On the trail of location-based profits

08:32, January 10, 2011      

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Lou Ying is used to "checking in" online using her mobile phone to tell friends where she is and what she is doing. The 29-year-old financial auditor is addicted to a new location-based service, which tracks her movements whenever she moves from home to Metro station to restaurants and even to the guest houses where she stayed during a New Year holiday in Thailand.

Lou is not alone in China in embracing the latest technology. More than 40 firms in China have begun location-based services with platforms similar to that of Foursquare in the United States. The list of firms includes start-ups such as Jiepang and GyPSii, and dot-com giants Sina, Shanda and Baidu.

Every player in the market seems to sense great prospects for such services in China, which has the most mobile phone users of any country. Prospects are bright but profitability is some way off, according to industry officials.

"Location-based services are like a cake in a mirror," said Ren Yanghui, an analyst at Beijing-based research firm Analysys International. "It's easy to see but difficult to attain at the moment."

The services combine information and entertainment accessible through mobile networks that have the ability to pinpoint the geographical position of a mobile device. They can not only identify a person's location but also assist the mobile user find another location, such as a cash machine or the whereabouts of a friend or colleague.

Social networking

At present, such services have attracted more than 3.5 million users in China since the Foursquare model was introduced in the middle of last year, including Foursquare itself on the iPhone.

The new services are expected to grow rapidly this year and next, thanks to the interface among location-based services, mobile maps and social networking sites, according to Analysys.

Many financial and manufacturing businesses in China have uploaded their information online through Google, Baidu or Alibaba. Now it's time for consumer-oriented firms, such as restaurants, massage parlors, shopping malls and other places, to join the trend.

Location-based services allow business to better acquaint themselves with customers and target online promotions based on users' locations and living patterns.

The websites closely related with daily lifestyles, such as Diangping.com, will enjoy an advantage because they already have extensive user bases, analysts said.

Shanghai-based Dianping, a website providing gourmet restaurant reviews and discount coupons, has launched a location-based service for its mobile clients, including those using iPhones. With the system, users can easily locate the closest recommended restaurants, a particular boon for business travelers.

"For us, it's a must-have function, but it's too early to expect income from the service," said Edward Long, senior vice president of Dianping.

More than half Dianping's traffic will come from mobile devices this year, compared with 20 percent in 2010, Long said.

But the industry needs to go beyond the small base of young technology addicts who embrace anything new to become really profitable. Dianping plans to invest more this year to strengthen ties with more off-line shops to provide coupons or discounts for location-based service users, Long said.

It's a slow slog making inroads. No developer of the services had attracted more than 400,000 users by the end of last year, according to Shanghai Daily's research and interviews with firms, including Beijing-based Jiepang, one of the market leaders.

Compared with the user base of Internet giants such as Tencent, estimated at 1 billion, and Qihoo 360's 300 million, location-based service numbers are puny, according to Analysys' Ren.

"It's expected there will be mergers and acquisitions in the sector this year in a test of survival of the fittest," said Ren. "The trend is tie-ups with social networking sites."

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