Location 101: breaking down the market for location-based apps

[People have got location all wrong, argues guest blogger Jane Sales, co-creator of flook. Rather than treating the market for location-based applications as a single monolithic entity, Jane breaks it down into use-case-driven segments and makes it concrete by showing the key iPhone applications in each segment.]

As the author of a location-based application, I get into many discussions with fellow technologists about the future of the consumer location-based application space. Which app is going to win – MyTown, Foursquare, Urbanspoon, Yelp or perhaps flook? Many of my conversation partners believe that there will be one single winning application – one, and only one, location-based application that people install on their iPhone, iPad or Symbian device.

This is a technology-based argument – applications are described as competitive if they use the device’s GPS silicon to determine location. And the argument is unrealistic, to say the least. Do we really believe that Grindr (used by gay people to find nearby partners) co-exists on a device with LocalPicks (used by people of all sexual orientations to find dinner). This is almost as incredible as the claim that UrbanSpoon (also used to find dinner) is a competitor of Bump (used to exchange contact details) because both make use of the iPhone’s accelerometer.

Joking aside, the point I am making is ‘it’s not about the GPS, stupid!’. I wonder why analysts are so prone to put a plethora of different applications in the same bucket and say that they are “competing for the location-based mobile application space” – which is like talking about an app “owning the mobile accelerometer application space”. Presumably this is because the location industry is only now coming of age, and understanding of this market is still immature and to some extent ill-formed.

There are more than 100,000 applications in the iPhone App Store today. Analysts predict that there will be 300,000 by the end of November 2010. It’s safe to bet that thousands if not tens of thousands of those applications are location-based.  Not only that, but new portable computing platforms such as the Nokia Netbook and the iPad now include GPS silicon in addition to LAN and WAN radios. I expect this trend to push down into lower-end netbooks and laptops. Furthermore, we are already seeing the direct creation of geotagged photos by Nikon’s P6000, and I expect more digital cameras to include GPS silicon over time.

Location is becoming a standard computing resource, but that doesn’t mean that all location-based applications are competitors with each other.

A common mistake made in technology analysis and trend prediction is to focus on the technology and what it can do rather than the users and what they want to do. We need to return to first principles and consider the use cases rather than the technology employed to achieve them.

It became clear to me that to find likely winners among mobile location-based applications, I needed to subdivide the space according to use case. So, beginning each use case with the words, “Near me, I want to”, I listed all the major goals that ordinary people have when they are out and about (see diagram below). Please note that this diagram is not intended to be exhaustive. For example, I have not included niche use cases (such as “I want to add a datapoint to OpenStreetMap”) or any enterprise use cases (such as “I want to track my deliveries”).

I’ve included examples of the major iPhone applications within each use case, highlighting the market leader(s) in each case in orange. Potential threats in each use case are shown in red. Broadening this analysis to all mobile applications across platforms, and then to all location-enabled devices is left as an exercise for the reader.

Having broken down the location-based service market, it then makes sense to open the discussion on the winner(s)emerging within each use case. In the rest of this article, I will review and analyse the use cases, categorising each of them using the following variables:

1.  Number of app installations: an indication of relative market size within the examined use cases. (huge, large, medium, small, tiny)

2. Volume: frequency of use. (hourly, daily, weekly, monthly or infrequently)

3. Market turbulence: will this market remain in flux, or settle out to show one or two winners?

4. Number of majors: is this use case likely to be owned by just one or two players? Or is it more likely that many competitors will continue to share the use case, each concentrating on a different aspect that appeals to different people?

Use case: I want to find out where I am and how to get somewhere

Number of installations: huge Volume: daily-weekly
Market turbulence: settled Number of majors: < 10

This is the standard navigation use case and is the most mature segment of the location industry; it has existed in specialised devices long before GPS silicon found its way into mobile phones, and continues to exist in those specialised devices today. Evidence shows that personal navigation can achieve well over 100% penetration – not just per person (I have a TomTom device for driving, a Magellan one for trails and an iPhone for everything else) but also per device (I purchased OffMaps for my iPhone even though I already have a good free navigation system in the shape of Google Maps – OffMaps offers me mapping without data downloads which is useful for locations with no cellular coverage, or for when I’m roaming).

