The value of Location

Location will open the door to a new level of hyper-targeting. Not only can I target customers who answer to a certain demographic profile, but I can do it based on their location, and I can predict their behavior based on past locations. I can be confident in sending an invitation to a football fan who is close to a sports bar, because I know he likes sports, there is a game and he is not at the stadium. I’ll also extend that invitation to the usual friends he meets on game days. Everyone wins — My users enjoy the opportunity to meet in a place and receive a discount; my customer (the bar) will pay me for having my users coming to their establishment.
Location can make money, but it also costs money. Companies that collect location information will need to figure out how to access, collect and provision location data, as well as put systems in place that secure users’ location and identity and provide them with a clear understanding on how their location is used.

But, who is the customer?

For the last two years I’ve been following the rise, shine and in some cases the fall of many location-based social networks (LBSNs). Last year, at the Metaplaces conference, I had the opportunity to speak to an important panel featuring people from leading companies in the LBSN market. I asked them “Is location a feature or you can build a full concept around it? What is the difference between your social network and Facebook plus location?” The general answer I received was that location is an enabler, and that it should be used to provide some compelling value to the customer.
When I build a business model around an intangible technological concept such as a LBSN, my first question is: Who is your USER and who is your CUSTOMER? Usually they are not the same person. A user is a person who will engage your company service because they receive some value back. This value can be manifested in different ways: fun, information, socialization, discovery, access to content, augmented reality, etc. Bottom line, the user is looking for an enhanced experience. A customer is a person who provides you with income.
Sometimes the user and the customer are the same person, and “subscription fees” are the usual business model. That is the case of many family and friend finders sold by mobile operators. There are also “freemium” services, where users can access a subset of features for free but they need to pay for full site functionality. This is common in dating sites.
But models where users become customers are seldom found. Mainstream social networks are providing full site functionality for free and therefore their users are NOT their customers. In this case, the business model is different because we need to find a compelling value for users to continue to utilize your services and find customers who will pay for it. But what is it they will pay for?

“…At this point the users should be called by their real function — “data collectors” or “content generators.” The real value of the social network resides in the data users can generate and in the ability of the company to monetize it, and in the case of LBSN, the idea is to monetize the user’s current location…”

Human Mobile Probes

When LBSNs enable a platform for people to interact for free, they need to find out who is going to pay the bills. There are companies betting on location-based advertising models. There are many question raised here:

• Who has access to and control of the location information?
• Who is servicing the ads?
• Who has the relationship with the advertisers?
• Do I need to give the user the capability to opt-out?

At this point the users should be called by their real function — “data collectors” or “content generators.” The real value of the social network resides in the data users can generate and in the ability of the company to monetize it, and in the case of LBSN, the idea is to monetize the user’s current location.
Recently I read that Facebook will allow users to share their current location. Reading Facebook privacy policy you can see that “…When you share your location with others or add a location to something you post, we treat that like any other content you post (for example, it is subject to your privacy settings). If we offer a service that supports this type of location sharing we will present you with an opt-in choice of whether you want to participate…” Nice! But keep reading “…When you access Facebook from a computer, mobile phone… we may collect information from that device about your… location”
At the user level, you will be able to decide if you want to share your location with other users, but what is implied here is that in any case Facebook will collect your location, along with other information. Why?! To make money, of course!

Probe data for sale

Who wants to buy probe data? Every single company that understands the power of location should. You need to get used to thinking location = business = money. Let’s take Twitter+location as an example. Comcast provides customer care through its Twitter account “comcastcares”. If now I can map where complaints are coming from, I can easily visualize where the company should invest in improving its infrastructure (and their image). Extrapolate this same concept to an artist pushing a new record, a political campaign, a company measuring its advertising effectiveness by mapping its buzz according to local advertising efforts, or a PR company looking at real time mood maps and analyzing trends in specific areas. The accessibility of dynamic location information creates an invaluable tool in real time business intelligence. Can you see the monetary value for companies like Ogilvy, Arbitron, and Nielsen if they can measure in real time the effects of events? If they can give their customers the capability to make informed decisions on where to invest their PR efforts, and later measure their effectiveness?

