Today I spoke at the Telematics Update event, Navigation and Location USA 2008, in San Jose. The basic question of “Can LBS Be Free?” can be summed up quickly:
“Yes, but there is no free lunch. Someone will have to pay for it.”
On the panel with me was Kate Edwards, CEO of Jentro, Hakan Kostepen, Director from Panasonic, Dave Daetz, Senior Director, Corporate Development at Palm, and Rich Rudow, Managing Director at Trimble Outdoors. We tried to highlight a few ways to make money in LBS and provide some insight for both business and technical folks in the audience.
There are lots of models which are being embraced by the entire ecosystem from Handset OEMs, Mobile Operators, Content Portals and even the end user. Aside from traditional models such as Pay-Per-Use, Monthly or Annual Subscription, two models have been gaining some traction: Freemium and Ad-Supported.
Freemium is a business model which works by offering basic services for free, while charging a premium for advanced or special features.
Source: Wikipedia
The freemium model is taking off because users like getting access and services because most of the basic things are available, but the granularity of detail may be less than ideal. An example is Google Maps. The version of the web is free, but the 100% accuracy and most updated maps might not be available in all locations. It will continually improve, there will still be gaps. Users instill a high level of confidence, but know that there is a small chance for error. If you want greater accuracy or enhancements for their mapping service, you can pay a license fee for Google Earth Pro or other related products.
The Ad-Supported model has had a long promise that target ads will be a way to monetize a free service. The problem with this is that you would need an enormous amount of traffic in order to provide a sustainable revenue stream (Google is a prime example). The alternative is to have a large sales force who could help you close product placement ads for your LBS service.
It wasn’t that long ago when the hype and promise of what LBS can deliver against what was actually available was still sorely lacking. But as more infrastructure is being deployed, subscribers getting more using LBS information seamlessly with their applications. Application developers have started to use this as a differentiator and to highlight a new way of thinking about location search and results based on the maps and data points overlay instead of a list of text links. This visual component is very eye-catching and can pack a dense amount of information in a very small area (particularly useful for small screens on a mobile phone).
We are still heading for a conclusion as to what can be free and what must ultimately be subsidized in some form or another. But as the cost of data and access hover above zero, and the user demands more for less, I believe that subsidy in the form of ads or a freemium model can provide large uptake but not contribute to phenomenal initial profit.
My slides from the presentation can be found here: PDF.
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