Opportunities: indoor navigation
As we all know, GPS navigation is hampered by a lack of a clear view of the sky, sometimes even failing to operate well among tall buildings, let alone indoors. Continuing technological innovation will open up indoor navigation – most current systems rely on Bluetooth transceivers. Micello Indoor Maps (now acquired by Here) is the only application in this space that is available for iPhone today.

Use case: I want to search to find the nearest X

Number of installations: huge Volume: hourly-weekly
Market turbulence: settled Number of majors: 1 or 2, plus large verticals

The generic location-based search space is large, frequently access by users and hotly contested by search providers. Google is of course top of the pile, and will ensure it stays there. It is difficult to see who has the resources to oust them. Yahoo has failed to date, particularly on mobile. In the iPhone space, a move by Apple away from Google Maps as the built-in map application would be disruptive, but I do not believe it is likely.

Significant search verticals do exist today (some are listed below). Those who provide functionality that Google does not (listed in parentheses after each vertical) are likely to continue their success. Those that add innovation and efficiency in user interface compound their advantage (UrbanSpoon is a key case in point).

iPhone applications such as AroundMe that aggregate common verticals (providing access to nearby coffee shops, petrol stations, cashpoints and more) are successful, but are vulnerable to Google, having little defensible IP or innovation in UI.

Significant Search Verticals
1.  Restaurants – hotly fought over in the iPhone app space, with applications such as Yelp, UrbanSpoon, LocalPicks, OpenTable and of course the traditional guide books such as Zagat and Michelin (Google beater: user generated reviews, editorial content, booking engine)

2.  Real Estate – several players in the iPhone space, such as Zillow, Trulia and more (Google beater: access to proprietary data).

3.  Travel applications – iPhone applications such as Lonely Planet (Google beater: editorial content).

Sub use case: find things that my friends like
Several mobile applications (for example, Loopt, Rummble and Whrrl are betting on the recommendation aspect of local search: the theory goes that better search results are obtained by providing personal recommendations from my friends. In my experience, these applications suffer from the ‘empty room’ syndrome – I don’t have enough friends on any given service, and hence my experience using them is impoverished (as an aside, that’s why we implemented a follow model in flook for finding local secrets, rather than mandating mutual friendships).

Sub use case: I want to find my friends
iPhone applications such as BrightKite and Loopt allow the user to find her friends, as do check-in games such as Gowalla and Foursquare (discussed later). Again this use case suffers when only a subset of your social graph is using the service, and this is what makes it so vulnerable to the threat from Facebook.

Today Facebook owns more of the social graph (for friendship, not business relationships) than any other application, and the company has also shown that it can make great mobile applications. But to date Facebook has not chosen to add location to the mix. When it does (and surely it is when, not if), then both the previous sub use cases are threatened. Facebook has the social graph the incumbents lack and the brand recognition to take these use cases mainstream.

Sub use case: I want to meet strangers
There are two main aspects to this use case – meeting strangers for sex, and meeting them to talk. Strangely (or perhaps not!) the former is far better catered for than the latter in today’s iPhone marketplace. The difficulty with using an iPhone application to find someone to share a conversation with, particularly for women, is this – how do I know what the other person’s motives are, and why should I trust them? Considering this real user concern shows us a couple of opportunities (not threats, since there are no real incumbents today).  LinkedIn could allow us to meet and greet nearby business people, either if they vouched for by our own contacts, or, if we prefer, if they are merely working in the same field as us. Similarly Facebook could introduce us to friends of friends, enabling us to choose our own risk profile based on how far away in the social graph we will allow our potential conversation partners to be.

As an aside, here is an interesting observation supporting my assertion that location is not a single product space: Facebook and LinkedIn use the same “technology”. They both map the social graph, and yet they fulfil different user needs: “I want to stay in contact with my friends” vs “I want to discover business opportunities through people who have worked with people I have worked with”.

