Location-Based Service Market to Reach Nearly $4 Billion by 2018

The location-based services market holds great potential for growth across several vertical industries, and advertising will play a major role.

The mobile location-based service (LBS) market in North America is forecasted to grow at a compound annual growth rate (CAGR) of 16.1 percent from $1.8 billion in 2013 to reach $3.8 billion in 2018, according to a report from IT research firm Berg Insight.

The social networking and entertainment category has now become the largest LBS segment both in terms of number of active users and revenues.

It is comprised of a broad set of services that can be segmented into general social networking, messaging apps, friendfinders and games.

The report noted location analytics data is also being adopted for diverse purposes such as site selection in the retail industry, as well as for urban planning and traffic monitoring by public authorities and private companies.

Mapping and navigation is the second largest segment in terms of revenues and the third largest in terms of number of active users. Specifically, local search is now the second largest LBS category in terms of active users and the third largest in terms of revenues.

"Advertising is the main source of revenues for most consumer oriented LBS", André Malm, senior analyst for Berg Insight, said in a statement. "Revenues are however far from evenly distributed as major players including Facebook and Google with broad audiences have attracted the majority of ad spend."

Malm noted that the increase in number of active users and usage of LBS has now also resulted in significant revenue growth.

"Some mobile operators have also started to collect passive location information of subscribers for use in mobile analytics services," Malm continued.

This anonymous bulk location data can be used to improve the performance of mobile networks and support operators' internal marketing campaigns.

Mobile operators no longer hold a central role in the consumer LBS ecosystem that is now dominated by over the top (OTT) players that leverage location data from handsets and on-device app stores for distribution.

Instead, the report found mobile operators are exploring opportunities in the enterprise and business to business (B2B) market where network-based location data can be used for a wide range of services such as asset tracking, fraud management, secure authentication and location-based advertising.

The report also revealed revenues in Europe are forecasted to grow from € 735 million ($1.01 billion) in 2013 at a CAGR of 25.8 percent to reach € 2.3 billion ($3.1 billion) in 2018.

Berg Insight estimates that about 50 percent of all mobile subscribers in Europe were frequent users of at least one location-based service at the end of 2013.

In North America, where adoption of GPS-enabled handsets is still somewhat higher, an estimated 60 percent of all handset users now access location-based services at least monthly.

A September 2013 report from Pew Research found nearly three-quarters (74 percent) of American adult smartphone owners ages 18 and older say they use their phone to get directions or other information based on their current location.

Yet even as most smartphone owners use their phones' to gain location-specific information, data from earlier surveys also shows that mobile users of all ages say they have turned off location-tracking features at some point due to privacy concerns.