Location Based Services: Why smartphone apps will pay off for advertisers, carriers, application providers

In the last few weeks, the wireless world has been buzzing about location-based services (LBS), applications made primarily for wireless devices that use GPS, WiFi or cellular radio signals (or a combination of all three) that enable consumers to get information and advertisers to reach them based on their location. Some recent developments include:

  • Buzzd, a new, featured application on RIM’s BlackBerry AppWorld that allows users to find nearby restaurants, shops, and events based on their location.
  • Navteq was chosen by MetroPCS to be the preferred supplier of all maps that are used in Metro’s LBS applications.
  • WeFi opened up its own app store to provide applications that leverage its existing WiFi access point community to move consumers who use bandwidth-intensive applications off the carriers’ networks and onto WiFi. This is key in light of the recent SlingBox and Skype mobile app denials.
  • Skyhook Wireless (a technology provider for location-based services) released some data it had mined from various application stores about the growing quantity of LBS applications and the fact that almost 75% of LBS applications for the iPhone cost money rather than being given out for free.

After all of this activity in the LBS arena, is there any demand for these apps? If so, what are people using them for? And what are the opportunities for advertisers and carriers? Compete’s recently-launched Smartphone Intelligence product answers these and related questions, and a few highlights of the findings appear below.

Overall, 1 in 3 smartphone owners currently use a Location Based Service at least once a month. An additional 20% of smartphone users said that they would be interested in using LBS if they knew more about what was available and how to use them. The chart below shows some specific types of LBS applications consumers are using now (shown in the dark blue bars) or would use if they had more information (light blue bars):

As seen in the chart, weather and directions/navigation applications are the current leaders in the LBS space. Two thirds of survey respondents who already use LBS said they use a weather application while slightly over half told us they use a navigation app.

However, when asked which types of LBS they would prefer to use if they were available or knew how to use them, we saw some interesting results, particularly appealing for advertisers. It turns out that consumers are also interested in getting local alerts and special offers or promotions from nearby stores or other retailers. This presents an opportunity for advertisers to reap the rewards by serving up compelling and relevant ads that will likely see higher clickthrough rates and subsequent engagement. Also, ROI from these types of promotions would be easier to measure as the benefits are more immediate and trackable to a specific customer interaction than many other forms of advertising.

In addition to being valuable tools for local businesses and advertising networks, LBS services are also important to carriers who provide the data packages and may possibly split the application revenues. It turns out that smartphone owners who use LBS are more likely to spend more each month on their total wireless bill. In the chart below, we see that LBS users (red bars) are less likely to be spending $75 or less on their monthly wireless bill and more likely to be spending $125+ than smartphone owners who do not use LBS.

So, in addition to being a good segment for advertisers to target, LBS users are valuable customers for carriers as well. It will be important for carriers to decide how to best leverage all the different app stores to maximize subscriber use of LBS.

It looks like consumers are ready for new LBS applications, and we’ll be watching to see what advertisers, device manufacturers, carriers and application providers come up with in the next few months.