Snazzy Smartphones Won't Drive LBS Market, Advertising Will

July 14, 2010 By: Kevin Dennehy

LBS Insider, July 2010

It’s July, which means big news is slow to come by — and it is the opportunity to examine what will drive the location-based services market in 2010. Who are the big players who are winning this year? Is it Google with huge advertising and LBS focus? Or is it Nokia, the top handset manufacturer with a giant digital map company in Navteq? Or is it Apple?

With all the tricked out, location-enabled smartphones coming to market, or already available, the “so what” factor is creeping in. Going into this month’s ESRI conference, which doesn’t seem to have a lot of location-based services panels this year, the realization is that some mechanism has to drive this market — and that driver will be mobile advertising.

When companies first started thinking seriously about LBS more than 10 years ago, it’s unlikely that most of them were clairvoyant enough to get that there would be a fusion of advertising, mobile local search, and mobile social search that would propel their businesses into the real world where fortunes could be made, said Mike Dobson, TeleMapics president.

“In 2007, I wrote a manuscript titled 'Local Search Meets Social Search' for mind commerce, and it sold a total of one copy, so even recently there was not much awareness of, or perhaps interest in, the coming change. Don’t get me wrong, many companies will make big bucks writing software or providing platforms that enable others to offer LBS and not have a thing to do with advertising,” Dobson said. “In the end, however, LBS will be driven by advertising revenues, and these numbers will eclipse all other LBS-related revenue sources.”

Dobson says, in large part, it is society’s demand for snazzy phones equipped with big screens, GPS, accelerometers, and other devices that is generating a sympathetic ecosystem that will encourage the success of mobile LBS. “Remember, at this time, it is not the mobile services that are generating the demand. Instead, the demand is the result of the sexiness of the mobile phone device,” he said. “Sometime during the next 18 months, however, it will be the applications and services that begin to drive the market.”

Currently, mobile location-based social networks such as Gowalla, Foursquare, and others are poised to serve as the advertising platform of choice, at least when their demographic plays to [consumers'] advertising needs, Dobson said. “I suspect the movie companies, record companies, and associated entertainment providers, as well as the feeding industry, will flock to location-enabled social networking since the demographics of the distribution channel seems well matched to their product mix,” he said.

Google and Apple Poised for Mobile Search Lead

Mobile search, whether it is people looking for local things or people looking for something without regard to their spatial location, will provide a significant opportunity for Google and Apple, Dobson said.

“Google has the map base, the search engine expertise, the advertising platform and the distribution network to make it difficult for anyone else to prosper in mobile search advertising market, especially in the local-mobile search market. However, Apple is going to give it a try and will likely mold iAds, its new advertising service, to have a local component, and this may be the reason behind their purchase of Pushpin,” he said. “Apple also is trying to build advertising revenue by allowing its applications developers to add iAds to their free apps, including local applications, and reap the benefits. Early indications are that the program is very successful for all involved.”

Travel Could Be Great LBS Niche…with Google in the Lead

Because of its inherent location capability, mobile LBS will be a major advertising venue for the travel industry — particularly the transport, hospitality, and related industries.

“The ability to provide consumers with travel buying opportunities while they are traveling is just too powerful to ignore. Not only can you offer an alternative to the situation that they might not be enjoying while on the road, but you leave the memory of a possibly more pleasant experience for future travel,” Dobson said. “Perhaps of more interest is the notion that in this multitasking world of ours, travelers frequently do not have time to read up on what to do at their vacation destination, and are beginning to turn to mobile-local services to help them solve that problem.”

Dobson said the company that can mold advertising to complement the location of the user and the nature of the user’s query has a leg up over its competitors. “Google probably has the advantage here since they have the most experience and have shown the greatest success in targeting contextual advertising. It seems to me they have a big lead in understanding how to blend location into the contextual mix in order to provide spatially relevant advertising on a dynamic basis,” he said. “Finally, the ability to create successful advertising in the LBS markets will require both know-how and inventory. I am not sure that anyone has a better position in respect to inventory than Google.”

…But Google Has Its Limitations

One old-school concept that will not be abandoned in the brave new world of LBS-based advertising is marketing, Dobson said. “I believe that major companies will continue to look for advertising agencies who can manage their brand across all media opportunities, including LBS. I am not sure that Google has the ability to compete in this market, other than as a distribution channel, as traditionally, it has been a high tech-low touch service provider,” he said.

Brand managers will be glad to let Google distribute some of their advertising, but may look to more creative sources to manage their LBS advertising campaigns, Dobson said. “The criteria for success in LBS advertising will soon change from being able to mix, match, and distribute ads to being able to give them buzz,” he said. “Today, Google doesn’t appear to know much about ‘creativity’ and may not be the [company] that people think of when they are looking to impress their audience. Perhaps one of their competitors could pull ahead here…like Apple.”