From conversations I had with friends and colleagues, I believe this will be the first of a series of “last parts” regarding business models for Mobile Location Based Services.
I’ll 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 models discussions reside there.
In my first post I defined the “Location Based Service concept” as the company’s effort to transform geographical positioning information into valuable and relevant data for a customer, to make a profit. The question here is: who is the customer that is willing to pay for that data?
Tim O’Reilly defines in “What is WEB 2.0” Data is the next Intel Inside and he presents a key question: Who owns the data? And I would add, What Data?
In the following Business Model the LBS service provider owns the data. I reviewed many Location Based Social Networking sites and in most cases “some kind” of lack of privacy is the base of their business model. Differently from carrier fee based pushed services (top – down), this model is based on bottom-up. The LBS provider enables a platform for people to interact for free. In this scenario the handset is usually subsidized by the carrier, interested in generating traffic. The free service is now growing in viral mode and at this point the customers should be called by their real function: “data collectors”.
The idea is to collect your customer location, and delete identifiable information (name, photo, address) but keeping the demographic (sex, age, likes, dislikes). This customer’s “Location Information” can be indeterminably retained by the LBS service provider. The data can be aggregated, and provided to interested third parties willing to pay for certain content, segmentation, information about people movement habits, and many others. Are you starting to get the picture?
Let’s figure some scenario
Location Based Social Network Raw Data
Segmentation - Location Based Social Network
The <– left figure shows the data collected in NYC in one month time. The right –> figure shows different types of segmentation of the same data. Now with the valuable data on hand, you just need to find your real customers, those ready to pay for the information. For example, a person planning to open a few coffee shops would find valuable where and when its target demographics meet and hung out. Retailers would like to know where their potential customers meet, what their usual routes are, where they stop, for how long they stop, etc.
The concept of Location Based Advertising gets now a new dimension. Most companies tried to implement on cellular networks the same advertising models used in desktop computers to discover that customers are much more resistant to receive any kind of adds in their cellular phone. Additionally, the cost of sending coupons or ads to every potential customer walking by your store makes this model almost prohibitive.
Do you remember the movie The Minority Report? Tom Cruise walked through some screens and the advertising shows up completely customized to his person. The mistake with today’s Location Based Advertising is to assume that the media used to collect your location information should be the same as the media to deliver the message back. Your cell phone is good to know where you are, not necessarily to receive ads. The second mistake is to assume the message needs to be completely personalized. The ads displayed (billboards, info kiosks, signs, etc.), can target certain population according of the demographics visiting the area.
Going back to our business model and to provide an example from real life, we can mention Google maps for mobile devices. While this is not a LBSN application it still fits the model mentioned above. Google lets customer use their Mobile Google Maps for free. Every time a customer with a GPS enabled phone (the data collectors) used the application, Google maps collected information about closest cellular towers. Today, and thanks to the help of million of free data collectors, Google can provide Location Services in their system, using the cellular tower information collected, also to customer without GPS enabled devices. LBS Developers (the customer) can use this features now, for a fee. Brilliant!
As I expected when I start writing this post, I still have many topics to talk about this issue, i.e. can companies that offer LBSN survive only on that feature or will they be swallowed by the big ones (Facebook, MySpace). Is privacy overrated? Will the marketing/advertising agencies have to add more technical/engineering people to their staff?
Be expecting more than one post a week! And please link / share / comment . THANKS!
8 Comments
Comment by Richard Pitt — December 16, 2008 @ 12:46 pm
Originally posted in response to author’s question at Linkedin.com – posted here by his request – richard
——————–
Interesting article – thanks
I’ve worked with a couple of companies that have aspired to the model of location based advertising but I found their vision far too limited as you allude to by noting that it is not necessary to show the ads on the facility that determines the location (cell phone for example)
The major problem seems to be the potential for either sharing of data or being able to “push” ads to locations that you don’t directly control.
I have met with a company here in Vancouver that is putting advertising screens in all manner of locations – running them much as you might run ads on a web portal. The locations are all either WiFi or packet cell connected – run by stripped-down laptops bonded to large (letterbox but hung vertical) LCD panels.
Their distribution model could be molded in the fashion you describe but we still have to have the technology to identify people; not personal info but tracking-individual type info (I don’t know who you are but I’ve seen you in these locations over the past month/year) which today means watching for bluetooth or cell ids – and in the future may mean watching for the RFID tags on passports/drivers licenses/underwear, etc. (yes, I’m paranoid about that but until it is outlawed it is still a possibility.)
The cost for fairly complex embedded, networked systems is down to the point where the business model makes sense – it is the controlling infrastructure and a bit of R&D to bond the available technologies together that is all that is necessary. I have on my desk a “Internet set-top box” that runs Linux, shows Hi-def TV and costs less than $100.
Comment by Dan — December 16, 2008 @ 1:51 pm
No doubt LBS will be big but most of it in its current form hasn’t really asked consumers what they want to experience. One of the core problems with why the advertising industry is still sorta failing today in the eyes of the consumer, we really don’t want you around when don’t want you around, and when we do want you around, meh you’re not so bad.
