Jon M. Huntsman School of Business

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Tuesday, November 1, 2011

The emergence of location-based services

Connor Child
America’s Finest News Source (aka “The Onion”) may have mocked glowing media reports about Foursquare’s entrance into the social media world, but it looks like the tone of those media reports was justified.

This past summer, the number of Foursquare users reached 10 million, a 100 percent increase from December. Shortly after, the privately held company raised $50 in funding at a $600 million value.

Foursquare has established itself as a formidable player in the social media realm, worthy of being mentioned alongside Facebook and Twitter. But, as a June USA Today article reports, success of that magnitude comes with challenges. 

Foursquare is a location-based service (LBS) that lets users win virtual prizes by using their smartphones to “check in” to the places they visit. Many people are weary about having their movements tracked and broadcasted online, and privacy concerns remain a major hindrance to further growth. In response to these concerns, Foursquare lets users decide for themselves whether or not they want to share their locations with a broader audience on Facebook and Twitter. If they want, users can have their locations shared with a small group of trusted friends.

This article brought up some interesting points about Foursquare’s utility. For example, a New York restaurant near Foursquare’s office has used the service to “break down its customer base by gender, age group and check-in time. Knowing when customers visit lets the restaurant plan operations when things are busy and offer specials when business is slow.” 

Facebook, having already been on the winning side of creative destruction once before (see: Myspace), couldn’t just sit around and watch Foursquare get all the accolades. Consequently, it launched “Facebook Places” in August of 2010. 

After a year of less-than-impressive results, reports surfaced that Facebook was killing off its “Places” feature. But, as Steve McClellan reported, Facebook wasn’t conceding the LBS marketing battle to Foursquare: “Agencies say that what Facebook is actually doing…may scale their location-based marketing capability in a way that could motivate a majority of their 500 million global members to add location data when using the site.”

Basically, Facebook just made it possible for users to tag status updates with their locations. They can do this on laptops, phones or any other portable device. Michael Nicholas, chief strategy officer at Aegis Group’s Isobar, described the move as an “embedded tag strategy that's about getting more people to put more location data into Facebook.”

The value of putting “more location data into Facebook” is that it makes the product more attractive to marketers. Marketers are constantly trying to dig up information on potential customers, and finding out what locations they visit and at what time of day gives them valuable consumer insight.

A rapidly increasing number of people are participating in location-based services, making it easier than ever before for businesses to learn about consumers’ daily behavior. It is obvious that consumers value the services provided by Foursquare and the like, but what will ultimately determine LBS’s success is how useful they are to businesses. Foursquare works with hundreds of thousands of merchants to develop incentives for people to check in at their locations, and if these merchants don’t see results, they will find other methods to bring in customers.

- Connor Child

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