“…when we introduce location into the social networking business, we may prove wrong the idea that friends and money don’t mix…”

Beyond the Blinders

Horses are just like people — they tend to travel in the direction they are looking. Blinders keep horses looking straight ahead, instead of looking around at their surroundings. Like horses with blinders, many companies run in the same direction of the big ones, missing a lot of opportunities outside of their vision.
In their book “Throwing Sheep in the Boardroom” Matthew Fraser and Soumitra Dutta identify three forms of interaction: personal, organizational and consumer/civic. Social networks are not only about friends, they are also about colleagues, coworkers, members of a political party and others. Many social networks are looking at the power of harnessing personal location and try to fight each other in a very crowded place – the friend space. Think about the possibilities in terms of business intelligence when introducing the concept of location to task forces and large organizations; then make an additional step forward and think in terms of the influence that location can have in other social/civic associations.

A long time ago I coined the saying, “Location-based service is the art of transforming location into money.” In business, money is not everything. It is the only thing. And when we introduce location into the social networking business, we may prove wrong the idea that friends and money don’t mix.

NOTE: This article was originally published at www.thewherebusiness.com

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.

I also found a few social networks closing or going through difficult times and struggling to survive. Then I remembered last Friday I was saddened to find one of my regular lunch places out of business. I just entered the Subway next door and had a sandwich. Today I found a “coming soon” sign at the same place.

Is there any parallel? Certainly there are LBSN for many tastes. There are gourmet types of Social Networks, others that appeal the masses, some that serve particular type of people, some are for dating, some are for business, some you need certain hardware to get in, and others that are by invitation only.

The fact is that in both cases the owners invest a considerable amount of money to get in, they dream to have fun and be unique, and in some cases they understand very little about the business model and end loosing all their savings.

That’s why I tried to contact some of the companies going through difficult times, to understand their process, check if I can help, and see if we can all learn something from their experience. I couldn’t find those willing to share their struggles yet. On the other hand, I had the opportunity to talk with two of the most successful Location Based Social Networks in the market and they shared their vision and experience. This will open a series of notes, that I hope will give some perspective for existing and planned Location Awareness Networks to be.

Not long ago I had the impression this market will soon consolidate to a handful of companies. Now I have my doubts. There is place for a diversity of LBS based networks, and they are as varied as people tastes for food. Now I’m going back to the list of LBSN and I still see much of the same flavor.

What do you have in your menu, how is your business different from the others, how do you make customers to come back, and how do you build a name in a difficult industry. (Am I talking about food or technology now?). Bottom line, there is still a huge space for good marketing work to be done. Power to the marketing department!!!

If you are around here I will invite you to a good restaurant, and we can talk about business, just give me a call or drop an email I’ll be glad to help.

On a final note I wanted to have a restaurant; in fact my friends say I cook very well. I talked with a chef friend about my plan, the environment, marketing, ideas, and he said to me “You don’t understand, the money is not on the tables, the money is in the kitchen.” Yup, I didn’t understand much about their business model…

My answer then was simple, only those with a solid revenue model and clear value proposition will last. Let’s take a first look on what makes a solid revenue model and services that have clear differentiators.

Profit is the only objective. What is the reason we create a new service or put a company together? The only answer is “TO MAKE MONEY”. Any other reason you may think or find is secondary. The source of that money is your customer. The way to get that money (legally) is by providing them goods, services, and solutions. The products and services are not the objective of the company, they exist only as the conduit to get your customers money by providing them something valuable they need and that keeps them happy.

The Business Model IS the differentiator. I may sound extreme here, but what differentiate services and makes them successful is not technology, but their business model. Take a look at the (now) 80 Location Based Social Networks on my list. I don’t believe there is much technological difference between them. Bottom line, only those that will succeed to generate revenues will survive.

