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.

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!

We are witnessing a new evolution in the online world. The “WHO are you” and “WHAT are you doing” is rapidly evolving to “Who are you” “What are you doing” “WHEN are you doing” and “WHERE are you”. We can fairly say that the WWW became the WWWW

The When and Where pose many questions, most of them associated with privacy. For example:

1- How is the location captured: Automatic by the system, Others on demand, You on demand
2- What type of location notification: Descriptive text (i.e. “At gym”, “at Starbucks”), area in a map, zip code, exact address, a point in a map
3- How is the sharing: Reciprocal, one way, only on authorization
4- Location History: Movement patterns, Tracking, Monitoring
5- Location Ownership: Resale and/or disclose of the information

But the same concerns for privacy were raised before we published our family photos and videos to the world. The fact is that the accessibility of technology creates communities and services. The simplification of web page building facilitated the rise of communities like FaceBook, MySpace, LinkedIN and others. The commoditization and accessibility to digital cameras, camcorders, and webcams has paved the way to communities like YouTube and Flicker or services like SnapFish. GPS devices became a commodity, and soon GPS in a cellular phone will be as common as a camera. As a matter of fact, you can get your position without a GPS (see Google maps) and Location Based Services can simply be added as a feature to mass social networks like Facebook. Location Based Social Networking is not a question of IF, it’s a question of WHEN and the when is NOW.



“A social network service focuses on building online communities of people who share interests and activities, or who are interested in exploring the interests and activities of others. Most social network services are web based and provide a variety of ways for users to interact, such as e-mail and instant messaging services”. [1]

The key of the social networks is interaction, and mobile interaction = money. Who is going to pay the bill?

Virtual meet Mobile: Interaction in the virtual world is free. On the other hand, interaction in the mobile world is expensive. On the virtual world all messaging services are free (MSN/AOL/ICQ/Yahoo messenger) but in the mobile world you pay for every single SMS. On the virtual world email is free (Gmail/Hotmail/etc…) in the mobile world your BlackBerry pushed email comes at extra charge. Even voice services are free in the virtual world (Skype/Jaxtr) but that’s far from reality in the mobile world.

In my next article I’ll address some business models and we’ll see that everyone in the value chain has something to gain: wireless carriers, handset manufacturers, application developers, maps providers, etc. The ultimate question is “What is the real value for the end user?” I doubt you can base your business model on the hope the Facebook / MySpace “exhibitionistic” generation is ready to buy “stalk/being stalked” as a main added value.

As I mentioned above, the accessibility of technology creates communities and services. So, is there a case for Location Based Social Networking? Yes. But as I wrote in my first post, before you start wondering about your business model (profit), think about what is the service and real value you provide to your customers. Otherwise, after the novelty period they will run away or simply stop using it – particularly if they need to pay for it.

Have you read PART 1? I’ll strongly recommend reading part 1 first.

As mentioned in part 1 the main components in the LBS Value Chain are: the location based service provider or developer (LBS APP), the data carrier (a cellular provider like T-Mobile, AT&T, etc), and the customer.

As Part 3 will talk about Web 2.0 strategies for Location Based Services and particularly for Location Based Social Networking, we need to completely understand every piece of the puzzle. Otherwise your model will be leaking money (pouring in some cases). Moreover understanding the players and trends will allow you to craft long term solid strategies.

A more comprehensive value chain shall include:

Location Based Services complete Value Chain by Claudio Schapsis

MAPS: Most LBS applications utilize maps; therefore their cost shall be added to the equation. The map market can be considered a duopoly dominated by Navteq and Teleatlas.

Consider: those companies were acquired recently by Nokia and TomTom.

Ask: How can they affect your business by controlling the LBS market. Can your application change the map provider easily? Do they cover all the areas you plan to service? Can you grow to other markets (internationally)? Does your international strategy fit your provider’s existing maps? What are their plans of expansion? How are you getting charged? What layers of information are included in that charge? The list of questions doesn’t end here and is closely related on the type of service you are planning to offer.

