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Introduction to Location Based Services (LBS)

CompassThe talk about the huge potential of location based services (LBS) has been around for a long time now and had almost died down a couple of years back. However, with the increasing focus on mobile applications and penetration of GPS based mobile phones, the focus is back on LBS. I feel that the earlier hype on LBS was premature but now the market is ripe for such services. With dwindling mobile services revenues of the mobile operators, location based services are seen as new growth area. The CDMA operators in Japan and US are already ahead of GSM in terms of GPS adoption but the GSM is now catching up.

What are Location Based Services?

Services which use the location co-ordinates of the end-user to improve the relevance, context, and value of the application are defined as location based services (LBS). As per the Webster’s New World Telecom Dictionary, LBS are services offered by cellular radio providers that are sensitive the physical location of the terminal device. Such services include descriptions of and directions to restaurants and other retail establishments in proximity. However, now the services may not only be offered by carriers alone.

The location based services can be classified into four types  as depicted in the figure below (Click on picture to view the enlarged picture):

Location Based Services - Segments

Maps and Navigation are the basic services and I firmly believe that these services are the basic hygiene and increasingly it may not be possible to monetize them. However, there is huge potential from the tracking, information & application services and context advertising would be a way to monetize these services with maps serving as the basic framework. The revenues from the applications utilizing location would help fund the navigation services. Free services and applications would help increase the initial adoption.

Technology behind the location co-ordinates

A key requirement for location based services is to get the co-ordinates of a location with as much accuracy as possible. Cell-ID was one of the first methods of collecting location data but different methods have evolved over the years due to efforts to increase accuracy of data, reduce cost of acquiring data and carrier’s reluctance to part with the location data. The key methods are listed below:

1. Cell-ID: This method estimates the position of a handset based on the knowledge of its serving base station. The accuracy of this method is around 100-500 meters.

2. Global Positioning System (GPS): A GPS receiver calculates its position by measuring the distance to at least three GPS satellites. The accuracy here is around 100 meters.

3. Uplink Time Difference of Arrival (U-TDOA): Handsets are positioned by measuring the time difference of arrival of the same signal from the handset at different base stations in the network. U-TDOA can deliver positions accurate to about 50 meters.

3. Hybrid (A-GPS): Assisted GPS (A-GPS) technologies improve performance of GPS by aiding the receiver by providing data such as time, satellite ephemeris or initial location estimate. Network-based hybrid positioning technologies, for instance Cell-ID in GSM/UMTS networks and AFTL in CDMA networks, are primarily used as fallback methods when GPS location fails, or as course position determining methods for A-GPS.

Apart from the above, there are alternate methods that have emerged like Skyhook and Google. Each of the cell towers and Wi-Fi points have a unique ID number which form a part of the databases of Skyhook and Google. The unique IDs are then mapped against the GPS co-ordinates and hence anytime a user is attached to a particular cell-site, the location co-ordinates of the cell site are pulled out of the database to determine the location of the user. Google is able to provide its local search services using this method of determining the user location.

Value Chain of Location Based Services

The value chain has evolved over the last ten years and has emerged from an entirely carrier centric chain to a multiple inter-dependant, independent entity value chain. The value chain for Location Based Services is shown in the figure below (Click on picture to view the enlarged picture):

LBS Value Chain

Another key entity that is not mentioned in the above figure (Value Chain) is the Handset Vendors. Handset vendors have played a key role by introducing GPS handsets. The number of models that had GPS functionality tripled in 2008 over 2007.

What have been the barriers to Location Based Services Adoption?

Traditionally, the mobile operators have been at the forefront of offering any new service to its subscribers as they have had control over the network as well as the consumer. They have had direct access to the subscriber due to their billing capability. No wonder, they considered offering location based services as their core right and hence refused to share the location data with other entities. At the same time, they did not have the resources to focus on this services and the mindset required to be successful in this business was also missing. Over a period of time, the other entities developed ways of by-passing the operators (e.g. Google, Skyhook, etc.) and started to offer services without the operator role. Increasing penetration of GPS devices is also taking away the role of operators and hence we are now seeing some traction rebuilding in this space.

High data cost has been another reason for low penetration of LBS. Mobile internet use is core to serve the location based services and due to high costs, the adoption of mobile internet has been low. Apart from Japan and Korea, even today the mobile internet penetration is less than 10%. With the introduction of flat rate data tariffs, I hope, the mobile internet penetration would grow faster.

The other issue is that of a proper business model and the monetization of LBS. These services are still in search of ways of monetization. It is very difficult to sustain the high costs involved in getting the location data without charging a high fee for the services. However, the consumers are not likely to pay much for these services and hence it is important to look at context advertising as an alternative source of revenue.

Potential of Location Based Services

There have been a lot of barriers in the past on the adoption of LBS. However, now the industry seems to be getting its act together in terms of value chain and is likely to test various monetizing methods to hit at the right business model.

ABI Research predicts that location-based services will be a $13 billion business by 2013 vs. $515 million in 2008 (Link). Currently, personal navigation is the most popular service but in future, friend-finder, local information searches, family tracker applications, and enterprise applications (including workforce tracking and fleet management), will gain traction. Friend-finding and taffic information are anticipated to be the next services to be launched for mass consumption.

The increasing popularity of location based services is clear from the increasing number of applications using context/location on Apple application store (Refer Figure below).

 LBS Applications

LBS Applications Pie Chart

Also Read

Potential of Mobile Social Networking

Navigation – In search of the right business model
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