Tattletech Hot Seat with Claudio Schapsis, LBS Guru

Way back at the beginning of 2009 at CES in Las Vegas, we had the great pleasure of meeting Claudio Schapsis. Claudio was deep into Location Based Services (LBS) and if and how they could make money. He was tracking all the 80+ start ups at that time that had entered the loosely defined space. We liked that about him. He was trying to get some perspective in place around a market segment that had sprung up quickly but had no definable borders. His blog is bdnooz and there he tackles the issues surrounding LBS, its future and it’s ability to generate revenue. You can also follow Claudio on Twitter @lbs_pro.

Tattletech:  Location, location, location and yet no one can seem to get it quite right these days, what do you think is missing right now from all the location based services (LBS) out there?

Claudio Schapsis: We are witnessing a paradigm shift. Wireless carriers were used to provide services with 100% retained revenue. Then, products like the iPhone come to the market and revenues start to be shared; voice is declining and text and data based services are flourishing. Location based services complicate the equation even more, as in order to provide a LBS you need to divide the pie between more hungry diners. A simple Location Based Service require maps, development interfaces to access the maps, an app developer, a LB Service provider, location aggregators, AND the wireless carrier to transport the information. Suddenly the value chain changed and we are on the quest for the right business models that can serve everybody (see some of my articles about Value Chain here <http://bdnooz.com/2008/11/28/location-based-services-value-chain-part-2/> ).

The immediate consequences result on some of them crippling non PDA phones, taking away simple features like the capability to synchronize your contacts with your computer or in the case of location based services “hijacking” the GPS functionality to work with their own “pay more” applications.  Can you think about having to pay an extra to use the digital camera of your phone and be allowed to do so only with the carrier own service? What’s the difference?

The difference is, as usual, money.  ABI Research estimates that this year worldwide Location Services will grow 156% to 2.6 billion dollars and by the end of 2014 will surpass the 14 billions. The drive to control those features will only slow down the industry’s growing process. Instead of fighting for a larger slice we should be looking on how to make the pie bigger. And that’s possible, as the LBS market (for personal applications) is in his infancy.The right business models are missing for the industry in general, and also for those new Location Based application developers. Many companies try to migrate web applications to the mobile world without thinking through about the new value chain.  Suddenly they discover that providing a free service is not free, that they need to develop in four or more different operating systems, that the threshold for privacy in mobile phones is different than your desktop PC.

I could answer your question with just three words  – Right Business Models.

TT: You are speaking at a lot of LBS events and specifically on Latin America, what do you think the primary differences are in this market and the rest of the world?

CS: The penetration of mobiles phones in Latin  America is around 80% and in some countries in the territory over 100%. The market is mostly dominated by two major regional players America Movil (Telmex) and Telefonica Movistar. They share more than 65% of the Latin American market and together with TIM they have around 75% market share. That means those three companies have more than 10% market share of the whole word mobile market. Their size and coverage allows them to take regional decisions, providing them a substantial leverage when negotiating with vendors and partners. On the other hand each country presents different user profiles in terms of usage and consuming behavior.

The usage of data is still low, but growing. And besides the traditional fleet management and AVL applications, we start seeing Location Based Services made in CALA i.e. Location Based Social Networks, Friend Finders, Bus routes notifications, and others. The difference is that in this market most of these services are provided in partnership with the same mobile providers.

But you start seeing the first movements in the market. This is the first year that Frecuencia Events organized LBS LATAM <http://www.lbslatam2009.frecuenciaevents.com/home/contenidos.php?id=34&amp;identificaArticulo=26&amp;idiomaRequerido=2>  together with their traditional Mobile Content LATAM and Mobile Enterprise LATAM conferences in Miami. As chairman of the event I can say I was surprised by the response in terms of attendance from the region and vendors interested in this market. You can see companies like Tele Atlas, OpenWave, AnyData, Position Logic, Xtify, and many others coming to meet their prospect Latin American partners.

TT: Lat49, a Vancouver-based provider of a geo-contextual advertising network, raised $1.5 million in Series A funding which is a lot for an LBS company these days, what do you think it will take for VCs to fund LBS companies today?

CS: Investments in the LBS arena are not much different from other markets. I might sound repetitive, but the first thing I would like to see is a solid business model. You cannot start a company that your exit strategy is “we predict that xxx will buy us once we get to our 500,001 user”. I would check the company capability/record of delivering (execution), their uniqueness in the market, relevancy, and timing.

Nevertheless, when looking at LBS companies, you need to understand the specific LBS value chain, the nuances in each specific market, and the implementation feasibility. This is particularly true when the service is based on data collection/exchange with a mobile device. I can have the best LBS idea, but if the carriers block me from getting the information then where is the value? (Porter’s Supplier Power).   I had the opportunity to work with many investors in evaluating different types of proposals. I personally look for core enabling technology that can be seamlessly implemented across different REAL WORLD applications. After reading many different proposals it becomes easier to see the pitfalls, multiply the opportunities, and find alternative cash-flow possibilities.

TT: On your blog write about the monetization of LBS when do you think that the LBS companies today will actually begin or be able to monetize? Will it be in their consumer app or will they turn them to B2B proposition?

CS: There are numerous companies in the LBS that are making money. Many of those provide infrastructure services like data aggregation and enabling technology, other are just emerging in the mobile marketing arena.

I personally prefer B2B propositions. For me Location Based Services are a company effort to transform geographical positioning information into valuable and relevant data for a customer, to make a profit which I find easier to implement that into a B2B environment.

TT: A lot of VCs today say a map is just a feature, nothing to build a whole application around, what do you think about that?

CS: Location is not just a feature. It changes everything. I can understand VCs that sees many propositions around web applications + location. LBS go beyond that. The real LBS applications are not something + location but the real effort to covert Location into Money. How? Send me an email with the specifics and let’s keep talking.

– JLH

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Tags: Claudio Schapsis, Location-based service