How to ensure the success of location-based advertising

August 31, 2009

Chris Glodé is senior director of product management at Useful Networks

By Chris Glodé

Before mobile location-based advertising can realize its massive potential, these three things must happen.

#1: Solve the reach problem
Running location-aware mobile marketing campaigns kick-starts a difficult choice for advertisers: Which platforms? Or in some cases, which carriers?

This is a ripple effect of the technology fragmentation plaguing location-based services (LBS) and exacerbating the existing and broader reach challenges in mobile marketing as a whole. 

Agencies, their brands and media buyers often lose interest when they learn that their brilliant location-aware mobile campaign idea will only work on a certain device or with a certain carrier.

So who can solve this problem? 

There are three primary players who have a hand in providing ubiquitous, advertiser-friendly sources of location: wireless carriers, device and mobile software – including browsers – vendors and location aggregators.

Most carriers have a dedicated location-based services network infrastructure for supporting emergency services such as E911. Some also offer similar services to third parties for commercial purposes, of which location-based marketing represents one of the most promising applications and sources of revenue.

While carrier-originated location data represents an important source for mobile marketing, cross-carrier, operator-derived location is not available consistently – in terms of technology implementation and business models – in many of the world’s major markets. 

Where it is available, many carriers attempt to capitalize on these investments through fixed “per-dip” pricing for location data to third parties, including marketers.

Mobile device and software vendors have used a variety of strategies in making location available on their platforms. Some offer location data freely and easily from the device.

However, location is often only available to native downloadable applications, thus propagating the fragmentation problem faced by all mobile content developers attempting to use location-based services into the forefront of location-based marketing, particularly for SMS and mobile Web campaigns. 

More recently, newer browsers on some smartphones enable mobile Web developers to use location, representing one of the more promising future solutions to the reach problem.

Location aggregators are solving this problem by combining the sources mentioned above and often many others to provide marketers a one-stop shop for location information. Aggregators, however, are only as good as the sum of their sources, which remain limited and diverse in many cases.

#2: Align business models
In some markets, cross-carrier, ubiquitous location data is readily available, yet diverse or prohibitive business models prevent advertiser-friendly pricing for location data. 

In an emerging industry where pioneers are still attempting to measure and prove the value of location in marketing, expensive per-fix pricing often results in advertising costs that prohibit even trial campaigns.

For example, if a location fix costs 4 cents to the advertiser, this effectively triples the CPM – if base CPM was $20 – for a mobile display-ad campaign which required a location fix for each impression, which some, but not all, do.

While it is possible that the location-aware campaign could perform thrice as well or even better, many advertisers are unwilling to take the risk.

Some carriers and providers of location data have resolved this problem by offering location data for free in exchange for revenue sharing from advertising spend.

This progressive model enables innovation in location-based marketing, and helps advertisers and ecosystem partners prove the value of location in marketing. 

The premise is: location adds value to mobile advertising, which will increase ad performance as well as demand for mobile advertising. This will result in higher CPMs which will benefit all suppliers in the value chain in a revenue-sharing model. 

So why has not everyone adopted this model? Usually because of costs.

In many cases, there are vendors in the location-based services value chain who have per-dip licenses, making it difficult to create marketer-facing business models which hide these per-dip costs in favor of a revenue-sharing model more appealing to advertisers.

#3: Earn the trust of the consumer
Consumers are concerned – and rightfully so – about the potential abuse of their privacy when marketers have access to the location of their mobile device. 

Unfortunately, there are cases where a mobile marketer’s dream is a subscriber’s worst nightmare – for example, SMS spam – which is pushed to the limits when that marketer has access to location data. 

To date, location ecosystem providers generally have acted responsibly, and location data is only shared after a customer opts in. Industry guidelines derived by groups such as the Mobile Marketing Association have helped ensure marketer compliance with the consumer opt-in standards.

For consumers to opt-in to location-based marketing, they must be offered a real benefit. Their location data is personal to them, and they deserve something in exchange for sharing it. 

In some cases, the very nature of a mobile campaign may provide the benefit the customer seeks, such as contests with prizes. In others, a points or rewards system is an equitable way to provide the customer an incentive to share location data. 

Certain campaign outcomes may actually provide such convenience or utility to customers that they make the opt-in worthwhile. Sponsored local search is an obvious example. 

However, expecting customers to freely offer their location data for marketing purposes may doom a location-aware campaign before it even starts.

Advertisers and enablers have been pursuing the promise of mobile location-based advertising for almost a decade, and finally the pieces are falling into place. 

While it is certainly easier said than done, if these final challenges can be addressed, the industry will ultimately realize the true potential of location-based advertising as it becomes ubiquitously available.

Chris Glodé is senior director of product management at Useful Networks, a location-based advertising service provider in Denver, CO. Reach him at