INTRODUCTION:
For a few months I’ve been writing about Location Based Services business models and how to monetize LBS applications, particularly in the newest area of Location Based Social Networks.
I invited a few companies to share their vision and show how they approach this market. I would say it takes leadership and real confidence in your business to open your company strategy for others to learn. It is not surprising that the first company to accept this challenge was GyPSii. They were recently awarded a core patent in mobile social networking, but GyPSii goes beyond the mobile social networking platform, it is a mobile digital lifestyle application.
I had the privilege to share some time with Shane Lennon, GyPSii’s SVP Market Development (Thank you again!). The result of our conversation is summarized in the following text. In my next post I’ll evaluate the interview, add the full interview on podcast, and comment about their market / business approach. In the mean time please leave YOUR comments

Q: Can you please give me a few words about GyPSii, how it started and your perspective of the company?

GyPSii is a global company, unusual for a start-up. The founders are based in Amsterdam. They had a mobile lifestyle vision that’s more than an LBS vision: “I want to capture my world; I want to be able to share with others”. On the technical level, it translates to creating a searchable mobile index of user-generated content based on the actual world. This is different from what you see on Internet today, which is built by companies, indexed on search engines, and driven more from their perspective and less from that of the user.

We wanted to make it easy to capture what we do in the real world, therefore most of that is text or image based with added contextual information, such as location. That creates context around the user experience. That was the main vision for GyPSii.

During the last year and a half, we focused on a broad strategy: “let’s build a good application that can run on several different devices, but let’s work very closely with people in the ecosystem, particularly with the device manufacturers.” We felt that the adoption and conversion of mobile, location-based applications really needed to be embedded in phones. Then we focused during the last six months on aligning our products while manufacturing bring their devices to market.

“…Some kind of location technology will be standard in every phone whether it is built-in or via a back-end server-based…”

One of the things that is happening to accelerate the market is that the low-end cell phones seem to be disappearing; the mid-end has become the new low-end, and smartphone capabilities are pretty much available in every phone. Some kind of location technology will be standard in every phone whether it is built-in or via a back-end server-based. System Maps will be there, coming free from Nokia and Google. The mobile interfaces are improving, although they still have a long way to go.

We are new starting a promotional phase on building a user base. We see social networking as a tool. If you need to grab location to tie to content, for whatever use in the consumer market, you can get it through the cell ID databases. Traditionally, LBS infrastructure has become commoditized from the consumer market point of view and it is not a necessity to be targeted to GPS chip resolution. Navigation and business-based applications need higher accuracy and there is still a huge market for LBS in that area.

We provide a platform that allows us to build other clients through an API. We provide a “platform as a service” (GyPSii OEx product). The user manages all the content and leveraging the social networking and LBS-based services, integrating their experiences through a single application in their cell phones.

Q: I had the opportunity to list almost 100 location-based services that are social networks. From the customer perspective, what makes GyPSii difference? How does GyPSii stand out from the other social networks with LBS?

Most of what I’ve seen, which are so-called social networks, have evolved in most cases from “friend finders”. The concept was “where’s my friend?”, “Here I am”, “Where I’m going”. To me that’s a very point-based application, it’s not something that’s going to encourage people to contribute, comment and use the application on a nearly daily basis.

We are focused on what users want and in providing user content generation capabilities; the ability to make it easier to create content whether it has to do with video, pictures, putting text or changing your status, actually creating a continuous conversation. We’re integrating user generated content tools with social networking tools – including the capability to add a location context. And yes, if I do want to locate a friend that’s great, I can see them. But that’s a small feature with us.

Q: It would be fair to say that GyPSii is a mobile social network where location is another feature between all the features you offer.

“…making it easy to create and share content…there is a location context to the content… We index that information in a searchable database…That has a much greater value than a traditional search…”

Yes. We actually call it a mobile lifestyle application focused on making it easy to create and share content; facilitating to connect with others in order to share that data or basically to send messages to each other. Of course there is a location context to the content. We also index that information in a searchable database. That’s a user generated searchable index, so depending on your privacy settings people can grab and see what you recommend, the restaurants that you suggest, etc. That has a much greater value than a traditional search, which is always paid for by a third-party. The ability to explore and discover that content is critical as well.

