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'Here I Am!' GPS Location Apps Have Limited Appeal

For Diane Bisgeier, marking her turf with her iPhone has become as regular as morning coffee. Bisgeier "checks in" at restaurants, cafés, and theaters around San Francisco using Gowalla, a popular iPhone app that lets people broadcast their locations, find friends, and compete to see who's shown up somewhere the most.

"I don't feel complete unless I check in" when I arrive, says Bisgeier, 41, who has also logged her location using iPhone apps from Gowalla competitors Foursquare and Yelp. By announcing her movements around town on Gowalla, Bisgeier, a marketing director for medical software maker Soar BioDynamics , says she's able to meet friends spontaneously and feel as if she "left [my] mark" on places. "It's because I'm hypersocial," she says. "That's why I love it."

As Silicon Valley's obsessions go, the virtual parlor games proffered by startups Foursquare and Gowalla rank among the more curious. New York and Silicon Valley techies have lately taken to whipping out their smart phones when they cross the transom of restaurants, bars, coffee shops, and train stations, firing up Foursquare's or Gowalla's applications, and checking in to mark their turf. Enthusiasts say they like the bragging rights that come with being the most frequent patron of a place, and that the apps let them serendipitously meet up with friends. Frequent patrons can become the "mayor" of a venue by playing Foursquare, or stamp a virtual passport in Gowalla's game. Hundreds of merchants offer free beer, coffee, and pizza to the top denizens of their establishments. "In the Bay Area, it has turned into a pretty valuable utility," Kevin Rose, the founder of Digg and an investor in both Foursquare and Gowalla, says of the software.

The Mobile-Advertising Angle

The popularity of the apps has attracted notice from other Web startups that rely on local advertising. Foursquare boasts nearly 300,000 users, and Gowalla has more than 100,000. On Jan. 15, Yelp—a Web site that reviews shops, restaurants, and night spots and that on Jan. 27 announced a round of funding worth up to $100 million—introduced the ability for users of its iPhone app to check in at businesses.

Now, as tech industry heavyweights such as Google (GOOG), Apple (AAPL), Microsoft (MSFT), Twitter, and IAC/Interactive (IACI) try to capitalize on the smart phone explosion with mobile ads that target people where they congregate, startups compiling a trove of data about users' migratory habits could make attractive acquisition targets for those companies. At one point in January, a Foursquare user was checking into a location every second, the company said.

Pinpointing users' locations could also help Facebook make its information more relevant, though the company hasn't yet begun to offer that capability. "Any time you have a database of people and you know their location, that's valuable to a lot of businesses," says blogger Robert Scoble, a managing director at Rackspace Hosting (RAX) and a heavy Foursquare user.

A Coming Round of Acquisitions?

Foursquare has talked with 10 companies about partnerships or a possible acquisition, says one person familiar with the talks. Large Web and mobile-phone software companies could draw on Foursquare and Gowalla's data to reach people when they're on the go and ready to buy and to make inferences about their likes and dislikes. "You have a platform for pushing people toward real, physical locations," says Rose. "As they gain traction, the big boys will start knocking on their door."

Foursquare and Gowalla may not need to sell right away. Gowalla on Dec. 9 raised $8.4 million in venture capital funding from Greylock Partners, Maples Investments, Founders Fund, and Shasta Ventures. Foursquare on Sept. 4 raised $1.35 million from Union Square Ventures, O'Reilly Alphatech Ventures, and angels who include Rose and Twitter co-founder Jack Dorsey.

For now, the companies haven't found audiences much beyond avid groups of tech enthusiasts in large cities. Like Twitter three years ago, Foursquare's founders launched the company at the South by Southwest festival in Austin last year. Twitter broke past the confines of industry enthusiasts partly by attracting such celebrities as Ashton Kutcher and Shaquille O'Neal to post on its site. Facebook's 350 million users contain numerous grandparents and Midwestern moms. So far, Foursquare and Gowalla haven't found that kind of mainstream acceptance.

Not Always an Easy Sell

That could mean the confluence of social networks, location data, and advertising won't pan out. More than 500 businesses offer coupons to the virtual "mayors" of their establishments through Foursquare, but convincing mom-and-pop shops to buy advertising—especially through so unproven a medium as mobile phones—is a tough sell. "They would have to sell to hundreds of thousands of these businesses to get meaningful revenue," says Greg Sterling of researcher Sterling Market Intelligence. Privacy remains an issue, too: Foursquare's home page shows users' photos and the places they congregate.

Location-based software startups are experimenting with ways to turn their popularity into sales. Foursquare is writing software that could help small businesses analyze data it's collecting about what days, times, and special offers trigger the most foot traffic, co-founder Dennis Crowley said. Albert Wenger, a general partner at Union Square Ventures who sits on Foursquare's board, says the service could help businesses by increasing customers' loyalty.

Gowalla offers its users the ability to trade "digital souvenirs" found in its game for real-world goods, says CEO Josh Williams. The company has a deal with laptop bag maker Incase Designs that lets Gowalla users collect virtual Incase products by checking in at Apple retail stores. Users who complete a collection can win products from Incase. Gowalla investor Mike Maples Jr., managing partner at Maples Investments, envisions the ability for bars to beam coupons to potential patrons at nearby restaurants deemed demographically desirable.

Stumbles in the Past

The computer industry has taken a run at location-aware software before. Startups Loopt and Brightkite tried to amass audiences a few years ago for software that tracked mobile phone owners' whereabouts. In 2005, Google bought Dodgeball, another company in the field, that was founded by Foursquare's Crowley, but Google then shut it down a year ago.

The new crop of location-based startups has been able to take advantage of exploding iPhone sales and other smart phones that include GPS technology and that make it straightforward for software developers to tap location data. Foursquare and Gowalla feature attractive user interfaces that show people real locations instead of points on a map. The ability to check in voluntarily at venues quells some of the privacy concerns users had with the previous generation of apps.

Advertising through mobile phones is attracting attention from some of the most influential technology vendors. Sales of mobile phone ads, while still a small percentage of the overall Web advertising market, are expected to grow from $525 million in 2008 to more than $13 billion in 2013, according to market researcher Gartner (IT).

The Data That Ads Generate

Google on Nov. 9 bought mobile advertising company AdMob for $750 million in stock, and its new NexusOne smart phone is designed to encourage users to conduct more of the searches that link to mobile ads. Apple on Jan. 5 acquired mobile advertising company Quattro Wireless for an estimated $275 million. Apple considers the data generated by mobile searches so valuable it's considering replacing Google as the iPhone's default search engine with Microsoft's Bing.

Twitter is also trying to garner more data about its users' locations. On Dec. 23 the company acquired startup Mixer Labs, which lets application developers pair data about users geographic location with their tweets. At a Jan. 21 panel discussion at Bloomberg BusinessWeek's San Francisco office, Twitter Chief Operating Officer Dick Costolo said the social networking site may make more acquisitions this year and is looking closely at location-based applications.

Whether location-aware software paves the way for more interesting and less intrusive mobile-phone ads, long a tech industry grail, may depend on whether its purveyors can tailor their products to appeal to people who aren't rabid socializers or much impressed by gee-whiz gadgets. "Foursquare made it acceptable to tell other people your location," Scoble says. "When I show it to normal people, they don't understand."

Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in Frankfurt.

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