You Are Here: Why location is the next web battleground

Despite controversy this week that iPhones track their unwitting users, location-based services are set to soar. Nick Clark reports

Users of Apple's iPhone were surprised to learn this week that the best-selling device was surreptitiously tracking them from their pockets.

Pinpointing people is becoming increasingly important for mobile companies, developers and advertisers, and the trend, still in its infancy, is set to explode into the mainstream.

The largest online companies are embedding geo-location ever more deeply into their services to allow users to do everything from seeing where friends are, to recommending locations or finding the nearest place to buy a cheap cup of coffee.

The use of location sparked controversy this week after it transpired that Apple's smartphones have been recording users' locations into hidden files and sending them to Apple. Subsequently it emerged that Android phones do the same.

In a letter sent to several congressmen last year, Apple said it needs the data to provide more precise location services. It needs updates to map the ever-changing landscape, "more innovative uses of mobile technology and the increasing number of Apple's users," it said.

Despite this leak, Apple's desire to expand its locations services – as evidenced by its acquisition of PlaceBase in 2009 – has been no secret. And this week a mysterious meeting took place after Dennis Crowley, co-founder of the location-based social network Foursquare, "checked in" at Apple's headquarters.

Foursquare is the largest of the pure location-based social networks and now has more than 8 million users. Those with accounts "check in" to venues, partly to keep up with friends but also to participate in the "game" layered on. Those checking into various locations are awarded "badges", and if they go to one place often enough they can become its "mayor".

The group was only set up in 2009 but its success has already convinced Michael Bloomberg, the actual mayor of New York, to take part in last Saturday's "Foursquare day". But despite the growth of such companies, which include rivals such as Gowalla, many see them as little more than a gimmick.

Jeff Mann, research vice-president at Gartner, said: "The specific location-based social networks have peaked a bit in terms of interest. Foursquare and Gowalla had an explosion about nine months ago but now have to take it to the next level."

He continued: "Initially checking in is interesting if your friends are there, but it becomes more interesting if doing that allows you to access cool stuff. Those companies are working on it." While 2010 may have been "the year of location," 2011 is the year companies want to make it pay.

Josh Williams, the co-founder of Gowalla, acknowledged recently that "the honeymoon is over", adding that it was time to develop the services into new areas. He wants Gowalla to target travel guides such as those produced by Lonely Planet.

Foursquare also believes that 2011 is a critical year. It has improved the mobile interface and introduced a recommendations engine of local places the user may like. Mr Crowley told a conference this week: "We have to look at the future tense; there's a big opportunity."

The development of commercial location-based services can be traced to the launch of DoCoMo in Japan in 2001, which used triangulation from mobile phone masts to locate users' handsets. Yet the technology was slow and inaccurate. Despite advances, including AT&T launching a local search application to find nearby restaurants and shops, it was not until GPS chips became more widespread in handsets that services began to blossom.

Dan Cryan, senior analyst at Screen Digest, said: "The rise of smartphones was absolutely key, with GPS allowing phones to be location-aware quickly and accurately. The old method of triangulating took ages." More and more services now have location awareness plumbed in; for example, Twitter allowing users to locate their tweets. Mr Cryan described an "underlying sea change" in such services, covering "everything from geo-tagging a photo to getting a discounted cup of coffee".

While location networks and services are well established among the tech cognoscenti they are hardly mainstream. Check-ins from the wider public may surge for one compelling reason: Facebook is on board. The social networking phenomenon rolled out Places last year, whereby users can check in to locations through the site. It has since shown the first signs of how these companies can make money out of such a service with the launch of Facebook Deals shortly after. Launched in the UK in February, the service allows users to see local money-off deals from local shops and restaurants once they have checked in.

Emily White, Facebook's director of local, said: "This space is quickly expanding. It is becoming much more widely accepted. The whole premise makes sense." She added that Facebook's move into Places "is a crucial moment in location-based services. We have such a huge chunk of the population." Many believe these services will replace couponing, and will become word-of-mouth marketing for the 21st century.

The ability to focus on specific users and their location will give them an edge over discount sites such as Groupon and offer advertisers the benefit of a deal being posted to a consumer's wall.

Mr Mann said: "Facebook does legitimise the practice in a way and does expose more people to it. But location is not the primary function for Facebook. The pace of innovation can be increased by specialised services. So Facebook does not mean the end for Foursquare and Gowalla. But if all they offer is check-ins they will struggle. They need to make the next step."

Mr Cryan said: "So far it's been about adding useful functions to improve the quality of experience for users. Monetising is next. That's where innovation like Facebook Deals kicks in. It is the first mass-market service to aggressively monetise location-based services."

Google is also clear about how important location is becoming. David Burke, engineering director at the search engine group, said: "Location is on the up. Location and mobile are intricately intertwined. Google has increasingly moved to a mobile first." The company has not only invested in the smartphone platform Android, and built Maps and Google Earth, it has also bought an earlier version of Foursquare set up by Mr Crowley and shut it down in favour of its location service, Latitude. This has since been layered with check-ins and local information.

Mr Cryan said the use of maps on smartphones had familiarised consumers with location and that an increasing number of smartphone apps depended on GPS, from real-estate companies such as Rightmove to directories like Yell and area guides such as Time Out and Qype. Mark Curtis, chief executive of flirting and social networking site Flirtomatic, believes that location "will be the key driver in a lot of digital services in the next 10 years. Before, the digital world was about separate virtual worlds like Second Life or even the Matrix. Now, with location-based services, digital worlds are being mapped over the real world.

"It adds a fourth dimension that people will enjoy expanding. We're just at the very start."

More and more services will be about location. Google is looking at introducing location into its browsers, to make web applications more locally aware. And Toby Barnes, managing director of Mudlark, which developed Chromaroma, a real-world game using data from Oyster Cards, said: "Locations will start talking to people. They will want to advertise themselves. People are getting used to it as companies come up with new business models."

Companies are becoming more creative in their use of location. This month Audi launched an interactive billboard in Time Square. Those who checked in on the "Audi A7 Experience" saw their names and photographs appear on the billboard.

Yet it is still early days for the services, and as with the Apple row this week, privacy remains a contentious issue. One journalist showed how easy it was to track a complete stranger with Foursquare, while others fear that "data scraping" will be used to build up a bank of personal information. Mr Mann said: "Privacy and security concerns remain. People are broadcasting exactly where they are, and when they are not at home. People may be more comfortable, but these concerns remain."

Foursquare's co-founder Naveen Selvadurai said: "There is a lot of misunderstanding about location-based services. On Foursquare, if you don't want people to know you are on a date or with a friend at a certain place, then you don't have to let people know. You don't check in." Yet Mr Barnes said the whole concept of personal privacy was changing: "Privacy is important. People are beginning to accept it is something you don't protect but that you have the right to control."

Yet many cannot wait for the advances through location. Mr Cryan said: "We are still really near the beginning of what you can do with location-based services. You couldn't do this four years ago. Developers are already innovating wildly."