Location-based services still have to win over business

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Image caption Where are you? Location-based services like Foursquare and Gowalla have millions of active users, yet many businesses are still tentative.

Shabhankar Ray is a busy man.

As global brand director for Dutch clothing company G-Star Raw, he personally takes a hand in all its marketing and advertising - and he has no time for ideas that do not work.

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Media captionWATCH: G-Star's Shubhankar Ray on using location-based services

But recently he decided to invest in a new marketing tool which, he admits, he understands far less than his 14-year-old daughter.

He knows how the tool is meant to work from a consumer's perspective: a person uses their GPS-equipped smartphone to reveal their location and in return they are offered special promotions from nearby businesses.

Yet he is unsure of exactly how such 'location-based marketing' will translate into bigger profits for G-Star Raw.

"It's a journey of discovery. At our company, we're all aged 40-plus, so we've had to learn as we go along.

"When it comes to location-based services, all I know is that we have to be there. How many people it will bring into our business? I have no idea," he said.

The rapid growth of Facebook taught Mr Ray that he has to hedge his bets and put G-Star on as many different networks and platforms as possible.

"We've learned how to be present on social networking sites without expecting a precise metric or business return.

"We had no expectations from Facebook and now we have a quarter of a million friends on there. Eventually location-based services will take off in the same way," he said.

Over-ambitious forecasts

Mr Ray may have scant information to underpin his optimism, but he is not ill-informed. Even experts in this field acknowledge a serious lack of hard data about the commercial power of location-based services.

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Media captionWATCH: Can location-based services work without you 'checking in'?

"The big players like Google do release some figures, but they don't break them down so we can see what's going on", says Martin Garner, from mobile telecom research firm CCS Insight.

"The smaller players hardly release figures at all."

"There are none of the data and feedback mechanisms that businesses need in order to know that location-based services are a good idea."

Location-based services claim to have millions of active users and hundreds of thousands of businesses - but that does not reveal how much money is being made through their platforms.

Mr Garner believes that this lack of commercial information is mainly due to the uncertainty surrounding a new industry, rather than any deliberate effort to hide less-than-impressive statistics.

But at the same time, he acknowledges that location-based services are failing to catch on as quickly as expected.

"We had some fairly ambitious forecasts about location-based services early on, but they didn't quite come to pass."

While Mr Garner still believes that location-based services have big potential, he believes that they are growing slowly because no one has yet discovered a killer business model.

Early days

There are many rival location-based services, each of which works in a slightly different way, but so far none of them can claim to be perfect.

Some services have been prone to cheating, when users have found ways to lie about their location. Others have been vulnerable to 'coupon-chasers' - people who visit a business just to obtain a discount there, with no intention of returning.

Most major networks require users to 'check in' repeatedly at a particular location before receiving any discounts, but this can deter users who are reluctant to broadcast their location or patterns of movement to strangers.

Image caption Whatser founder Michiel Verberg believes his app solves the privacy issue

"The location-based era has just started and everybody is still trying to figure it out", says Michiel Verberg, founder of location-based app Whatser.

"It's like the early days of search, when you had lots of different search engines like Yahoo and AltaVista, before Google suddenly came along."

Mr Verberg would no doubt like Whatser to become the next Google, although it currently only has 20,000 users.

Nevertheless, Michiel Verberg has managed to entice Shubhankar Ray onto the network, and G-Star's Covent Garden store is now one of its 80,000 recommended places.

Part of the appeal is that Whatser users do not have to check in: They are simply alerted to places that their friends have visited and liked in the past. Real-time locations are not revealed and recommendations are possibly less open to abuse than checking in.

"If a friend suggests a place to go, that is something you can trust", says Mr Verberg.

"I think the future of location-based services will not be about people revealing their location, but about making information more relevant and more trustworthy."