Home Beyond Ads: Monetizing Location-Based Services

Beyond Ads: Monetizing Location-Based Services

This week geo-crazy mavens were pleased to hear of location-based updates to Facebook, the launch of Foursquare analytics and of course yesterday’s news of Gowalla’s comment and picture functionality.

So far the most common way to monetize these types of services is through sponsored leader boards and tips on nearby promotions. But the question remains, can local ads really sustain the entire location-based ecosystem?

Geo-locational services are only now finding a business model and for the first time service providers are forced to think about maintaining the balance between user trust and revenue generation. After all, if there’s anything Yelp’s class action extortion lawsuit has taught us, it’s that communities lose credibility when a thirst for ad revenue sets the tone. Short of selling user data to marketers, below are a few ways companies can monetize while still offering value.

Charging Rent: Location-based service MyTown allows users to buy and own their favorite locations and charge virtual rent when others check-in. If MyTown-style services introduced currency exchange like SecondLife’s Linden dollar, users would be incentivized through revenue share and app developers could collect a percentage on micro-transactions.

Tuángòu: Scoop St. founder Justin Tsang admits that his group buying company is inspired by the Chinese practice of tuángòu or flash mob-style shopping. As a teen, Tsang would organize a group online in order to arrive at a store and barter for a group purchasing discount. The same concept can be monetized in niche shopping sites as users could organize large discount purchases via location-based app. Developers could either charge for the app as a subscription-based directory or charge the store owner for directory listings and referrals.

Gifting: Rather than earning badges, Gowalla users pick up and receive virtual items. If startups charged for virtual gifts, users could geocache items for their friends to be unlocked on-site. Better yet, imagine arriving to work on your birthday and finding a friend has geo-cached an album download or video file. Pending approval and check-in by the recipient, these services could form the basis of a lucrative treasure hunt / gifting business.

We know we’re just skimming the surface here. If you’ve got more ideas on how startups can monetize location-based services, let us know in the comments below.

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