Are geolocation apps a novelty or the next big trend?

In December Facebook announced it would acquire Gowalla, an app using geolocation software to let users check-in to locations to gain rewards, and create and view social travel guides. Gowalla's biggest competitor, foursquare, announced in June that its number of registered users passed 15 million worldwide. And, in April, Groupon acquired Pelago, the creator of location-based app Whrrl. With social media juggernauts like Facebook and Groupon investing in this technology, and foursquare expanding its user base, it would seem that location-based apps are rapidly on the rise.

Glympse users can alert others of where they are in real-time.

Despite this, Forrester Research reported that only 5 percent of online U.S. adults used located-based apps, excluding navigation apps such as Google Maps, at least once a month during 2011. And that number is up from only 4 percent in 2010. Even with major players in mobile investing in geolocation technology, growth in this area has been stagnant--the report also reveals that less than half of the adults who use location-based apps use them weekly.

One aspect that many researchers tend to neglect is that many users may be accessing location-based apps without knowing what they are. While foursquare and formerly Gowalla were known for their check-in capabilities, a variety of other apps use location information for many other tasks.

Location-based apps use what is known as geolocation software, meaning they track a user's location to personalize an app experience. With an app like foursquare, whose entire purpose revolves around a user's location in relation to places and his or her contacts, it is essential. Others, such as Yelp, incorporate geolocation software as a part of the app.

Are these companies missing a key part of the picture? Is user interest in this kind of technology rising or has it already plateaued? Most importantly, if this technology isn't a passing fad, can we expect growth in this sector? And where is it coming from?

Problems in adoption

At present, location-based apps are most popular within a small demographic. Forrester's report found that 63 percent of the users engaging with these apps were male and had an average household income of $92,700. In 2010, it found that 78 percent of these users were male and had a household income over $105,000.

For these apps to become more popular and expand their reach, they will need to cater to different demographics.

Ben Huggins, senior producer of national brands at SCVNGR, said its user base is predominantly in the 18-34 demographic with more males than females.  But, he explained, the app does attract different demographics when it partners with brands that cater to different demographics, such as upscale department stores.

Huggins also explained that with these types of apps, developers are still exploring the location space.

"It is still relatively new and not something that people are clamoring for. You could go through your life without using an LDS [location device app] but it can add value to your day."

As the market becomes more saturated with devices with geolocation abilities, the user base for these kinds of apps with various location-based functionalities likely will grow.

At the same time, many users are wary to try location-based apps due to privacy concerns about others knowing where they are. 2011 saw a rise in users concerned with mobile data security, including researchers uncovering a flaw in Apple's iOS 4 that recorded location and time-stamp data.

Peter Sheldon, senior analyst of e-business and channel strategy at Forrester Research, explained that young adults and teenagers have grown up with this kind of technology and the Internet and are aware of the risks and benefits of knowing where their friends are.  

"Now if we look at an older demo--Baby Boomers, retirees--it is completely different. There's trepidation about sharing their location, especially on a social network," Sheldon said.

Near2There's CEO and co-Founder Peter Olfe hopes his app will cater to this demographic, relying less on social sharing capabilities and more as a utility.

"Strangely with our app, the older that you get the more that you forget things," Olfe said. "I would say even the younger demographic--early teens--they probably have less mobility in that respect and are going on a much more regulated pattern from home to school... it is not as much of a necessity [for them]," Olfe said.

Olfe isn't fazed by users' wariness of sharing location information, even though his app stores all geolocation information locally. He likens the transition to consumers making purchases online and being less concerned with e-tailers stealing credit card information.

Glympse's CEO Bryan Trussel also doesn't think users should be too concerned with privacy. "We're about individual people letting others let each other where we are for a certain time." Glympse links expire after a maximum of 4 hours.

"The ability for consumers to use location is increasing more and more. We're seeing a lot of other capabilities with Apple's release of its Find my Friends application," explained Sheldon.

Opportunities for growth

Sheldon sees an opening for growth in location-based opportunities. He cites Groupon as seeing far greater ROIs and click-through rates when offering deals via push notifications rather than via email. In a similar vein, Sheldon expects more apps to take advantages of the APIs in Apple's iOS 5 that track when users enter a geofence around an establishment.

For example, a movie theater may know that someone has entered the radius of one of their theaters but not who specifically that is. The user could then receive a notification for a half-price movie ticket to an upcoming show with empty seats. In this way, the user's privacy isn't violated, as he or she would need to opt-in to receive offers and the theater would profit through increased sales.

One of the biggest challenges facing location-based apps is retention. While foursquare touts a larger membership, its retention rate is far lower--in part because it attempts to bridge itself as a location platform and a social platform.

Sheldon explained that the market for social networking is already saturated. With Google+, he argues, there was some early excitement with people registering for accounts, but users ultimately not having the tolerance and time to use it in addition to Facebook.

"Users try one of these new ecosystems but are dragged back into Facebook because their friends are in there," said Sheldon.

To reach that stage, location-based apps will need to captivate a larger segment of the population. So, if apps like foursquare have upwards 15 million users, why is the penetration rate of location-based apps still so low?

The location-based apps that will succeed will court new demographics by attracting active users, rather than playing on novelty aspects like check-ins. And, with Facebook absorbing Gowalla, and other companies using check-ins as a small part of a larger mobile offering, geolocation software could become a big trend in 2012.