Pinpointing the Location Based Service Market

My slides from Mashupevent's Location Based Service Session last night - these are the notes, they are based on client research we did about a year ago.:

Predictability - of a sort

Location based Services is one of those cyclical hypes, coming round every 10 years or so. Like all overhyped areas, it comes complete with way overoptimistic market projections. The last time round, in the WAP fuelled dotcom atmosphere, $20bn was typical of the froth. 5 years alter, a few millions was more like the truth.

This time round, $13bn are the sorts of numbers thrown about. Suffice to say that we believe these numbers too are way overstated. However, it does give us predictability of a sort, in that the peak of each hype wave is 60% of the last one, which allows us to predict that the peak of the next LBS hype cycle will be c $7bn in 2018

Four Squares

So what is the size of the market? The honest answer is it is too early to tell (a scenario based approach is better, which is our approach of course ). The two key determinants are penetration and Average Revenue Per User.

Penetration can vary between "only smartphone users" (bottom of the chart) and a set of scenarios that imagines location aware consumer devices, cars, etc etc - and if you add low cost "Internet of Things" devices it can be immense

ARPU can vary between "Free" - is location services are given away as part of something else, and directly "paid for" - the horizontal axis - and depending on your assumption here that gives you a number to multiply by your no. of users, and you get a market size.

Update (forgot to add): One also has to be very careful about who gets this new money. The owners of the real estate - the device and the LBS info transport networks (eg operators) - have real market power here and will absorb a lot of any surplus.

We built a number of scenarios for our client, and its worth looking at the two key ones - ie there will be a large number of users for services which are low cost to use, ie are typically funded in some other way (ie the "market" as such will never see the value). Ad funding - the beloved "Ad push discount to find a cool restaurant for your friends" business case - will be a small, and "difficult to get right" part of this in our view, mainly because it is invasive of the very limited real estate on the smartphone.

Another viable market will be niche services that deliver real value to a group of people, and they will pay for these. This will be a market of smaller numbers of users but far higher ARPU.

In our view the $13bn market projections is of the "Pangloss" school of forecasting - assuming the best of all possible outcomes in the best of all possible worlds, and our scenarios tended to give an order of magnitude lower set of answers.

I'm OK, You're.....

This slide segments the most likely strategies that consumer based mobile services will adopt, and looks at the likelihood of success. We covered this area in more detail in the post over here, and the potential privacy issues over here

There's always someone looking at you....

We believe that privacy and intelligent usage of people's digital footprint will be critical - as Google Buzz found out, do this wrong and even the most respected player will be torpedoed below the waterline. The slide mentions two amusing "hacks" that illustrate the privacy issues with LBS

- Robmyhouse.com - shows what you can do to mashup location data for helpful services - for burglars . We covered this in more detail over here

- The Invasion of the Foursquare Bot Snatchers - fun hacks of Foursquare to show what a malicious approach could do - we covered this in more detail here

Other issues that were covered in the Q&A (not on slides)

- Biggest B2B markets? In our view, Logistics (Transport, Scheduling, empty truck ride clearing etc) is the major market.

- Why do people use Foursquare, Gowalla etc? First Gen LBS like Dopple failed, 2nd Gen are more "game" like as that has been shown to be more "sticky" for a user, increases the potential of selling virtual goods, and is more likely to get them to divulge personal data

Somebody asked me afterwards why we are so "down" on LBS. I replied that the problem is not us, its the hype cycle around the industry that is driving it to an artificial overvaluation (hey, even a $2bn industry by 2015 is still good) - and everyone is colluding in this. For example, we were interviewed by one of the MSM's (fairly well known) tech journalists on this topic last year, and gave our fairy rational prognosis - as above. The piece when it eventually appeared was totally upbeat and didn't even mention our views as a counter-story. This, if I may say so, is a total dis-service to all those who work in a sector. Big it up by all means, but you are on a hiding to nothing if you don't understand the limits to growth.