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June 13, 2008

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Paul Jardine

Tomi, very good analysis of why LBS services have typically failed.
The question is: Who cares where you are? You have answered that in one dimension, i.e. it is pretty clear that I do not care where I am. You have also raised the privacy concerns, i.e. kids don't generally want their parents to know where they are. My location is not of benefit to ME (directly), but it is potentially of benefit to others.
The services that might succeed in LBS are those where there is a group who really want to know where you are and where you are happy to allow them to know because it provides you with some benefit. The system also has to allow that location information to be exchanged more easily than a legacy method (e.g. by calling you and asking)
On that model, instant dating seems like a service that might work. Perhaps a taxi service, where you could see the taxi location as it approached you. In the parking example, the local council may want to know your location to vary the cost of the parking.
On the advertising side I think it will come down to a model that was proposed by Doc Searl in the Intention Economy (http://www.linuxjournal.com/node/1000035). If I can opt-in to a subject in a location, for example 'Lunch' when I'm in Cambridge, and then get some offers from restaurants in the neighbourhood. Essentially I share my intention and location and the sellers compete to satisfy my need.

mark

Tomi:
Could it be that LBS failed because of the way they were monetized? To use those services, did you have to pay for each piece of data transported? And did you also have to pay for each access to the service, or have subscribed (i.e., monthly fee) in order to get access?

Apple may be interested in providing the LBS for "free". In other words, you pay for these services by buying iPhone hardware, or you pay one subscription fee (i.e. MobileMe) for a whole slew of services of which LBS is just a piece, or you indirectly pay for it when you actually buy something (i.e., Paul's example of offering me specials/discounts for lunch when I ask for lunch choices at a particular location or Google ads). Have these other methods of "monetization" been tried with LBS?

In other words, if I had to pay extra for each use, I would likely not pay either (except in an emergency). For example, being in the US, I don't care about SMS, and certainly would not pay .10 per SMS, or even $5 for 200 SMS. But having access to a multitude of little services available, including something like Quick Reply (see Mobile Me email) to replace SMS, might entice me to pay one fee for unlimited data. At least in the US, cable television and home broadband access are arguably only successful because the subscriber pays one aggregated fee for unlimited/untimed usage of many channels/web services. But again, I am not in the mobile industry and I am in the US backwaters (east coast not west coast), so I could be just wrong.

Didn't I read that smartphones with unlimited mobile data plans still account for only about 10% of subscribers globally? Yet for iPhone, Apple has insisted that all carriers offer unlimited data, ostensibly, for access to Internet-based services like email and other web apps. If Apple could get 20% more of a carrier's subscribers to add an unlimited data plan, wouldn't that be enticing? For just one carrier, such as AT&T, 20% would be 14Mx$360/year or $5B, which seems to me to be real money, and more enticing than getting a small part of the 14.5B MMS pie.

Jason Devitt

Tomi,

My guest column in VentureBeat makes me one of the semi-credible experts you mention: http://venturebeat.com/2008/06/14/iphone-3g-heralds-new-day-for-location-based-services/

My first company Vindigo developed a range of mobile content and applications for the US market, including ringtones, wallpaper, games, and location-based apps. Two of our best known and most profitable titles were the Vindigo city guide for PDAs and phones, and MapQuest Mobile for phones.

According to research conducted by Michael Mace at Palm in 2003, Vindigo's city guide was one of the ten most popular apps for the Palm platform. According to Nielsen Mobile (then Telephia) in 2006, MapQuest Mobile was the top revenue-generating application for mobile phones in the US, excluding games and mobile TV. Neither of these apps had access to location data - the user had to enter their own location.

By the end of 2007, there were true LBS apps on every major carrier and Networks In Motion was the market leader. According to Nielsen Mobile:

"Of the $118 million in revenue that downloadable mobile applications such as LBS, weather applications, chat/community, and personal organization tools generated during Q2 2007, LBS represented 51 percent."

http://www.telephia.com/html/LBS_PressRelease_Q207.html

You could argue that none of these apps are 'mass market' successes. But by that standard, there are *no* mass market success stories in mobile data apart from ringtones and SMS. There are lots of people who claim that games and video are 'proven' failures. Judging by the only market data we have - sales of applications to early adopters - location-based services are one of the most promising categories of mobile app.

