Location-Based Services See Money in Marketing and Monthly Fees
SILICON VALLEY -- Companies working on products that use the location data in mobile devices plan to make money from advertising and premium subscription fees, executives at the GPS-Wireless conference said Wednesday. Some companies, such as Foursquare, will rely entirely on advertising, while others plan to bring a mix of ad and subscription revenue, they said.
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"We are never going to be a premium service,” said Holger Luedorf, Foursquare’s head of business development. “We truly believe the advertising model is something we can build our monetization on,” he said.
But ad-supported businesses require scale, Luedorf and others said. So the focus now for some location-based services companies is on building an audience, not on selling ads yet. “The raw financials, in our view, just are not there yet,” said Glympse CEO Bryan Trussel. “When we get from the millions of users into the tens of millions of users, maybe then the infrastructure will also solidify,” he said.
Plus, ads have to enhance the user experience for the product, Trussel said. Glympse ran a small experiment delivering ads in its app that failed, he said. “We ended up with toe-fungus banner ads at the bottom of our app and it was just not worth it,” he said. “We will never go there until our users are saying ‘please bring ads in for us.'"
Location-based services are quickly attracting local marketers, said Andreas Lieber, director of mobile partnerships for Groupon. He said in markets where Groupon has introduced Groupon Now, a mobile location-based coupon service, there are 700-900 offers running in parallel a day.
But getting national advertisers interested in location-based advertising is more challenging, Luedorf said. “There are definitely companies out there who are really dabbling in social media and” location-based services, he said. But others are less interested, and when Foursquare encounters companies that are not ready to work on such a project, “we try to step away,” and not force the issue, he said.
Still, big national marketers are very savvy about these issues and are working on small test projects, said Jay Akkad, a mobile local advertising product manager at Google. “We tend to work with them on very early beta stages,” he said.
Other companies are pursuing premium services, such as premium navigation software or family safety and location services. And companies are targeting businesses with employee tracking and location services, said Sal Dhanani, vice president of products for TeleNav. Location information will become increasingly integrated into the entire mobile device industry, said Ted Babitz, director of business development for xAd. “In that context you'll see more and more transactions taking place on the mobile phone, more and more users looking for information on the mobile phone,” he said. “Everything from your commute, your searches, your social networks and your financial transactions -- everything will have a mobile component to it."
Meanwhile, the industry needs to both do a better job educating consumers about how location data are used in marketing and be more responsible about using location data, said Trussel. “We've seen time after time where people grab your social networks or location and end up selling it or pushing it out somewhere you didn’t want it,” he said. “You have everything from carriers who really try to do a safe job, and need to … all the way down to these little startups who are like ‘what the hell?'” and willing to push the envelope to make money, he said. “Consumers don’t necessarily make that distinction or want to have to make that distinction.”