Use case: I want to explore and discover new stuff

Number of installations: large-huge Volume: hourly-weekly
Market turbulence: turbulent, becoming settled Number of majors: 1-3

It’s important to differentiate this use case from search. Users search for what they know is out there, whether it’s a pizza restaurant or the nearest ATM. Users discover something they didn’t expect. Discovery is exploratory and the user is open-minded, whereas search is task-based and the user is narrow-minded.

This use case is in its early days in the location-based marketplace, and there are few applications dedicated to discovery. Even if an application is open as to what it finds (and very few are), then most applications are dogmatic as to “search order.” For example, Foursquare adds user tips to each location. Finding something cool in one of these is not totally expected and is not usually a subject of a search (as such). However this location and its attached tips are always further away than the previous location and its tips – ordering is strictly by distance, limiting the discovery aspect somewhat.

UrbanSpoon has a discovery aspect too – and one that has proved very popular with its users. They shake the iPhone, and, one-armed bandit like, UrbanSpoon rotates its reels and suggests somewhere unexpected to eat. But this discovery aspect is tempered by the narrow subject matter – don’t turn to UrbanSpoon unless you’re hungry.

Tellmewhere claims to deliver recommendations based on your previous preferences. Similarly Sherpa claims to have a unique learning system to deliver content learned from the user’s likes and dislikes. In practice, I’ve found the value added above the standard search provided by, for example, Yelp or Rummble, to be nugatory. Nevertheless, I’m watching both applications with interest.

My own application, flook, also plays in the location-based discovery space. Since flook is new compared to the other applications I’ve discussed, I hope you’ll forgive me for giving you a quick overview of flook and pointing out those aspects of our service that back up my assertion. Flook lets users discover and share local secrets in the form of flook cards – these are full-screen images with overlaid text that can be flipped to show a map and comments on the back. Flook shows the user all nearby cards, whether their subject is a local restaurant or some cool street art – hence we are not narrow in subject matter. Also, flook cards are not shown to the user in strict distance order – instead, a card that is deemed “interesting” is pushed nearer to the user, using our Stream Position Algorithm (SPA). Our thesis is that someone would rather walk five blocks for free pizza at an art gallery opening night than one block to a run-of-the-mill pizza restaurant.

Use case: I want to have conversations with people nearby

Number of installations: large Volume: hourly-weekly
Market turbulence: turbulent, becoming settled Number of majors: 1-5, standards emerging

This market segment is nascent. Apps such as graffitio, in which users leave messages at “location-based message boards” are finding it hard to attract the number of users necessary to avoid the empty room syndrome. Geo-located tweets and their support in applications such as Tweetie 2are an obvious incomer to this space, although even with the massive number of Twitter users, it is rare to find a conversation taking place between nearby strangers. Presumably this is because Twitter is real-time – miss a tweet and it’s gone, whereas graffitio’s message boards can wait hours for a new comment.

Flook too plays in this space. It’s early days, but we are finding that conversations between strangers are happening more frequently than we expected – perhaps because flook lends a conversation the concrete subject of a particular flook card and its photograph.

Use case: I want to express my feelings about a place

Number of installations: medium Volume: weekly
Market turbulence:  becoming settled Number of majors: 5-10

Analysis of user-generated content (UGC) applications suggests that around 10% of users create the content that the other 90% of users consume. This is borne out in my own experience with flook. Clearly then, any UGC application must take note of this key use case, encouraging the production of great content for its main search or discovery use case. This encouragement can be in the form of rewards – Gowalla’s badge for checking in at five tech start-ups is an example – but is often associated with the sub use case I show in the diagram – that of gaining reputation for content creation. My investigation of friend-based recommendation-based search applications shows that they often ignore the need to reward their users, presumably in the belief that altruism towards friends is sufficient to encourage content creation.

