Will Mobile Social Networks Be Thrown for a Loopt?

Location-based mobile social networks, such as Loopt, GyPSii and Pelago, could be a $3.3 billion market by 2013. But history and current trends suggest these startups won't be standing on their own for some time. Loopt has already won deals with Sprint and Verizon, GyPSii is working with Samsung and Garmin, Google's acquired Jaiku, and Nokia bought Plazes.

It's always fun to noodle over on market expectations for red-hot technologies. But the media and analysts are too often guilty of trying to drag a horse behind a cart.

For example, if I told you location-based mobile social networks would spawn a $3 billion-plus market within the next five years, you'd probably think I was nuts. At the very least, you might politely ask to see some proof.

Location-based mobile social networks services include geo-tagged video, audio and text content.

They let users do anything from exchanging recommendations about places to finding nearby friends from mobile, Web-based handsets, such as Nokia phones, Apple's iPhone or RIM smart phones.

Such services are just a part of the mobilization of the Internet, where companies are trying to recreate the desktop experience on mobile handsets.

Yet people aren't exactly lining up to buy these services anymore than Google, Yahoo, Microsoft or telephone carriers have figured out how to successfully target users with ads for mobile social network services.

Even so, ABI Research analyst Dominique Bonte claims sales from location-based mobile social networking services from Loopt, GyPSii and Pelago, will top $3.3 billion by 2013.

While Bonte is bullish on Loopt and its brethren, he allows that the successful business models may not lie in targeted mobile advertising as many believe but in more traditional licensing deals. He wrote:

"While location-based advertising integrated with sophisticated algorithms holds a lot of promise, the current reality rather points to licensing and revenue-sharing models as the way forward for social networking startups to grow their customer base and reach profitability."
Bonte cited the deals Loopt inked with Sprint and Verizon Wireless, who are offering Loopt's social mapping software as add-ons to their wireless phone service plans. GyPSii has notched similar deals with Samsung and Garmin.

I agree with Bonte that such mobile social network services have promise, but trying to track them as a separate market might be a bit premature.

Carriers and companies who desire to operate in the mobile applications space have already begun to buy these startups before they have the chance to be recognized in a fully independent market.

Google's acquisition of Jaiku and Nokia's recent purchase of Plazes are great examples of this.
Google, working hard to bring phones based on its Android mobile operating system to market, may well find a way to monetize ads on Jaiku. But Google bought Jaiku last October. What the search giant is doing with it is a mystery.
In the meantime, let's look at the market opportunities. A perusal of the deal between Loopt and Verizon Wireless shows that Verizon is offering its mobile phone service customers the Loopt service for $3.99 a month. In that context, Loopt is purely an add-on service.
If Verizon were to buy Loopt, it would probably continue to offer Loopt in that capacity, just as phone carriers offer roadside assistance and other services.
Can services such as Loopt stand on their own when companies are leveraging them in business deals as an add-on feature? I don't think so. The mobile advertising play is a whole other area for service providers to figure out.
There are other challenges, according to Bonte. He said these companies are struggling to stand out in a fragmented market. He also cited privacy concerns as barriers to the mass market adoption of location-based mobile social networking.
ReadWriteWeb's Frederick Lardinois expressed his own doubts, noting that most of these networks simply don't have many users and "that the chances of finding any of your friends on them are relatively low for now."
That may be the biggest obstacle to adoption: Without friends, how can a mobile network be considered social?