• by Mark Walsh  @markfwal, September 2, 2010

Location-based services from Foursquare and Loopt to the new Shopkick app have generated lots of buzz and interest among marketers and investors. But how much spending will they lead to? According to a new report from ABI Research, location-based marketing will increase from only about $43 million this year to $1.8 billion by 2015 as part of overall mobile marketing budgets.

"It's still early days and there's no single 'right' approach to location-based advertising," said Neil Strother, practice director for mobile marketing strategies at ABI. "This remains a very fragmented market that is full of experimentation."

His report identifies three main sets of technologies powering location-based ads: GPS, Wi-Fi, and Cell-ID (location determined relative to mobile phone transmitters.) The report suggests that the most successful campaigns use a mix of some or all of these options, depending on the product or service, the region, the consumers, and the location accuracy required.

From the consumer standpoint, probably the best-known location-based tools are the "check-in" applications from the likes of Foursquare and most recently, Facebook's Places offering. But despite the lavish publicity and venture capital funding they have attracted, these platforms so far have failed to find mainstream uptake. Only 4% of Americans have tried location-based services and 1% use them weekly, according to a recent Forrester Research report.

While Strother did not deny that adoption of these services is still at an early stage, he doesn't think marketers or retailers should necessarily hold off from dipping their toes in the social location pool. "It's a really good time to get in an experiment, especially if it's a retail location where you can drive incremental foot traffic and incremental revenue," he said. "Otherwise you'll get behind when things start to ramp up."

He expects the debut of Facebook Places -- the social network's answer to Foursquare and Gowalla -- in particular to drive broader uptake of location services among both marketers and consumers because of Facebook's existing user base of 500 million.

He also sees promise in the high-profile startup shopkick, which last month introduced an iPhone app that allows participating retailers like Best Buy and Macy's to automatically detect when a customer enters the store and awards them points, or "kickbucks," which can be redeemed for merchandise. "It solves a lot of problems for in-store advertisers," said Strother, noting that shopkick lets a retailer know when someone actually walks in the door, unlike less reliable check-in services.

Over time, he envisions location-based features and geotargeting of ads to become baked into mobile marketing the way targeting by IP address is today on the desktop. "As advertisers and vendors and network providers get into the space, location will become a more natural part of the ecosystem. There will be a premium, but you won't necessarily notice it," he said.