Two to tango: The takeup of location based services such as Foursquare and Facebook Places is highly dependent on smartphone OS evolution.

The launch of Facebook’s Places created a positive feedback loop of locations, seamless check ins and tagging and encouraged a much wider audience to experiment with location services - the ensuing publicity even resulted in an increase in Foursquare signups. However, as regards fostering true location based innovation, developers may have to wait for the next generation of location aware smartphones as the ‘Facebook platform’ is but an app when it comes to smartphones.

To understand why, it is worth examining the evolution of location based services. The first such services had to grapple with small screen sizes, used various cell tower geolocation methods in the absence of widespread GPS availability and were limited by processor speed and battery technology. The situation improved somewhat with the higher end business phones that came out in the later half of the decade, however operators kept a tight grip on device decks (not to mention keeping data costs high) and location based services were limited to early adopters. Thus, launching a location based startup had pretty much the same odds as buying a lottery ticket and mobile pundits such as Tomi Ahonen questioned the commercial future of these services.

Although there were smartphones (Nokia’s N95 for example) that solved some of these issues and drove early adoption of services such as Google Maps, it arguably took the first versions of the iPhone to drive mainstream use of location based services. The 3G iPhone built on earlier versions that had Wi-Fi hotspot lookup and made it practical to reliably find yourself on maps and see nearby points of interest. Foursquare, GoWalla and others layered innovative social functionality on these foundations, in tune with the growing importance of social networking (read Facebook).

However, apps like Foursquare have reached the limits of what is possible with current handsets. One of the biggest complaints by Foursquare users (self included), is that it does not go far enough in encouraging repeat usage - only one person can be mayor of a place at any on time, and even that wears thin after a while. Foursquare is addressing the usage issue by signing partnerships that give the user special offers or content when they check in. But transitioning from early adopters to the mainstream requires either a large number of offers which requires deep pockets, or highly targeted offers that can be pushed to users.

To date, Facebook has proven to be extremely good at providing a social platform conducive to the growth of all manner of applications. The rich APIs and large audience are tailor made for viral growth (helped of course by a healthy budget of hyper targeted advertising). For example, Foursquare's integration with Facebook (pre Places) meant that if a check-in was mentioned in a user’s feed, there was a chance that it would lead to higher experimentation and adoption. But viral experimentation will not make a major dent in the end user value equation. That is where smartphone OSes can play a big part. Until iOS4, multitasking was constrained and third party apps were unable to sit passively in the background and geotarget users. This changed with iOS4, and within weeks of its launch, automatic checkins proliferated with apps such as Future Checkin and SCVNGR. It is a matter of time before Foursquare and Gowalla follow suit.

Problem solved? Perhaps. Geotargeting is highly attractive - some location based ad networks are reporting a 10x CPM advantage – and it won’t be long before more apps try to take advantage of this potential revenue uplift. If you have multiple location aware apps running in the background auto-polling on your phone, you pretty quickly hit a hardware constraint, not to mention the privacy implications. This is a platform issue and will have to be resolved on the mobile platform and not by individual apps. In the face of the privacy storms erupting around Google, Facebook and others, Apple in particular has been careful to stress its fine grained privacy controls, which have now extended to include location apps. It is reasonable to expect these to become standard issue in other OS. As location based apps become more capable, expect the controls to become richer and allow users to manage the type of information that passive apps can collect or the events they can trigger.

However, there still remains a transactional problem. How do users redeem a special offer such that marketers can track the success of such campaigns across a large number of outlets? Current practice for mobile coupon redemption involves scanning a barcode displayed on a phone screen or reading out the code and store staff keying it in manually. The process is inefficient and in the latter case error prone. Near field communications (NFC) may provide the answers. Nokia has had such phones on general availability for some time and said that all its phones will be NFC enabled by 2011. Apple is also working on them - recent patents incorporate an NFC enabled framework for data exchange between the iPhone and a merchant device that supports exchange of user information and payment. This enables iPhone users to make transactions on the go and in the manner of their choosing, without having to use long winded credit card payment (cue Japanese mobile phone users stifle a yawn).

Future users of location based apps may be able to take advantage of content that can be targeted both locally and socially and redeemed or purchased frictionlessly using coupons or m-commerce payments. Think Foursquare or Groupon with automated coupon push and redemption/purchase functionality based on your social graph, and that is just scratching the surface. Just as the advent of the iPhone 3G unleashed a wave of creativity, the widespread availability of always on geotargeting and NFC payments supercharged by social graph and other hyper-targeting information will hold surprises for us in the near future.