Users can express their feelings about a place using a variety of media – the spoken word with AudioBoo, text with Rummble or a geo-located photo with Flickr. Flook and postcard creation applications such as PostMan offer the ability to combine a photo with a few well-chosen words. In addition, the user can commit variable amounts of time to self-expression – from the couple of seconds to make a geo-located tweet to the hour or so to write a detailed, thoughtful review for Yelp. Because of these varying user needs, my expectation is that there will continue to be a variety of applications playing in this space, with one or two owning each content/time subdivision. Note that this use case – the need to express one’s feelings and be creative – clearly differentiates these UGC applications from check-in applications such as Foursquare and Gowalla (discussed in the next use case) – and yet analysts continue to pit these applications against each other.

Use case: I want to play a game

Number of installations: huge Volume: daily
Market turbulence: perpetual flux Number of majors: many

It is clear from experience that games, and even games categories, come and go. People complete games, or tire of them, and historically have shown fairly low allegiance to a particular brand or experience.

There are three major types of location-based games in the market today. Treasure hunts have been around for a long-time, with geocaching pre-dating GPS silicon on mobile phones – although there is now an iPhone application for this too. Gowalla plays in this space too, with the user unearthing “virtual gifts” when she checks into a new location.

Check-in applications include MyTown (the clear market leader), FourSquare and Gowalla. They get their name because the user “checks in” to a particular location to say she is there – this information can be sent to her friends via Twitter or Facebook if she chooses. Games vary in their strictness – you have to be very close to a location to check-in with Gowalla, less so with MyTown – and in the number of check-ins they allow per hour, from an unlimited number with MyTown to very few with Foursquare. Yelp has recently added check-in to its offering, and because of its size and its stature as a serious application rather than a game, I regard it as a threat in this area. Whether or not you agree, it’s clear that there are many very similar check-in applications on the iPhone alone, and consolidation is likely. There is already beginning to be a backlash against the mindlessness of the check-in applications – here the Guardian points out that there needs to be more depth to hold user attention.

A third-type sub use case has been tried on the iPhone, but not yet very successfully – the alternate reality game. This is where the game overlies its imaginary world on the external reality – converting your local coffee shop into a den of werewolves, for example. There is clearly an opportunity for Blizzard to charge their 11.5 million World of Warcraft users for mobile gaming, or to offer rewards or coupons for in-game check-in to real world locations. If Blizzard fail to move, there is a huge opportunity here for a new player.

Use case: I want to read local news

Number of installations: large Volume: daily
Market turbulence: flux – market is young Number of majors: many, at least nationally

This is a nascent market, and a difficult one to crack, since local news providers are fragmented. Foursquare’s partnership with Metro could lead the way. News aggregation applications such as Broadersheet are ideally placed to move into this area.

Use case: I want to find out what jobs I have to do here

Number of installations: small Volume: daily
Market turbulence: flux – market is young Number of majors: 1 or 2

A minority market, with OmniFocus owning the space at the moment.

Use case: I want to map my routes

Number of installations: small-medium Volume: daily-weekly
Market turbulence: flux – market is young Number of majors: several, probably aimed at verticals

Many sports enthusiasts are interested in this space, and there are a variety of iPhone applications serving it, such as MapMyRun and Trails. In this use case it’s probable that a variety of applications will continue to serve their specific sports or niches.

Use case: I want to track my child or pet

Number of installations: small Volume: daily-weekly
Market turbulence: flux – market is young Number of majors: many

This is another nascent market, and not likely to be a major one. There are no current iPhone applications in this space.

And finally..
This concludes my dissection of today’s consumer mobile location-based application space, with particular reference to iPhone applications. What are your thoughts? I welcome your comments here or by email.

– Jane

[Jane has been working on mobile devices since 1995, when she joined Psion to run their operating systems team. Jane was the lead author of Symbian OS Internals, published by Wiley in 2005, and the sole author of Demand Paging on Symbian, published by Symbian in 2009. She is currently a co-founder of Ambient Industries, whose application flook the location browser is available as a free download in the Apple App Store. Ambient Industries is funded by Eden Ventures and Amadeus Seed Fund. Jane can be reached at jane (at) flook (dot) it]

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