Q: I’ve seen many applications that build their business model based on the premise that they will deliver mobile ads. I don’t see many people willing to receive ads on their cellular phone. Can you comment about GyPSii’s business model?

We have moved beyond the early stage to a market evolving fast (with estimates at $2BN/$3BN in 08) rapidly growing to $10BN plus in the next couple of years. There is a challenge in the industry based on today’s SMS or WAP experiences. Usually the ad is not relevant, has no context to you, is probably an intrusion, and cost you money. On the WAP one it’s just a banner. Even for the marketing person spending money, it’s not accurate, it’s not a captivate read and call for action, and it’s hard to track. If you look at applications like us, when you sign in into our application we actually start to build a profile. We use that algorithm to help serve relevant content, user generated content – to our user base. We also use that algorithm to deliver relevant advertising. We have found that consumers using this kind of application are open to receive advertising if it’s relevant and has context. I think that’s the challenge.

“…We are monetising this via advertising models… We have found that consumers using this kind of application are open to receive advertising if it’s relevant and has context. I think that’s the challenge…”

Companies like us differentiate because of that profiling. For example, we can deliver an aggregated profile of 20,000 students in Shanghai between 21-24 years old that are usually outdoors. 10,000 of them are going out at night, and 10,000 are female doing lot of shopping fashion style. This has real value for marketing people and they are really interested in that.

On the other hand, you have to be careful to serve the advertising in such a way that is not intrusive. We are very careful to serve advertising coming back in a search result that is always related to your search content or refers to other things that are nearby and that are commercial. That is the critic differentiation for both the consumer and the advertiser.

We are in the very early stages of this market.

Q: From the business model perspective, does GyPSii have any contingency plan in case mobile ads don’t work?

Because we have a platform approach, we also have a licensing revenue stream coming from major device manufactures and major brands as they integrate our capabilities into their portals. It’s a combination of software as service revenue.

“..Advertising is going to be a big part of interactive, and lots of mistakes will be made… We’re trying this carefully…”

Advertising is going to be a big part of interactive, and lots of mistakes will be made. We are different. From our testing with marketing people, what we have done with consumers has a minimum negative impact if at all. We’re trying this carefully.

Q: What are the reasons that are stalling consumers to sign up to this type of service?

In China it’s actually the counter of that. They are signing up at a ferocious rate and we’ve just starting a promotion campaign. We have seen multiple spikes on a daily basis. There are networks in China going from 1 to 10,000,000 users in the space of 12 months. One factor to mention is that 80% of these consumers gets to the Internet through their mobile device. They don’t have a PC access or laptops.

“…What is still holding back consumers in the West is a clunky user experience…It all comes down to providing phones that allow application providers to build good simple apps, and apps that can be used on a daily basis…”

What is still holding back consumers in the West is a clunky user experience. Social networking is three times more active on iPhone than any other device. It all comes down to providing phones that allow application providers to build good simple apps, and apps that can be used on a daily basis. I think that’s what the Western market needs in order to catch up.

We are seeing a rapid growth in social networking on the mobile. I think people need to remember that it took Facebook four years to get to the 20-30 million.

Q: What do you think is the barrier entry to this market? Let’s say Facebook is going mobile, how is a company like yours building high barriers to avoid those companies from coming to your market?

Companies like ours are providing an added value service that allow the operators and device manufacturers to share revenue. Currently I’m not aware about any ad revenue share in place to use with FaceBook or Google. On the consumer side, Facebook is pushing a web experience down to the mobile device, but in this case for the consumer every device looks different. So yes, it’s great to check twice a day on your Facebook and see what happened through the day. But if you want to turn it to something that is more real-time I don’t think Facebook has got it there. We watch them closely because they are future competition.

Moreover, Facebook is not picking up in many countries. For example, in Holland they have no penetration whatsoever. Their penetration in China is minimum, same as Google. I think it comes down to that these countries are mobile first.

There is room for several players out there, companies like us that fit into the mobile use case, and to some of the traditional social networks that are trying to push the web experience into cellular phones.