Marketing, Business Dev and Sales (MBDS) are a key part of your Business Model. Review the list of LBSN and continue with the following exercise. Cut and paste the message excerpts from their websites WITHOUT the name of the company. Read the document the day after and try to identify who is who. If you are one of the owners of those companies, I dare you to pass the list through your employees and see if they can pick their own company from the list. Close your eyes and imagine taking a goldfish from the water tank and leaving it on the table. That’s your company without MBDS.

Business Models are NOT cross-market portable. Many of the LBSN base their hopes in implementing successful WEB2.0 business models, ignoring that the WEB and Mobile environments are completely different. Messaging in the WEB is free but mobile text messaging cost money. WEB mail has no charge but pushing your email to your blackberry carries its own costs. Even Voice is free over the web (skype, jaxtr, etc) but that’s far from being the reality in the mobile world. Ignoring this and other differences result on a distorted view of customer acquisition costs and wrong operational expenditures estimations that lead to “…We had an amazing and unique technology but we run out of money…”

There are other components in the framework, and each one of the elements here presented has its own subcategories, questions and connectors. Want more info? Quid pro Quo, leave some feedback of value for me and the other readers (or just pay for it). As you may see blogging has also its own business mode

I considered starting with the Fourth Amendment, even though GPS technology didn’t exist in 1791. Not entering into a legal discussion my first impression is that the emphasis here is on personal security. That’s when I remembered my first digital camera and my wife being terrified to put pictures of our kids on the web. It wasn’t about privacy, but about the reasonable expectancy of keeping our kids secure and avoiding people delving into our lives.

I believe this is the paradox of social networks in general and those based on location in particular. I want to make my information public but at the same time I want to keep the information secured (actually not the information but myself).

Looking over the other side of the table, the value of a social network resides on the information you provide. The lack of privacy is one of the pillars that sustain the business models of many, if not all, social networks. When privacy issues are raised, we usually ask what the companies are doing to protect their customers. Expecting the companies to protect your privacy is like expecting the cat to safeguard the cream; this is the fuel for their business. It’s not the companies that need to protect the information, rather YOU the customer.

I reviewed the privacy policies of more than 20 location based social networks and personal locator devices. I recommend you to do so before you start posting When and Where you are doing your What and with Whom. But if we separate the concepts of Privacy and Security, I don’t think the Location Based Social Networks companies are the problem. Technology is usually neutral, users aren’t.

Personally I don’t mind if a company, in exchange for a service, collects information about my habits, locations, and other details IF before using that information ALL personal identification is completely deleted AND is never used to sell something back to ME. The fact I’m a public person and I share information, is not an invitation to invade my space. My space is on invitation ONLY. Once we agree on this principle, we can start talking about other technological barrier and safeguard such as location acquisition and capture, location notification and accuracy, location information accessibility, location history control, location ownership, etc.

Today as in 1791 Privacy and Safety are really a concern and privacy advocates have a central role in corporate LBS

Without any doubt, the accessibility of GPS technology is leading us to new types of communities and services. People participate in a virtual world without borders; People are part of virtual societies, sometime bigger than the population of many countries. Maybe “We the People” needs to virtually govern ourselves and establish the new social conduct standards for a completely different world.

So, where do you stand?

I believe one of the most important results in a post is the readers’ comments. They enrich and bring new perspectives to the initial approach. Skipping over those comments and the exchange of ideas is like ordering a banana split and eating only the ice cream.

I would like to refer you to the readers’ contributions on my post on business models for navigation devices combined with social networking. There, new applications were exposed, a few questions remained unanswered (wireless guys, your input please), and there is an amazing exchange of observations on what is Presence Marketing – how to use it combined with Location Based Social Networks, the extension of RFID applications, and Privacy concerns (my next topic).

My remarks on CES and notes on the Privacy Factor on new business models can wait a day or two.

I encourage you to read the comments to the end and most important, leave yours.

I have nothing more to say but THANK YOU!

Press HERE for the post.