Monday, January 11, 2010

"Location based advertising" creates major threat to local media ad sales (and B2B) but also new opportunities

The pursuit of local advertising has begun in earnest.

In the fall of 2002 I was approached by a friend to give advice to a technology start-up here in Chicago. Their concept was simple: using IP addresses they would deliver local advertising on national web sites. At the time this concept was still in its infancy but showed promise as some national sites were already using IP addresses to send localized messages or content to readers. This companies idea was to approach newspapers with a deal: you sell internet advertising to your local customers, these ads would then appear not only on your local news site, but also on major national web sites like Yahoo and CNN.

The idea seemed to have merit as long as 1) the national sites were willing to surrender the ad space to the ad network -- and share the revenue; and 2) the newspaper would play along and enthusiastically sell ad space outside of their own products -- something newspapers have historically been hesitant to do.

In the end, the whole thing fizzled for many of the common reasons start-ups fail, but the concept made sense: localize the Internet experience.

Today, there are several ways in which major companies are going after the local advertising market through location based advertising -- and the development may become a major threat to local media outlets trying to hang on to advertisers who already are questioning the value of traditional local print advertising. Worse yet, even local media companies that are successfully making the transition to the web and mobile media may be impacted as their customers choose between you and . . . Google, for instance.

Google Maps already is an easy way for consumers to find local businesses, and the migration of GM to the iPhone has only increased its popularity.  Google's iPhone app was included in the very first version of the iPhone and improvements to the app has added traffic volume, some navigation, business locations and . . . localized advertising. (Since the initial launch of the iPhone the relationship between Google and Apple has become more competitive than cooperative.)

A few months ago CNET wrote about the local ads beginning to appear on the iPhone version of Google Maps. In their story they searched for "Verison Wireless" and found that Google Maps not only gave them information about Verison stores near their location, but a "sponsored link", as well.

For this article I duplicated the experiment.  Opening up the Google Maps app on my phone, I pushed the symbol that makes the app find my current location; then I searched for "lawn mowers". As expected, a bunch of red "pins" appeared showing me stores where I could find "lawn mowers" (see above).

I then searched for Chicago; then refined the search by typing in "AT&T Wireless". Up came the usual red pins, but this time a sponsored link appeared as well (see at left).

This experiment shows that Google wants to embed local ads in search results, but will most likely have to stick to soliciting national brands.

(I think it is important to repeat why I see this as a "threat": Google may see its entry into "local" advertising as only involving national brands advertising their local outlets, and therefore not a threat to small publishers. But small publishers also receive national advertising. In addition, if more local businesses adopt Google's new search products there may be less money left for more traditional advertising like print. Google Adwords is another example of how Google is able to penetrate deep into the base of potential advertisers.)

While some think the future is not only location based advertising, but pushed local advertising. Sunday morning on Weekend Edition Gene Munster, research analyst with Piper-Jaffray said this of location based advertising:
"Well, its an advertisers dream. Essentially what happens is there is a lot of information that an advertiser has, that a network has, just by you having one of these smart phones. As you're walking down the street they know your exact location, they know your gender, your age, because you signed up for a plan. They will also know the time of day, and some of your history searching habits in the past. So essentially these devices will be able to zap ads to you as you're walking down the street. There may be, for example, an ad for a coupon for a dinner that might be around the corner. But that potential, and that's just scratching the surface,  is massive."
The host, Liane Hansen, was skeptical: "It's going to annoy people!"  No kidding.

It would be annoying if Google really would do this, but is it their nature to deliver you unsolicited advertising?  No. You only begin to see paid ads on Google once you have searched for something, and the ads are contextual. I don't see this changing. Maybe cell phone companies would be attracted to pushed advertising, though I think customers would rebel.

