For many years, the mobile industry has been anxiously anticipating the success of Location Based Services. And the world of mobile advertising has looked forward to highly relevant location-based advertising becoming an important new revenue stream.

But until recently, the promise of LBS always seemed to be just one or two more years in the future.

Now social network giant Facebook has launched their mobile location service “Places”, and the future of LBS might never be the same.

LBS & LBA: Starting to Grow

During the past year or so, it finally seemed as though things were looking up for the LBS industry. As an example:

• GPS has become widespread in mobile handsets, virtually a requirement for smartphones,
• Google Maps are now pre-installed on a wide variety of handsets,
• Popular Personal Navigation Systems such as Tom-Tom have been released to work on smartphones, and
• a number of very interesting, location-based applications such as Four Square and Loopt have begun to build up a wide consumer audience.

Along with this, location-based advertising has also begun to mature into a solid business.

• Companies such as Navteq (a subsidiary of Nokia) released the results of advertising tests that showed location-based advertising could generate much higher consumer response rates (see MobiAD article for details).
• Google started supporting mobile location both by letting consumers include location as part of a search query (see MobiAD article for details) as well as recently allowing AdWord advertisers to include a map and directions automatically with their ad (see MobiAD article for details).
• Some industry experts have predicted that location-based ads will capture 20% to 25% of local advertising spend by 2014! (see MobiAD article for details).

New Location-based Apps

In addition to established players moving into location-based services, a number of new companies have sprung up based around the idea of having consumers “check-in” to certain locations that they visit – such as restaurants, stores, clubs – in order to win prizes and gain peer recognition. Foursquare, Gowalla, Loopt, and Rummble have each grown to have millions of dedicated fans actively sharing their location, checking on friends, and interacting with a lot of location-based advertising.

Now Facebook has joined the party with the launch of their new “Places” feature. This gives users of Facebook mobile the ability to tag themselves as being at a specific location. And why would you want to do this? Just in case you have missed the entire Foursquare craze, the Facebook blog explains why:

Even though Places is a new service and not yet as fully developed or widely adopted as others in the category, it is worthwhile to take a detailed look at how it works, what some of its limits are, and see what long term impacts it is likely to have.

How Places Works

To access the new service, a person using Facebook mobile simply clicks on the dedicated Places icon. Facebook has made this very easy to do by locating it right in the middle of the Facebook mobile screen.

To register at a location, a user simply clicks on the Places icon then clicks on the “Check In” button. As explained in the Facebook blog:

So when you check in, your location can show up not only in your friends’ Facebook pages, but also can be seen by people that visit the Facebook page for the place you checked into.

In addition, people that have already checked-in to a location have the ability to tag their friends as being present, which means someone’s location could be revealed without their knowledge.

As always, Facebook has provided a number of privacy settings to control access to this information, something every potential Facebook Places user should be aware of. For the Places service, there are special provisions for minors which control who can see where they have checked-in.

Some Limits to Growth

Looking carefully at Places, you can see a number of factors which might well limit the uptake of the service. However, we think that these limitations are all relatively easy to remedy, and that they will simply end up being short-term issues.

Currently we see 4 potentially significant barriers:

• At the moment there are not very many locations listed in Places. However, it is easy for users to add new locations, and so the list of check-in locations will grow very rapidly. In addition, most of the places that people will want to check into are businesses, and it is clear that most business owners will want to be included in Places so they can benefit from exposure to Facebook’s enormous user base.
• Places has only been launched in the US market at the moment, and is currently rolling out in the UK. To fully take advantage of the huge user community of Facebook, it will need to be rolled out to other regions. It may well be that Facebook will purchase existing, small location-based social networks in other regions to help get started.
• Currently Facebook Places only runs on iPhones or smartphones with HTML5 enabled browsers. To spread rapidly around the world it will also need to work well on the other key mobile operating systems such as Android, RIM, and Symbian.
• Finally – and perhaps most importantly – at the moment Places only offers a simple “check-in”. Other location-based social sites offer a wider variety of benefits to participating users: some are more like games, some offer coupons, while others focus on social prestige, for example becoming the mayor of a location. But given the open nature of Facebook, the active developer community, and the hugely attractive installed base, it is almost certain that over time Places will develop this sort of richer engagement.

The Impact of Places

The biggest impact from Places is likely to be that location based applications are finally brought into the mainstream and become a integral part of “the mobile lifestyle” for most people.

The size of the overall Facebook community is enormous, currently over 500 million users. And there is a very good fit between social networking and mobile usage – in fact, Facebook is now the number one mobile destination in some countries such as the UK.

So with an potential community of this size, even if only a fraction of them eventually use Places, it would create a user base many times the size of any other LBS type service. According to one industry commentator, Places might act to bring an entire generation into LBS, the way TV voting introduced an earlier generation to SMS messaging.

In terms of advertising, Places will make Facebook the major player in location-based ads. Advertisers tend to go where they can reach the most people, and before long Facebook’s size may well become the deciding factor for many.

In addition, it is clear that Facebook has recently become very serious about developing their monetization strategy built around advertising, so most likely they will put a lot of attention on implementing attractive advertising around Places. Already there are an increasing number of brands that find advertising on Facebook very profitable, so adding a strong location-based component to this will only improve the relevancy of advertising and increase the value of the mobile ads.

A number of industry analysts have claimed that Places will become so dominant it will completely eliminate the smaller location-based companies that pioneered this market. We actually think that several of these players should be able to keep innovating ahead of Facebook and so build themselves profitable niche markets. However, even though we don’t believe they will go away completely, we don’t see any of them being able to grow to anywhere near the size of Facebook.

So overall, we think that Facebook Places will have a big impact, especially on consumers’ knowledge and acceptance of LBS. Further, although it will be an extremely strong competitor for the existing LBS companies, it should in the long run lead to more innovation in this emerging market sector, which will also be good news for mobile consumers.