From testing dozens of location-based apps at my previous company, I can tell you why so many of them failed: lousy user experience. Often this had to do with location accuracy, but even more often it was because of familiar problems like discovery, app design, and in the case of local information services in particular, poor content.

Best,
Jason

Gustaf Alstromer

Wanted to add three comments to this discussion:

Innovation

Most of the location apps that have been suggested along the years have been really bad ideas. Basically all discussions about LBS and advertising has been hype and been a pain to listen to. I think Loopt should be perceived as the leader in the LBS, at least in terms of innovation. However I'm not sure if LBS is a "category", I think it should looked upon as a feature that can be integrated in many services (Just like "social" on the web). The coolest part of loopt imho is the "serendipity" functionality where location can tell you things that didn't know was happening, that you're really close to one of your friends for example. That is the type of services that will make LBS become many hits.


The need for location
A lot of app developer think that their app will be better with location when in fact it wont. I think this comes from the fact that many apps are developed "because you can" not "because you want". When pitching Heysan to really clever people I still get the suggestion that finding your friends on a map or having location based ads sent to your phone as the most important feature. An app that works very well without location is m.yelp.com - I use it on a regular basis and I don't need an installed client or LBS, i'm usually in the same neighborhood any way. Finally the previous LBS services where that great in making an exact position of myself which made a lot of services irrelevant simply because most people on a normal day are only at like 3-4 different locations. Most people don't move as much as you would think. (This is less true in the US than in the rest of the world)


Privacy
Is location based services dangerous to privacy? I don't think so. The traditional view of what is online privacy has been distorted by what young people actually have been doing. I think we've reached a tipping point. For most people it's more important to be IN the photos online than to be excluded from them, regardless of the state you're in. I imagine Loopt will be able to sell a "premium-dot" that 3x as big on everyone elses Loopt map for a lot of people. Really, who wants to be just a dot?

Gustaf

Tech

alex

Hasn't Loopt just become a "free" service?
I understood Tomi's main message such that LBS don't make money because of location.

Location as a useful add-on feature to other services, which fly on their own, is a different story.

Does that justify GPS in mass-market mobile phones?

Nokia seems to think so, and sells real-time street navigation services on top of free maps.
I agree with Tomi that this appears to be a niche on the scale of the mobile industry, albeit a big enough niche for companies like TomTom and Garmin to prosper.

Jobs' presentation of GPS in the new iPhone lacked enthusiasm. He referred to real-time tracking as added value over current cellular/WLAN based location, but no compelling application was demonstrated; just a demo of a user's position dancing over a map.
Mobile Me doesn't include LBS; Apple left maps to Google with its ad based business model.
So actually, Apple may not believe in LBS as a viable business on its own. But if location enriches 3rd party applications, Apple earns its revenue share through the Apps store.

alex


Wenhan

Hi Tomi,

Great post. I have been thinking of LBS for a few years old. Maybe phones were too primitive to support any kind of network previously. However location can easily give you the context that the user is in. This context is so valuable in guessing his next search query and even sending suggestions to the user before he needs it.

There is much that has to be aligned before we see a killer app and I think the 6Ms is a good framework to use to create such an app.

I will be using it in my start up process so I must thank your for this post.

mark

alex: Today mobile me doesn't include any LBS-related services, but that's no reason to think Apple won't in the future. Apple has previously spoken of an ability to order a cup of coffee from Starbucks from your iPhone (which means it knows where you are and at which Starbucks store to fulfill the order, etc) and have it ready when you get to the store (which means it could've tracked and estimated your time of arrival). Mobile Me could provide a back-end LBS and payment service for any number of retailers; it could even inform the customer when the order is ready.

In the US, Best Buy (electronics retailer) allows you to search and order products over the web for in-store pickup within 20 minutes at the front counter. This could easily be done over iPhone and I wouldn't even have to enter my zip code. This could be done with florists, bookstores, fast food, restaurants, theatres, Disney World, etc. It could even be used to simply check on a product's in-store availability (like at Apple) or the wait-time at a restaurant table, so a customer can decide to stop at a store, or not.

