2008 @ 1:59 pm
Ok- I realize now I am talking to the BIG BRAINS, or at lease embarking on communications with some tech-speak beyond my pay grade. However, in layman’s terms, how does someone, someproduct, somecompany, use the information you are providing to build a busines? Can one just provide a service through a network and hope the subscribers want it? How does one initiate an income stream through LBS App provider? Now my brain needs a rest. Kind Regards Greg
Comment by Peter Braun — December 8, 2008 @ 8:34 pm
You forgot to mention device manufacturers as part a critical part of the value chain. Mobile phones and PNDs are the integral and critical part of the LBS chain. Similarly to carriers, they can limit what an app can do, limit / enable access to vital info (e.g. location) and have been trying to expand through the value chain into applications and data. Most of the applications live or die by decisions of device manufacturers – see the control that Apple (and others) exercise over which apps will be available to consumers via application stores and other methods. Even pure web-based applications like http://www.GeoSpot.com are dependent on browser capabilities / limitations though that is becoming less of a problem with new smart devices coming to the market now.
Comment by Claudio Schapsis — December 8, 2008 @ 10:17 pm
Peter,
I completely agree with you. Please note that in part 2 I mentioned (briefly) the devices and stated this is a huge topic to be summarized in a few sentences. I intend to devote a full post to this. I’ll cover typical handset challenges i.e. many different operating systems, and considerations about PND i.e. PTCRB – Voice – Message Structure – Geofencing definitions etc.
I’ll keep you posted. THANKS!!
Pingback by Business Models for Location Based Social Networking | Location Based Services Unveiled — December 15, 2008 @ 9:57 am
[...] assume through this post that you have read the preceding articles (LBS Marketing Concept / Value Chain 1 / Value Chain 2 / Location Based Social Networks 2.5) as many of the keys for further business [...]
Pingback by Location Based Services Value Chain - Part 2 | Georillas 800 LBS Marketing — August 24, 2011 @ 7:08 pm
[...] you read PART 1? I’ll strongly recommend reading part 1 [...]
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