• by Tyler Willis , March 23, 2009

This year at SXSWi, attendees and panelists were buzzing about location awareness. The talk mainly consisted of names that you may never have heard, but they represent a largely unrealized opportunity being taken very seriously by some of the biggest names in advertising. At the Austin, Texas conference, one provider might have just solved a big part of the puzzle.

Location aware applications are apps that are capable of discerning your (and/or your friend's) location; these applications offer an interesting promise of as-you-want-it data, such as a notification on your cell phone letting you know a friend -- or client -- is waiting for a delayed flight 2 gates over from you (something that happened to me flying home from SXSWi). The companies defining this space all seem to have playful names, but they represent scrappy two-man startups all the way up to huge tech companies.

Five companies were involved meaningfully during the conversation at SXSWi: Brightkite, Loopt, FourSquare, Google's Latitude, and Yahoo's FireEagle. Each of these offers you the ability to announce your location to, and see the announced location of, your friends. What few of them have done is offered a compelling experience for both users and advertisers.

FourSquare was by far the breakout success of SXSWi 2009, attracting several thousand users at the conference. Built by former Dodgeball co-founder Dennis Crowley and partner Naveen Selvadurai in New York City (Dodgeball was an early entrant in location-based services, which sold to Google in 2005), FourSquare had an impressive amount of early interest that converted into heavy use during the conference.

Using elements from the gaming world to motivate users to share their location proved successful for FourSquare -- inspiring some of the top users to check in over 60 times during the five-day festival. Users were rewarded with surprise badges if they completed a feat the developers pre-programmed in the system. These badges range from the humorous (rewarding a user for checking in using FourSquare at competitor BrightKite's much anticipated party) to the real accomplishments (showing up early enough to the convention center for morning panels consistently -- an action surprisingly rare amongst attendees in the party-fueled atmosphere).

Regardless of motive, Foursquare has solved two large problems in the social location awareness space with one seemingly simple addition of game mechanics.

All location-based services have struggled to provide value to the early users, people using the service before their friends join. Foursquare has solved this problem by building a game system that is compelling to the solitary user and encourages you to invite friends -- checking in to earn points and badges when you're out at venues inspires you not only to remain active with the service, but also to tell the friends you are out with.

Another issue has been monetization; turning the knowledge of location into dollars is difficult -- most of the current players are relying on improvements in localized ad serving to attach ads near your current location and potentially offer you coupons or incentives to go into the store.

Because of FourSquare's built-in incentive system (badges/points) they have the ability to motivate users towards visiting venues/locations at certain times -- it's easy to see how they can deliver new customers directly to local venues and establishments for large profits.

According to a 2002 ICR/Mintel market study on nightclubs, each patron spent an average of $33.18 when visiting a nightclub for an evening out -- given such lucrative potential, FourSquare could capitalize on their ability to entice users to visit a location, instead of simply reporting on where they are. Combine this reality with the fact that by using the service to check in users are often proving they are there (via GPS) and are advertising the venue to their friend network -- and you've got a lot of value being created.

It's not all roses, the founders admit that they launched the service before it was fully polished, and their website is in need of some serious work -- however seeing their excellent implementation on the iPhone, it's likely they will be able to fix that issue competently. The real headaches will come with trying to reach scale, training users to update a location service frequently will require a lot of persuasive technology and planning. Regardless of the challenges, this company will be one to watch.