Obviously, this type of thing would appeal most to those in a hurry, or those who know what they want and don't want to shop in crowded stores, or those who act spontaneously. Others would not pay one penny extra for it. But retailers may offer it as better customer service, and thus, get the customer to spend there and not at a competitor.

Tomi T Ahonen

Hi Paul, mark, Jason, Gustaf, alex, Wenhan and mark (again)

Thank you all for the considered comments. I will reply to each individually.

Let me re-iterate my basic point. Positioning data is one of the elements of Movement, which in turn is one of the six potential attributes of a new mobile service. It is therefore a valid consideration for mobile apps and services. But I have personally totally soured on any prospect of LBS being any kind of mass market killer app. Yes, some location-based niche applications can thrive. But if positioning is the main benefit of any new service, my guidance to the industry is now that this is a failing proposition. Location can add value to a service, but the primary benefit has to come from elsewhere (ie one of the other 5 of the 6 Ms)

Paul - Good points. But the Doc Searls article is the perfect example of the US industry arriving to this game very late. That idea has been proposed - tried in dozens of countries - and failed. It is inherently interruptive advertising (if it is location-based) and the very fundamental business model of it is a failure. To get any kind of reasonable volume for the audience (and far far more if they use personal preference criteria to eliminate most advertising to get the tailored offering) it then turns into LBS spam. And consider the alternative, Paul, the benefit of the alternative. If you are into mobile coupons for restaurants in Cambridge, you can do that WITHOUT the LBS.. Sign up to the couponing service (that does not spam you by location) and get the same benefit. If you want, it can offer maps to show where the restaurant is. The benefit is not "the position of the restaurant" but rather the "discount at the restaurant" and our LBS benefit loses out totally in the proposition to the better benefit of the Money dimension of the 6 M theory. This is the key advantage to our user. And if we do not need to pay LBS data for a pretty useless addition to the service, it is a further savings that can be passed onto the actual end-user ie making the cost of the discount less costly to the restaurant owner, etc.

mark (first comment) - yeah, each of those models has been tried. There honestly are multiples of hundreds of LBS services that have been launched in several dozen countries years and years ago. Every model you describe has been tried many many times. Same result. Also observe my reply to Paul about the restaurant.

Yes, smartphones account for a little over 10% sold and under 10% of total installed base of all mobile phone subscriptions in 2007.

There is a general trend towards unlimited data plans. On the PC based fixed internet, where almost all users are essentially on unlimited data plans, it does not mean that all internet services are free. So yes, you can access the site of some newspaper and then find that you have to subscribe to get to use their archive, or yes, you can go to the World of Warcraft site, but to join and play the game, you have to subscribe. The total value of paid content on the PC based fixed internet in 2007 was 25 billion dollars (vs 31 billion on mobile).

So while yes, there is a global trend to "open gardens" and full data access on near-unlimited data plans on especially 3G mobile networks, which started in Japan and South Korea by the way, and spread to Europe via Scandinavia - still today most mobile operators do not strongly support unlimited data plans. But bear in mind, that still leaves open the chance to charge for premium content - like downloading a videogame or ringing tone or MP3 file etc.

Jason - good points, but you need to put those numbers you quote into their proper context. If you count downloadable "applications" and not services consumed, you do get a very distorted view. Lets look at the most recent numbers you mention, the Telephia 118 Million quarterly number from 2007. They said 51 was LBS related ie 60 million. Lets multiply that by four to get a rough annual number at 240 million.

First, remember my observation at the start of this comment, that LBS is a valid component of a successful service, but not the driving component. So if we have a successful mapping service, which offers LBS based updates, then it is legitimately counted as an LBS service by Telephia/Nielsen - but even if most map users never do LBS updates and only use the basic maps, that is counted on the LBS side of the Telephia numbers. Their number is the "positive spin" on the best LBS story, not the truth, the whole truth kind of view.

But even so, lets put the 240 million into context. The global mobile VAS data market - excluding SMS - in 2007 was 31 Billion dollars by Informa. Music was worth 8.8 Billion dollars and videogaming over 5 Billion. Of Music, over 5 Billion was ringing tones, but over 1 Billion were "Ringback" ie Waiting tones, and over 1 Billion were full-track downloads of MP3 files ie like iTunes but direct over-the-air downloads to musicphones (about half of the total South Korean music market works like this already, while iTunes has about 10% of the USA music market).

