The Revenue Models of Location

Most of the buzz around location to date has been around the device, operating system, or application layers of the geo stack. Will iPhone or Android rule the day?  Which is more fun: Gowalla or Foursquare?

Today, however, we’re going to talk about the monetization layer.  Juniper Research predicts that mobile location based services will account for $12.7B in revenue by 2014, broadly divided between application downloads and advertising.

We’re going to take a little bit of a deeper dive and take a look a some of the specific revenue models that we’re seeing from the players in this space, both big and small.

Here is a snapshot:

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My colleague Chad recently covered the news that Foursquare is experimenting with a local business dashboard that allows businesses to push Location Aware Offers.  Yelp already has a similar dashboard  available to its large stable of advertisers, as do Google, Yahoo, and AOL.

The Claim & Sponsor model is a freemium flavored extension of this direct advertiser model – businesses can “claim” their listing for free giving them access to some basic tools, with sponsorship providing them with additional promotion opportunities.  Google, Yelp, and Yahoo! all employ some variation of this.

With gameplay flourishing in the location vertical, sponsored game elements are a no brainer.  MG Siegler has reported that some of Foursquare’s recent bizdev deals are revenue producing, with partners paying for the right to deliver branded badges to Foursquare users.

And branded badges isn’t the only way to tie the game to the revenue.  MyTown, the monopoly like game with location elements, has recently been spotted experimenting with virtual goods with a location flavor.  Through a partnership with H&M, Booyah displays virtual versions of popular H&M and products when a player is near an H&M outlet.  Checking in earns the player real life discounts.  Gowalla is similarly blurring the line between virtual goods and real life goods through a partnership with Incase.

One of the hottest segments on the web right now is the collective buying space consisting of companies like Groupon, Townhog, and Living Social.  These companies negotiate steep discounts with local businesses in exchange for volume guarantees.   While none of these companies are delivering ads to geo services (yet), they are very aggressively putting feet on the street and negotiating deals on behalf of consumers.   A company called Yipit is aggregating those deals and will soon announce an API.  This feed of location aware deals seems like a great fit for companies who know the location of their users.

For those location services not making their own connections with advertisers, there’s always the Mobile Ad Networks.  Some of the biggest players include Millennial Media, AdMob (Google), Quattro Wireless (Apple), and JumpTap.  Also worth mentioning here is Citysearch‘s ambitious Citygrid API, in which local business content (editorial, reviews, etc.) is delivered to mobile partners like Buzzd with an ad network baked in.

If going direct to consumers is not your strength, there’s the B2B2C model.  White label app developers such as Handmark are doing very well for themselves selling consumer facing apps to enterprise clients via a white label model.  This model will no doubt make it to the location segment soon.  How do I know this?  Because my company will be announcing its own white label location app in about a week at SXSW.

And if you don’t have the resources to forge direct connections with advertisers yourself, or aren’t comfortable leaving yourself vulnerable to the vagaries of the ad market, you can always sell your app directly to consumers via your favorite App Store.  Don’t be surprised if distribution is throttled however – free spreads faster than paid.

So there you have it.  Conceptually it’s easy to grasp why knowing a consumer’s location should be helpful towards driving revenue.  Judging from how many revenue models we already see, there appears to be a number of good answers to the question of “how will location apps make money?”