Location-Based Marketing Whitepaper: Part II

In Part II of our whitepaper, we discuss the various challenges and opportunities for marketers as well as the location-based service (LBS) providers.

Marketers - Challenges and Opportunities

As the location-based services (LBS) market matures and enters the mainstream, marketers will face a number of challenges in leveraging this new channel and maximizing the opportunities. The rise of social media over the past few years provides some context and can be helpful in understanding and addressing these challenges.

Few will disagree that engaging and managing the social media channel is vital to any brand in 2010. The same could not be said as recently as 2008. In terms of a growth trajectory, LBS trails social media by a few years. Granted, LBS includes a significant social element, which serves to accelerate its rate of growth. And the major social networks are adding location as a feature, thus crossing into the LBS space. But the dynamics and challenges of LBS are such that it ought to be addressed separately and approached as a channel unto itself.

As we highlight five challenges in leveraging this new marketing channel, the parallels with social media are quite obvious and provide some guidance in terms of overcoming the challenges, developing best practices, and getting a glimpse into the future.

1. Quantifying the Opportunity: The first challenge of LBS is to gather enough data and insight to make sense of it from a marketer's perspective. The LBS space is broad in terms of the types of applications companies offer, how consumers are using them, and the value propositions available to consumers and businesses alike. What's more, the data exists in so many silos with limited access. Marketers need ways to monitor and measure the LBS space, complete with the penetration, efficiency, user engagement, and interaction metrics. They need relative and absolute values in comparing one LBS provider to another, conducting competitive analysis, and gleaning business intelligence. At the end of the day, this all needs to integrate seamlessly with a company's overall marketing plan.

2. Sufficient Reach: As with publishing or social media, marketers cannot utilize LBS effectively until individual providers (or the space as a whole) offer a large enough audience to justify their resources. For most large brands, this translates into tens of millions of consumers that meet specific demographic, psychographic, and geographic profiles. The problem is that location, by its very nature, dilutes overall reach because users are spread across the globe. Unless a business or brand is equally spread, the potential of millions can be easily reduced to thousands. The solution is to leverage as many platforms as possible to create depth.

3. Technical Difficulties: As powerful as geolocation can be for the purposes of marketing, it is equally complex in terms of technology. Its real-time nature and the number of players in the LBS space further complicate this. For brands with hundreds or thousands of locations, the challenges grow exponentially. Not to mention the possibility of developing applications for the Apple (iOS), Android, Blackberry, Windows, Palm, and mobile web platforms. In short, getting the most from the location channel will require significant technical resources and expertise for some time to come.

4. Cohesive Strategies: To date, a number of large brands have tested LBS through individual providers, one-off campaigns, and standalone applications. In order to maximize the potential of this new channel, however, companies will have to develop comprehensive location-based strategies. These will utilize multiple LBS providers in conjunction with complementary channels, such as social media, broadcast, and point of purchase. In certain cases, branded applications and custom solutions will be part of a broader program. Lastly, these strategies will have to be monitored, measured, and optimized in real time.

5. Return on Investment: One of the most compelling aspects of LBS, especially compared to location-agnostic media, is the clear path to commerce or some meaningful conversion. The ability to reach consumers in the moment when they are both present and engaged offers an unparalleled opportunity to inspire action, lure prospects from competitors, and capture lifelong customers. The challenge of quantifying and realizing ROI, though, amounts to a combination of the issues highlighted thus far. By sorting these out, clear and compelling returns are certain to follow.

Location-Based Service (LBS) Providers - Challenges and Opportunities

The LBS market is growing at warp speed, fueled by the proliferation of smartphone technology, a high rate of networked consumers via social media, and the rapid evolution of feature-rich mobile platforms. Despite this near-vertical growth trajectory, individual players and the industry as a whole face a number of challenges in becoming a relevant, meaningful, and sustainable channel for marketers.

1. Critical Mass: The quality that makes this space so compelling also makes it uniquely challenging. It is much more straightforward for location-agnostic web companies to achieve critical mass than for those bound by location. The geographic nature imposes limits on reach and relevancy for location-based services, such that scale is determined not in the aggregate but by the local or regional measure. This is compounded by tremendous competition in LBS and the subsequent fragmentation of the marketplace.

2. Competition: As location becomes an adopted feature in services like Facebook, Twitter, and Google, the burgeoning LBS industry will have to respond accordingly. Native LBS companies will enjoy certain advantages in terms of brand positioning and the fact that mobile platforms tend to level the playing field. Whether it's an Internet powerhouse or startup, however, the industry will be wise to establish common standards that enable marketers, as well as developers, to efficiently and consistently implement cross-platform strategies. For the LBS space, strength can be found in alliances and collaboration.

3. Privacy: Sharing one's location in real time is not to be taken lightly. According to both research and common sense, privacy issues present the greatest barrier to mainstream adoption of LBS, not to mention the regulatory risks. When the value proposition of a service relies on social sharing, companies must make security and privacy management a top priority and then prove it. The whitespace opportunity and key to mainstream appeal, however, may be found in non-social or social-optional services, where the value isn't entirely dependent on sharing or broadcasting one's location/identity.

4. Resources: Given that nearly every company in the LBS space is a startup, bandwidth constraints are certain to be a challenge. This translates into lost opportunities not only for the providers but consumers and marketers, as well. It also gives the Internet powerhouses a distinct advantage in building out their location-based offerings. The LBS industry should look to ecommerce and online publishing for network-based models that enable more efficient scaling and allocation of resources.

5. Monetization: There's been much debate about whether location-based services can evolve from simple features and applications into sustainable businesses. Each service has unique challenges in this regard. In every case, however, making the transition amounts to meeting each of the above challenges while creating sustainable value for consumers and marketers alike and generating revenue accordingly. The good news is that the mobile/location channel lends itself to monetization through superior relevance. In other words, the rate of response will be directly proportional to the relevance of the offer, coupon, promotion, or information being served. That said, certain types of partnerships, such as affiliate programs, can speed revenue generation by not only providing additional streams but also assisting in the discovery process itself i.e. what works and what doesn't.