Advertisers have long talked about the mystical possibilities of using real-time location data to target customers. The technology existed; most cell phones have a GPS receiver in case of emergency. But real-time location data was off-limits to advertisers until Web-centric phones introduced people to the concept of sharing their location in exchange for utility. Soon, along came apps like Foursquare and Gowalla, which essentially trick users into sharing their real-time location with advertisers. Suddenly, location-aware marketing is red hot.
"It's huge and it's increasing," said Michael Becker, a director at the Mobile Marketing Association. "Location is going to play an increasingly critical role in enabling successful consumer engagement through and with the mobile phone."
For advertisers, the growth of real-time location data felt like an explosion that "blew up overnight," Becker said.
Brightkite is reportedly charging between $10,000 and $20,000 for local promotions. Foursquare seems to be announcing a new A-list corporate partner every week, including Starbucks and MTV. And Shopkick, the treasure hunt of consumption, launched with Best Buy, Macy's and American Eagle among its sponsors - which had to install special audio transmitters in all their participating stores just so the app will know when a user walks in.Big name advertisers seem to be throwing money at location-based services.
Advertisers are excited because location-aware ads really work, Becker said, citing a study that showed nearly 50% of users who are shown a location-aware ad on a mobile device will "take some action," beating out text messaging (37%) and Web display ads (28%).
But isn't that because location-savvy ads are fairly novel? Advertisers were also excited about display ads in the early days of the Web, when users were so unaccustomed to browsing that they clicked on anything that caught their attention. Doesn't it seem like the higher engagement reported for location-aware ads could be because a user is not used to seeing her city or neighborhood mentioned in an ad on her phone?
Newness may be inflating the numbers a bit, Becker acknowledged, but advertisers will just create more engaging and sophisticated ads as time goes on. But location is just one of many important factors in mobile marketing. Advertisers also consider a consumer's age, type of phone, even time of day.
"Location is not necessarily the goal of the interaction. Rather, location is a piece of information that provides context to the user experience and can create a more relevant and engaging interaction with the consumer," Becker said.
Advertisers in the U.S. will spend $1.8 billion on location-aware marketing in 2015, according to a recent report by market research firm ABI Research. (By comparison, advertisers in the U.S. spent $10 billion on search advertsing in 2008.)
Not every advertiser will care about location, said Neil Strother, a director at ABI Research who put together the report. For restaurants and bars, real-time location is crucial. But for NBC or Coke, not so much.
And there are lots of companies hesitant to join in the location game, Strother said. That's because of inexperience and fears about threatening consumers' comfort level. "The next few years will be very important for companies to get it right and not abuse the location information they're getting," he said.