MAP INTERFACES: If you want to use map providers like Navteq and TeleAtlas you will need to pay a premium price to companies that provide interfaces to those maps – such as Autodesk, Decarta, etc. Your applications can also be based on Google maps (TeleAtlas data) or Microsoft maps (Navteq data) API’s.

Consider: 1) This factor is almost unavoidable and in some cases the API selection will link you to a specific map provider. 2) While is true you can freely use Google and Microsoft interfaces, bear in mind you will need to pay them for the use of the maps when you start making money.

Ask: What is the price structure? Is the payment per map? Are you getting charged for each customer you serve? (oh yes, you do). Can your API support other map providers? Can you add your own maps? How much will cost to add specific regions? Do the charges include Points of Interest? Does the price include point to point routing capabilities? Can you provide PSAP information? What platforms do you support? How will you display information in different types of cellular phones?

Remember that once your development is committed to one of these platforms, it will be expensive to migrate to other. Again I strongly recommend checking their pricing structure. Most start for free but you will “pay the price” later.

M2M PROVIDER: In most cell phone based services, the communication costs are paid by the customer (SMS or IP-Data). If your service is based in a specific device (like a pet tracker) you will need to include a cellular operator or aggregator to fulfill the mobile communication. You will probably use a GSM provider and your device will include a SIM Card. Those carriers are known as Machine to Machine providers (M2M). Today the M is interpreted in many ways – Man-to-Machine, Machine-to-Man, Machine-to-Mobile, Mobile-to-Mobile, Mobile-to-Machine, etc. Usually M2M providers are small mobile operators with roaming agreements and/or mobile resellers/aggregators with services provided in the background by companies like AT&T, Telefonica, T-Mobile, Verizon, Vodafone, etc (Big Carriers).

Companies that fall in the M2M category are  Jasper Wireless, Kore Telematics, Wyless and many others. As these companies usually buy large quantity of network capacity, or have roaming agreements, the solution you will get is usually better, more focused and cheaper than approaching directly the Big Carriers. Moreover, many Big Carriers require particular certifications, and with these M2M providers, the process is usually transparent.

Consider: 1) Choosing a M2M provider is a long term commitment. Imagine you have thousands of devices in the market and you need to recall them to change their SIM card (I don’t think so…) 2) You can use SMS and/or Data transmissions (TCP / UDP). Each one has pros and cons. Just remember to use the * symbol in excel you will be amazed with the numbers. For example, if your model is based on SMS (let’s say $0.08 per SMS), and you have just 5000 units, reporting every 5 minutes half day; your annually bill will be more than $20,000,000 (yes, twenty million). Is your projected income covering that?

Ask: What is the price structure? Do you have a minimum volume commitment? Can data (or SMS) be pulled? If using data, what is the rounding per session? Do you provide VPN services? Will your device have a fixed IP address? Do you have an activation portal/API? Do you charge activation fees? If SMS, do you provide SMPP gateway services? Do Mobile Originated and Mobile Terminated messages have different prices? What type of certification do you require (FCC, PTCRB, EC, etc)? Does your service require non standard certifications (particular of a Big Carrier?) Do you provide roaming? How much will you pay for roaming? Where do you roam? Can you permanently roam?

GPS ENABLED DEVICE: Now you need to write the application. If your service is not installed in a cellular phone, you will need to provide your customers with a device with GPS and mobile communications capabilities i.e. most Personal Locator Devices (PLD). This is a topic by itself and I’ll devote a different post for it.

Bottom Line: The sum of all those expenses + YOUR PROFIT is what the customer usually will pay for some Value Service. This is your Average Revenue Per Unit (ARPU) or your Customer Acquisition Cost depending on the business model you choose (see part 1). If your customers are reluctant to pay your fees, or your investors consider the burning cost and risks associated too high, most probably you have done something wrong along the way.

Having almost all the components clear, I’ll elaborate on part 3 on Location Based Services business models based on Web 2.0 strategies particularly free Location Based Social Networking and their specific value chain.

TO THE READER: as my list of considerations and questions is limited for readability I’ll appreciate your comments, particularly on:

What else would you recommend to consider for each category?

What else would you recommend to ask to the providers in each category?

Thank you again!

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.