But while all this is happening Google's penetration of the local market is exploding. Google's Local Business Center, for instance, is a free way for local businesses to appear on Google Maps and in searches -- and the service is free. To this service Google has added Favorite Places, a way a local business can get even more attention. The search at right was for "Naperville" and "office supplies" which turned up mostly major companies, but a recent search for hard drive repairs showed me a local vendor I wasn't familiar with.
We've identified over 100,000 businesses in the U.S. as "Favorite Places on Google" based on Google users' interaction with local business listings. Each business is receiving a window decal with a unique QR code that you scan with your phone to read reviews, star the business as your own favorite and more.
So, can you play this game? Yes, to a certain degree.

Including maps with online directories is old-hat by now. An inquiry on the Equipment World site shows that you can use Yahoo Maps to see the exact location of a vendor included in their online equipment directory. But in order to do true location based advertising you need to be capturing location information for visitors to your site or mobile media as Google Maps does.

Software developers are already entering the market to do this for publishers. Lat 49, for instance, targets mobile application developers and content publishers and provides these solutions for the iPhone, Android phones, BlackBerry, Palm, Symbian and Windows Mobile.

A recent press release show it is going after this new market:
Lat49 now provides advertisers with the ability to target their messages to a mobile device user’s physical location, as well as any expressed location of interest, based on map views, weather lookups, local business searches, or local news requests.  These location data points can then be combined through customizing include and exclude rules, known as ‘Location Logic’, to provide the most accurate location-driven audience targeting available to advertisers today.

“Given the inherent location-driven nature of mobile phone apps and sites, Lat49 will not only provide mobile developers with a great source of additional revenue, but advertisers with arguably the most targeted means to convey their brand message.  At Lat49 we monetize location, and our launch into mobile exemplifies this,” said Lat49 Acting CEO, Christopher Morris.

To show how the move to localization is exploding, there is even the ability to serve localized video advertising, as claimed by mDialog. The mDialog platform can insert geo-targeted video ads into a video stream by taking advantage of Apple's new HTTP Adaptive Video Streaming technology.  mDialog bills itself as "a video platform that provides media publishers and advertisers with a turnkey solution to manage and deliver video content and integrated video advertising that is relevant to the iPhone audience."

The rush to localize is on and Google has a head start -- it has the name recognition, popularity, and it has the means. Local media, and B2B media, though, have some advantages, too (they know their customers, and their customers know them . . . on a first name basis).

The key will be to adeptly migrate a publisher's content to new mediums, and incorporate the built-in features of that medium. For mobile media that means the ability of that device to know where you are, where you are going, and to serve you information relevant to that location.

My concern is that few publishers will leap into the mobile media space in time to save their brands dominate positions. Worse, as they did online, publishers may consider a jump into the mobile space as simply another "thing to be done" and fail to create mobile products that are customized to the medium.

Update: I contacted Lat49 over the weekend and asked a couple of questions concerning their services.
TNM: If a publisher, for instance, wanted to develop an iPhone app that allowed them to deliver location based advertising to uses, would the publisher work directly with you, or would they have their app developer work with Lat49? Also, does your capabilities include using this technology beyond map-based apps — that is, have you integrated this technology in other areas like online directories, etc.

Lat49 founder and CTO, Dr. David Baar: Regarding your iPhone question: Our mobile API is very simple.  It just requires making simple http requests for ads, with location info, and returns basic ad content. So long as they are able to make such requests happen and cause simple image and text content to be displayed, with handling of a click destination, either the publisher or the app developer can work with Lat49 to have location-focused ads served to their users.  And yes – Lat49 ‘Location-Logic’ technology can ingest other information besides what can be found on a map.  For example, we can select ads using logic that ingests both the user’s physical location, and locations they are  expressing interest in (ie – someone in San Francisco looking at weather in New York), and performs combinatorial logic on this information, to serve them an appropriate ad (ie – flight specials). We also can consider the "degree of locality" of the user's interest, in deciding e.g. whether to show a very local business ad or a more brand-oriented one.

Thank you to the  Brad Zaytsoff and Dr. Baar at Lat49 for responding so quickly to my request for more information. You can find Lat49 at their web site here.