Disruption in the Location/Local/LBS Stack

Photo source: Dave Mathis

I moderated a panel on location platforms this past Saturday at Cyberposium, a tech conference organized by students at Harvard Business School.  On the panel were: Evan Cohen, GM, Foursquare; Ted Morgan, CEO, Skyhook Wireless; Tom Sexton, VP Sales, Inrix (a Venrock portfolio company); and Stephane de Messieres, Founder, Citizens Market.

I have distilled what I learnt from this panel into the following set of questions that I believe founders of location startups should ask themselves:

1. What market are you in? If you think you are in the location-based services market, think again. Location or LBS is not a market or an industry other than perhaps at the pure infrastructure level where positioning technologies such as GPS chips or location servers are licensed/sold.    You might be in advertising, automotive, retail, enterprise software, local media or something else.  Your business models and go-to-market need to be adapted to which eco-system you are in.
2. How many other similar companies are there in your portion of the eco-system?  Given the hype cycle in location, I'm observing dozens and dozens of me-toos in each segment.
3. What do you do to escape commoditization from the platforms (Apple, Facebook, Google, maybe Microsoft)? And a corollary: how much will your success depend on successful integration, distribution and/or monetization through the platforms (e.g. will you have to give up 30% of your economics like Zynga did to Facebook)?
4. How will upcoming changes impact your business?  including perhaps privacy-related regulation from the FTC; litigation between and from the platform players; and cost-effective availability of positioning for featurephones.

How the market has evolved

Software that derives a majority of its value from incorporating location fixes or location-based data has been around for a while but only in pockets where the Web/Internet had not intruded until a few years ago.  Examples include:

• Automotive navigation solutions: Tier 1 automotive suppliers, auto OEMs, QNX/WinCE as OS
• Digital maps & POI data: Navteq, TeleAtlas, InfoUSA, many other POI providers
• Enterprise/government GIS: ESRI, Autodesk, Oracle/Sybase spatial servers
• Pre-smartphone mobile navigation: Telenav, NIM, many others
• Personal navigation devices: Garmin, TomTom, Navigon, many others

The Google Maps API launched earlier this decade really opened the floodgates to innovation.  And then the arrival of smartphones and always-on broadband connectivity has revved up the developer eco-system even more.  

There is somewhat of a top-of-the-hype-cycle feeling to parts of this market, especially at the apps layer.   In addition, under assault by "free" developer platforms, ad-supported business models, social, "free" location fixes, commoditized location data and always-on connectivity, many of the companies in the segments above have retreated to their high-margin bastions (e.g. automotive OEMs for Navteq) and are facing continual erosion of their markets from startups (or Google in many cases).   However, I believe location will continue to work its way into more and more segments and will become an ingredient in almost every web & mobile service/app.

Here's how I break out the market.  There are of course companies that span multiple layers but I have tried to place companies in their core layer.  Of these, I think augmented reality, while a very early space, has the potential to produce a platform play as it fundamentally changes user behavior and can be a container for a whole set of new apps/experiences.  I also excited about new companies at the data layer and in local commerce/mcommerce.

Layer 1: Positioning Technologies

We've seen offdeck locationing services (based on Wifi or cellID triangulation) emerge - Skyhook, Google, Ekahau etc.  GPS has worked its way into many smartphones through the likes of CSR/SiRF and Qualcomm. And there is IP-based locationing offered by Quova and others.  An exciting development is carrier-provided location fixes, aggregated by Location Labs, Loc-aid and others.  I've seen a lot of indoor positioning technologies in the past year, however almost nothing that's gotten beyond very niche use-cases (i.e. firefighters fighting building fires) and the requirement of changing network infrastructure as well as client-side infrastructure/software (expensive!).

Layer 2: Location-based Data & APIs

The base data layer consists of digital maps, provided by Navteq (now Nokia), TeleAtlas (now TomTom), AND, Autonavi (China) and Satnav (India).  New entrants such as Openstreetmap and Waze have the potential to change the game although Google's move into creating/owning its own map data is a threat.  Social/crowdsourcing is the new trend here in addition to monetization not through licensing of map data but through other models such as advertising and freemium subscription-based applications.  

On tops of maps, there are layers of slow-changing POI data such as from Wcities, Axciom, InfoUSA, AT&T Interactive (Yellow Pages) and others. Even this area is under attack from crowdsourcing-based solutions. I would argue that the real asset that Foursquare, Yelp, Google etc. are building is a proprietary POI database that is far deeper and more up-to-date than conventional sources.  There is an ongoing battle for the best POI database.

And on top of this are dynamic data providers such as road traffic speeds, gas prices, weather, events etc.  Inrix (a Venrock portfolio company), Navteq/Traffic.com, Zvents, Weather.com, Plancast etc. are some of the vendors in this area.

There are a set of location data aggregation services, including Location Labs, SimpleGeo, Factual, Xtify, PlaceIQ and Locomatix (covered in my previous blog post on geo-fencing and opt-in notifications).  Many of these companies not only aggregate but also provide data manipulation APIs of various kinds, including geofencing.

Layer 3: Developer Platforms/Monetization

Platforms provide an audience, distribution, monetization and enabling technologies.  By this definition, one has to include the device OEMs as platforms, including Apple/iOS, Google/Android, Microsoft/Windows Phone, Nokia/Symbian/Meego, Samsung/Bada etc.  

I think media properties such as Facebook Places, Google Maps/Earth, Bing Maps and Mapquest are platforms, not only providing geospatial services but also bringing an audience to consume developer applications as well as potential monetization capabilities.

And finally, I would include enterprise platforms (such as ESRI, Pitney Bowes/MapInfo, Weogeo etc.). and location-based promotions/advertising firms such as Placecast, Where Ads and others in this category from a monetization perspective.

Layer 4: Applications/Services

It's almost impossible to categorize the thousands of location-enabled apps.  Local search (Google, Microsoft, Where - a Venrock portfolio company) is an established category as are local reviews (Yelp, Urbanspoon) and navigation (Telenav, NIM, Waze, Skobler).  

Upcoming areas include social (Foursquare, Gowalla, Facebook Places), augmented reality (Layar, AcrossAir, Sekai Tonchidot), local product search (Milo, Google, eBay/Redlaser), local transactions (Redbeacon - a Venrock portfolio company, Opentable), indoor maps (PointInside, Micello) and digital car (Pandora, Aha Mobile - a former Venrock portfolio company, Trapster, VoiceontheGo). [Addendum: Awarepoint, a Venrock portfolio company, provides a healthcare IT solution that uses location for hospital asset tracking.]

Addendum: Layer X: Monetization

It almost does not make sense to include monetization in this post since there are lots of different revenue models, some B2B, some B2C and most of them not having anything specifically to do with location.  Business models range from per-device fees, per location-dip fees, CPM-based advertisement, annual subscription fees, local transaction fees, software licensing and every other model on earth.  However, the industry sometimes discusses location-based advertising as part of the 'location industry' - so I would include location-based promotions/advertising firms such as Placecast, Where Ads and others in this category from a monetization perspective.

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[IndoorLBS]

The next frontier on LBS is indoor location and indoor maps. See http://www.indoorlbs.com for more.