Revenues from location-based services (LBS) will hit USD1.2bn in Europe and North America in 2016, up from USD830m last year, as rising smartphone adoption drives up the number of consumers accessing services and apps that utilise location, according to research from Berg Insight. The report claims that mobile LBS are “gradually” achieving mainstream market acceptance, with more and more consumers using location in activities such as mapping and navigation, search and information and social networking. Berg estimates that the number of active users of LBS has more than doubled so far this year, with 20% of mobile subscribers in Europe accessing such features, with that figure rising to a third in North America.
“Higher adoption of smartphones is driving usage of mobile internet services and apps in general,” says Berg senior analyst André Malm. “The installed base of GPS handsets in Europe has reached 35% of total handsets and surpassed 70% in North America.”
Despite the 44% revenue increase expected between 2010 and 2016, Berg believes that growth is lagging behind consumer uptake as competition in the space intensifies and concerns over privacy and pricing remain. The report suggests that location-based ad campaigns are still in the “trial stage”, with a number of issues needing to be resolved before they “contribute significantly to overall revenues”. Nevertheless, the business model for location services is shifting from premium fees to advertising, with location providers increasingly focusing on freemium apps in a bid to boost user numbers. The move means that ads are now the main source of revenue for most LBS categories, except mapping and navigation, as advertisers look to target their ads based on consumers’ location.
“Along with increasing usage and a maturing advertising ecosystem, ad revenues will grow both in absolute terms and as a share of total revenues,” says Malm.
The growth in user numbers and revenues will be welcome news for services such as Foursquare and Gowalla, which have so far failed to attract a mainstream user base. Recent figures from the Pew Research Center suggest that just 4% of US adults use check-in services, and the firms have so far struggled to convince analysts of their long-term business models. However, Berg’s estimates are relatively conservative compared to previous research, with Pyramid Research forecasting that the global LBS market will be worth USD10.3bn in 2015, while Strategy Analytics predicts revenues of USD10bn in 2016. Berg’s figures break down to USD710m in revenues in North America in 2016, up from USD620m last year, with European revenues rising from EUR205m (USD274m) in 2010 to EUR435m (USD582m) in 2016.
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