Tech-savvy early adopters — okay, Internet hipsters — are no longer the only people interested in using their smartphones to check in at the hottest places in town or contend for the mayorship of the local café. Major brands, too, are looking how capitalize on location-based services, which they see as the next step for social media. And competition will get tough: Before you know it, Starbucks will be poaching customers the second they check in at Peet’s.
The talk has been going on for a while. Game-like location-based services are hot. Foursquare‘s on fire, Booyah’s MyTown is teeming with users, Gowalla is coming up with an experience beyond the simple act of checking in, but the question still remains: Will location turn into a business in and of itself, or is just another feature? National and global brands are eager to find out, and we are now seeing the first tentative steps in that direction.
Foursquare managed to grab everyone’s attention when it announced deals with major brands like Bravo, MTV, VH1 and Starbucks. With Starbucks, Foursquare came up with a promotion where the mayor of a Starbucks gets $1 off the price of a Frappuccino. And another player in the location space, Brightkite, came out with its own Starbucks promotion where checking in or sending a post to Brightkite’s service resulted in an offer for a half-price Frappuccino beverage during a 10-day promotional period.
Currently, there are two major ways for brands to leverage location-based services. One is to do a joint promotion, where both the service and the brand get promoted. One example: Seeing tips posted by VH1 personalities on different bars or restaurants on Foursquare.
The other way is to acquire the platform from someone else and use that for a brand-specific location service, like Travel Channel did with its Travel Channel GO mobile service, powered by a company called Socialight.
VH1 decided to take the course outlined in the first option with Foursquare. For instance, Chilli, of R&B band TLC fame and the star of the reality show What Chilli Wants, will provide tips for the two or three locations that are featured in the episode. When users hit those locations on Foursquare, they get personal tips from Chilli. The call to action for Foursquare users is to visit VH1’s website and get more of Chilli’s tips.
“We want to broaden our reach with our viewers, and mobile is a great way to do it, whether it’s ringtone subscriptions or social media engagements or specific mobile apps,” said Noah Vadnai, senior director of VH1 Mobile. “Location is a crucial part of social media and it’s here to stay. For us, it made sense not to force a new proprietary service on our audience, but leverage a known player, Foursquare, who has already done much of the heavy lifting in the world of LBS.”
Vadnai says that these are the early days of figuring out what to do with location in terms of vertical brands, so there is a lot of experimenting going on to see what sticks: “It’s not to say we wouldn’t do [location-based services] under just our brand, either.”
This is a sentiment shared by Foursquare. “Every one of our partners has their specific needs, if it’s the New York Times, or PepsiCo, or VH1 or Starbucks,” said Tristan Walker, head of business development at Foursquare. “We would be hard-pressed to say exactly how brands will use a service like ours. We have an idea, of course, but we don’t know. So we want to offer this in a scalable way.”
Brightkite, a pioneer in the location world, agrees that we are living in a period of experimentation.
“Targeting is something to be explored,” said Rob Lawson, cofounder of Brightkite. “We know where our users are and where they have been. This allows us to target people in bars or close to a car dealership, but also based on past behavior. This is exciting: Who is likely to go to the movies tonight? We can use path analysis to predict what users want next and give them appropriate and relevant brand offers.”
Mobility and targeting, both associated heavily with location-based business models, also make surprising uses possible, such as targeting the competitor’s customers.
“A brand can even reach inside a competitor’s business,” said Lawson. A Brightkite user who checks into Peet’s or another coffee chain will see a competing offer for a beverage from Starbucks.”
An important matter in pairing two brands, like VH1 and Foursquare, is matching the demographic of the two. Being smaller, Foursquare stands to gain a lot of exposure from VH1, but Foursquare users must fit the VH1 demographic (late teens to early 30s) for the collaboration to work.
But that’s less of a concern for white-label location services like Doubledutch, a startup based in San Francisco’s Mission District. Doubledutch provides a platform on which a partner can create a geo-application under their own brand. According to CEO Lawrence Coburn, their approach is about giving the brand control.
Coburn outlined a partnership with an unnamed magazine which will use Doubledutch’s platform to build an app where users will see the 75 best bars and restaurants in the city as rated by the magazine — and only those restaurants, not Yelp’s or Geodelic’s or Where’s suggestions.
There are ways for brands to benefit from the location craze, some familiar from previous experience such as coupons, and some still unknown. The business model for the providers of location-based services seem to be charging brands for accessing the users, be it a monthly fee or a sponsorship deal. Brightkite says that, while not profitable, the company generates revenue in the low hundreds of thousands of dollars per month.
The bigger picture is still taking shape, said Brightkite’s Lawson: “The thing that makes the business side of location exciting is our ability to disrupt old models like the Yellow Pages, outdoor ads and couponing while at the same time creating a new marketplace.”
[This story is part of a weekly series on location-based services, written by VentureBeat’s JP Manninen. If you have an idea for a story you would like to see in this series, drop a line at email@example.com]
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