Many of you have asked me about PROFITS and where the money goes in the LBS market.
I will try to bring together the main components of the location-based services (LBS) value chain.
As I mentioned in my previous post, the main components of this chain are the LBS service provider or developer (LBS APP), the data provider (a mobile operator like T-Mobile, AT&T, etc.) and the customer. We can identify 3 basic types of relationships.
in the first the LBS application provides an application to the operator and the operator provides the service to its customers for a fee, or for free, to encourage the use of data services. For example, companies like Loopt are offering their LBS social networking services through carriers like Verizon Wireless, apps like Autodesk family finder, and others.
The main challenge for the LBS app is to find one of the mobile operators that is willing to buy and offer the app through their network. Once the service is up and running, all promotion, billing and collection is done by the mobile operator. LBS APP’s revenues may be lower, but risks are reduced as investment in infrastructure and operations is minimal. On the other hand, customer ownership generally remains with the mobile operator, which minimizes the possibility of the LBS app upselling other products.
About the second scenario the customer pays a fee directly to the LBS app and they bear the cost of wireless service fees. For example, companies like ID Conex, Zoombak, Laipac, and other personal tracking devices make the customer pay the company directly.
In this case, the LBS application assumes most of the obligations, responsibilities and risks. They need to develop, promote and market their products, maintain logistics (delivery, billing, collection, customer service, etc.) and create a communication infrastructure that allows them to provide the service. If the LBS app manages to establish a large and stable customer base, the business receives recurring cash flow over the life of the product or subscription and the business retains ownership of the customers.
The third scenario It is based on web 2.0 paradigms. The customer pays the cellular operators for Internet access. The LBS app offers a free product/service with the vision of creating some collective value for the user. Most LBS social networks work under this business model.
The LBS APP enables a service through an internet connection (fixed and/or mobile) assuming that customers already have a data plan with their mobile operator. The service is usually independent of the mobile operator, and the LBS application needs to invest in basic infrastructure and development/maintenance of the application. As the service is free, the LBS app is investing in the future value of the network and user-generated information such as people’s location, movement habits, etc. – just find out what they are going to do with the information collected about your location.
The story does not end here as there are many other factors to consider in costs. These include, but are not limited to, M2M communication providers, map and interface providers for map developers, who care about your profits.
In parts 2 and 3, I will develop the extended models of the value chain and location-based services based on Web 2.0 strategies and your specific value chain.
See article with illustrations included at http://bdnooz.com/2008/11/23/location-based-services-value-chain-part-1/
As always YOUR COMMENTS ARE WELCOME.