So LBS comes knocking on my door, I like aspects of it. I like a smarter phone. I like the idea that I could find stuff near me, WHEN i’m interested. I like that I have control. LBS is key on control, if LBS violates control the deal is off and your service will be kicked to the curb. And there will be soooo may competitors hot on your heels hoping you’ll do just that.
The next wave will be the allure of the opt in experience, the devils gateway so to speak, you’ll opt in for banner ads at every turn to do X on your amazing device. Yes and no, but likely a yes for some folks.
I think the biggest thing that gets me about LBS right now is that its all new frontier and its not really even asking consumers what they want to do. The LBS opportunity is alot like early web 2.0 thinking, you can do it now, you can mashup this tech idea with that tech idea and create x new service or new ability, its like awesome, you can build this and the phone could do that, all the while you still haven’t asked what the heck the customer many really want. And the kicker is, they may not be able to tell you just yet, cause its new. That for me if I was an investor is a bit of a crapshoot. Sure you could make flying dolphins, and they could be a huge hit, and yes there’s alot of “could bes” in this statement, but it could work out in your favor, you could be on to something, it could be pretty could, but what it will be for sure for the first few years of it, will be a crap shoot.
Before ya know we’ll bombard the crap out of the consumer with conflicting data serving apps, all cant wait to make your phone go off like a flare when you near a mall. SALE SALE SALE, and folks will be headed closer to platforms where they have that control.
Comment by Jose A. Jimenez-Holgado — December 17, 2008 @ 3:31 am
My view on this is quite simple:
- Operators may provide:
a) possibly, some kind of “location technology” (complementary/backup positioning technologies -such as network-based cell-id, etc.-), at least until “GPS terminals” are widespread
b) some degree of “control” over users’ terminals (often subsidized by operators), thus controlling the environment on which the applications/services are deployed (and preinstalled)…
c) maybe… just maybe… they will host and operate the service platforms (maybe co-hosted/”revenue share” scheme)
d) of course, the connection capabilities (the network)
- third parties will provide:
a) CONTENT (very likely). This would include commercial data (eg: Yell, Google, Microsoft, etc.)
b) the application itself (development, …) (possibly)
c) the GIS platform, data and algorithms (reverse look-up, routes, etc.) (possibly; maybe subcontracted to GIS-specific companies)
A very likely scenario would be a deal between carrier and content/service provider, although the operator could appear as service provider to the end user.
Of course, some actors (Google, Nokia/Navteq, Microsoft?..) will try to aggregate everything and go for vertical business models taking control of the whole value chain… Current technology (limited base of GPS-phones, etc.) may impede (or simply delay) LBS being deployed without agreement with carriers
Comment by Hamza — December 21, 2008 @ 8:22 am
Hi
Thanks a lot for sharing your thoughts with the rest of the world. I find your entries extremely useful since I’m working on a bachelor thesis that is about the same subject.
I think selling collected data might be a good business model, if you can aggregate a big user base like Google did with Google-Maps. But the model doesn’t work for companies that have a smaller user base.
To create a LBS-Business Model for “everybody” I think we have to consider to things:
First, the user is willing to pay for a service on his mobile phone, because he’s used to do so (at least for some time from now on).
Second, the user would not accept ads on his mobile phone. At least everybody I talked to didn’t.
So the only business model that I see right now and that would work for every LBS App would be the Freemium. Of course only if the application provides a value to the user.
But I’m at the beginning of may thesis journey. Maybe I will be smarter at the end
cheers
Hamza
Comment by Marcello — December 29, 2008 @ 4:56 pm
As a co-founder of bluemapia, I believe generalist social networking is not enough when you move into location-based services. There is a big space for those who will be able to aggregate vertical communities and provide social networking around geo-contents. The community of sailors, bikers, riders, surfers, geologists, skiers, travelers. Real life geo-communities. It will be more fragmented and will require a mix of user generated geo-contents and editorial contents to successfully aggregate people. Also, vertical communities are better for location-based ads and premium services.
Comment by robin — December 29, 2008 @ 10:18 pm
way to go!
for LBS, privacy is one big issue that needs to be resolve. operators will be afraid to lose subscribers if LBS irks them as privacy is infringed. also, if too much ads are relayed to the subscriber, this will be a turn off too.
Comment by Claudio Schapsis — December 29, 2008 @ 11:42 pm
Marcello,
. On the other hand, and keeping the focus in a vertical application, we need to be careful of not limiting the scope of those social networks to “outdoor activities” only. Location Based Social Networks will be created for many other purposes other than socializing, of sharing geo-content. In many cases the location will be the content (see the example in my last post).
Thanks for your comment. This is a really valid point I was trying to convey when I mentioned the need of a distinctive value proposition or main differentiators from the others networks.
Your site is an excellent example of identifying a unique segment and building a social network around a vertical market – a good “Blue Ocean Strategy” application
In any case I agree that having a captive and segmented audience is the dream of every marketing executive, and will pave the way to successful Location Based Advertising and Targeted services.
Nice work!
Claudio
Pingback by Two events in the LBS industry I’ll attend and why you can’t miss them | Location Based Services - Business Only — September 11, 2009 @ 2:09 pm
[...] Sounds simple; but when approaching the LBS market and trying to understand the dynamics of its Value Chain the troubles begin. Many companies are getting this right and are already making profits. Others [...]
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