“…I think there will be room for different companies and consolidation is still some long way off…”

I think there will be room for different companies and consolidation is still some long way off.

Q: If we talk about consolidation, who do you think will prevail in this market, and I’m not speaking about names, but what characteristics will have that company?

The market is going to break in a couple of key areas. People need to differentiate between search, “frienders” and directory vendors. There is a crossover going on in Social Networking. There will be one or two dominant search players, and we can guess who the dominant come to be in search. There will be one or two very good directory players who are more likely to be the traditional companies like Yellow Pages that will catch up with companies like yahoo.

In the social networking side there will be two types. There will be regional players and there will be a combination of global players. We fit into the global players. I see that some major players like Facebook will be in there too.

“…The characteristic that is the key is, “Is it contextual to what I do on the move during the day?” Do I need to sit down to view what happen … in the past? … Or is it more interesting to see where I’m going?…”

The characteristic that is the key is, “Is it contextual to what I do on the move during the day?” Do I need to sit down to view what happen on my feeds on Facebook what actually happened in the past? Is this really interesting me? Or is it more interesting to see where I’m going?

Q: The consumers that buy the iPhone have particular characteristics, willing to use all kinds of apps. From your experience, is there any segmentation in the people using location based social networks? Do you identify certain vertical markets?

You have the tracking and navigation apps and the ones that are information-based, like directory/search companies.

A third category is the lifestyle applications with companies like GyPSii, other social networks and friend finders. We see some niche players like dating apps in certain groups.

We certainly see some trends in a very basic demographic breakout: there is probably a group under 20 years old, a group that is between 20 to 30-32 years of age, and the group that is between 30 and 40 now expanding to 45, that are actually the people active in social networks in web and are reaching out to mobile. I’ve just seen some trends that messaging – whether it’s via Facebook, GyPSii messaging or SMS and similar applications – is starting to surpass email. If people get comfortable with daily messaging in their mobile device that will be a major tipping point for applications in general in mobile.

Q: What are the opportunities in this market? What is the big opportunity? How is your company approaching this opportunity?

The opportunity is in creating a tool that is basically about you and your community with the capability of tunnelling the content that is created and is valuable to that community. The capacity to have like-minded people with interesting hobbies actually able to capture the world, and basic searching indexing is critical. Companies that can create an index of searchable content can be very successful applying it to the advertising model. If you can’t make that index, which is made of profiles and content, it will be very difficult to be successful in advertising.

“…The opportunity is in creating a tool that is basically about you and your community with the capability of tunnelling the content that is created and is valuable to that community…”

For “Friend-Finder” only, I don’t see how you can reach above a certain minimum. From what I understand, every friend finder has a tipping point of around 200,000 users in each region. From what I’ve seen early adopters only. Companies that can’t attract the early adopters will struggle in the long term to generate revenues and survive.

People need to listen to the consumer. I hear from many in the value chain “We own the customer”. First of all, the one thing that the Internet did is “The customer owns the customer, nobody else does”. In some meetings people tell me “We are the operator, we own the customer”. AT&T and APPLE – who do you, think own that customer? APPLE does.

I think the reasons why new brands, the digital brands on the web and mobile, are successful is because they continuously innovate based on customer feedback. The ones that don’t innovate, like Friendster for example (because the CEO didn’t like some of the feedback it wouldn’t make the changes), they are the ones running into trouble. We are proud of our application but we are also the first to say we need to improve it based on customer feedback. We can iterate fast. We add features to our web and iPhone version every other couple of weeks based on feedback. That is quite difficult for other traditional players and I do think that the market will change; as a first generation Internet person, it‘s starting to mimic the value chain a little like what happen in the Internet.

Q: Is there anything that I didn’t ask and you would like to add?

“…you need to keep the open APIs. You need to encourage more applications to be built for free, because it’s a commodity for the consumer market…”

I would say to the infrastructure people in the LBS industry – you need to keep the open APIs. You need to encourage more applications to be built for free, because it’s a commodity for the consumer market. I know it has been ten years that required a lot of investment. But for the people who make location available, revenues will come about only if you have more applications built for consumers and business people.

Bucley Brinkman

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Peter Kemp

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Jonathan Paisner

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Mike Wittenstein

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