So if you think 240 million dollars is significant, but do not think ringtones should be considered, I have two other music categories already that are 4 times larger - and legitimately billion dollar industries by themselves, MP3 files and Ringbacks. And another 5 billion in mobile gaming revenues, and dozens of other categories. THAT is where the killer apps are, not LBS..

Sorry, Jason, the scale is totally different. The mass market in mobile does not even start to register in scale, until we hit about the billion dollar level in revenues. And you will not find LBS restaurant guides as billion-dollar businesses any time soon, ha-ha..

Gustaf - great comments, thank you. I totally agree. Yes, many LBS concepts were bad ideas to begin with (and still perpetuated, now with for example the intrusive and interruptive bluetooth based proximity ie LBS spam ads). And yes, in most cases LBS is a nice-to-have extra, not the core must-have component, but drastically oversold by the technologists involved. And great comment on the shifting perception of privacy.

alex - very good points as well, somewhat echoing what I wrote and some of the comments. Yes, we agree :-)

Wenhan - thank you for the honest opionion, and I respect the thinking process that you must be going through. I also ask you to trust me on this point - that "technology" argument that the phones were not good enough and the positioning accuracy was not good enough - has been repeated also for all of this decade. The "if you build it, they will come" argument. That if only we make the LBS better, it will be embraced by users. No. As you have found the 6 M concept, I suggest you direct your development on the other 5, and totally abandon your current development work on Movement. Getting Moment, Multi-user or Me right, rather than Movement right, will get you far greater success. Going creative and innovative in Money may double or tripple your profits!! But Movement will drain your resources on a useless quest.

mark (second comment) great reply to alex and good examples. I would add that again, in the urgent shopping example, we are clearly, as a society, learning to use digital networks to enhance our shopping. From now all airline tickets becoming eTickets (and most traditional travel agents going out of business the past decade) to eBay and online auctions and bargaining, to Paypal online payments and many countries where mobile payments are commonplace. The benefit you outline of getting the right item in stock at a store you want to go to, works on the Moment attribute (get it to me faster) rather than the Movement attribute (get it to me from nearest store). Yes, both are relevant, if you live in Texas, you will not drive to Canada to pick it up, ha-ha, but the Moment (and Me and Money) attributes for the service you describe, are all stronger benefits than Movement.

The key was the word Hurry, ha-ha. Yes, nearby is important in a hurry, but saving me TIME is the key, not location. And Moment mostly trumps Movement in mobile apps.

Thank you all for writing

Tomi Ahonen :-)

alex

mark,
I think these ordering-coffee-at-Starbuck ideas were from Apple patent applications. So indeed Apple engineers seem to see the technical potential for LBS (like all of us); however, they might find many of their ideas already patented outside the USA.
Patent applications don't imply that Apple believes in the business. Typically they try hard to get all major ends right in the beginning if they really believe in something new. Eg. "real Internet in your pocket" is pushed by desktop class browser, big screen, flat-rate data plans (via the operators), mobile optimized apps for email; heck, even porting Safari to Windows.

I cannot see comparable effort for LBS.
Free maps via Google, GPS thrown in for 3rd party apps, no convincing demo.
It is telling that they have not launched the Starbucks idea together with the 3G iPhone.
And how many cents per cup of coffee do you think Starbucks is willing to give to Apple, and how many deals does Apple need to create a profitable brokering business?
Compare with the iTunes store, which generates little profits even though Apple holds the power cards in their own hands.

Nevertheless I can well imagine a great LBS success story comparable to YouTube or Facebook. Meaning success for the investors of a start-up company with a popular "free" application (maybe a new social network for broadcasting location to buddies) without sustainable business model.


Brendan Lally

Tomi

Great stuff as usual (well mostly).

I've been 'following' LBS 4 yrs as well and watched the Japan/Korean 'successes' slowly sweep Eastwards towards EU and dribble-by-dribble into the US (but some seem 2 get lost in the ocean)

Great 2c some serious 'common sense' logic and analysis. As a techie's we often get enamoured by the lure of what the technology can do and fail2 grasp the real 'needs' of the user.

Spot on. Do agree that some LBS players will do ok (even if they think their #s are fantastic) but only as an add-on feature 2 a real 'service'

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    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

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