Why LBS Applications Fail

By David H. Williams

The LBS market has finally taken off, and with it has come a flurry of LBS application development, with an increased urgency among developers to be first to market with their application. This urgency increases the risk of missteps in the LBS development and launch processes. These missteps take the form of what I call the "LBS Seven Deadly Sins."

The Seven Deadly Sins of Location-Based Services. Source: E911-LBS Consulting 2006

Each of these "sins" has one or more underlying root causes, and nearly all are interconnected in some way. This article discusses how they occur and how you can prevent them.

Sin #1 - Poorly Identifying Opportunities
Opportunities are missed or mis-targeted because of:
  • Poor definition of the market(s) and associated applications
  • Lack of understanding of key demographic issues and, in turn, the true opportunities
  • Addressing the symptom and not the cause of a market opportunity
Poor definition of markets and associated applications is not an LBS industry-specific flaw. It is a communications industry-wide flaw, as well as an Internet-based business flaw that manifested itself frequently during the dot-com bust. For years many wireline communications companies based their marketing strategies around two generic market segments: consumer and business. Any drilling down into individual segments or demographics within those two categories was done inconsistently and poorly. Instead, these markets were addressed with mass-market, one-size-fits-all, be-all-things-to-all-people approaches. For example, when (the old) AT&T and MCI tried to enter the Competitive Local Exchange business in the 1990s, they insisted on having every service that the incumbent Local Exchange Carriers had, instead of focusing on the most popular services and building infrastructure for those services.

For example, upwards of 80% of consumers were interested in the same bucket of 10 or so services (e.g. call-waiting, caller ID, voice mail), but there were over 70 individual service possibilities and literally thousands of combinations. This resulted in a much more complex product and operational structure than necessary, which destroyed their cost structure, caused billions in losses and ultimately resulted in their exit from the business.

On the LBS front, a number of fleet management businesses have emerged over the last few years. While they occupy a "macro-niche," so to speak, such businesses need to drill down to another level of opportunity identification to understand the key issues of the individual niches in that market. Some have theft concerns, others maintenance, inventory control, driver management and even non-theft loss. Many of these fleet management businesses risk failure if they do not appropriately identify opportunities.

An example of a company that does a good job of identifying and targeting opportunities is Virgin Wireless, one of Richard Branson's companies. The company's vibrant marketing strategy, using billboards and the company's website, clearly targets teenagers with its "cool" slogans, brightly colored phones and simple plans. In reality, the company offers nothing more than any other carrier - in fact, all it does is resell another carrier's network under its own brand. But Virgin Wireless does understand the target market and the kind of messages that appeal to that market.

A good way to prevent trouble at this stage is to use external resources early in the business planning process which can independently assess the opportunities you are pursuing.

Sin #2 - Poorly Articulated Customer Value Proposition
If you don't clearly articulate why a customer should buy your product, you'll run into this sin. Will he realize cost savings? Time savings? Peace of mind? LBS has many benefits. Not understanding and/or articulating the value of your service can potentially be fatal. Root causes of poorly articulated customer value propositions include:
  • Not understanding the specific want or need you are trying to fill
  • Not understanding the specific benefit that will come to the customer by using your service
In some ways, this sin is an extension of poorly identified opportunities. However, poorly articulating the customer value proposition is broader than that. It is as much a customer psychology issue as anything else - how to build the perception of value in the mind of the customer, so he not only subscribes to the service, but keeps the service and gladly pays the fee for it.

LBS value proposition possibilities include achieving/improving:
  • Revenue (new services, premium upgrades to existing services)
  • Cost savings (reduce service time, persons needed for a given task)
  • peed/productivity (improve customer responsiveness, increase tech visits per day)
  • Quality (fewer mistakes)
  • Convenience (easy to do business with)
  • Comprehensiveness (including all necessary related elements)
  • Community (extending that comprehensiveness to a broader environment)
  • Reliability/consistency (can we count on it every time?)
  • Accuracy (distinctly different value proposition from reliability)
  • Access to experts, special services
  • Safety/security/peace of mind
  • Customer satisfaction
You can prevent this sin by engaging a panel of trusted associates who are familiar with the target market to help define and refine the value proposition. If you have the resources available, perform detailed market research in the form of surveys and/or focus groups to test the value proposition, as well as identify forms of marketing most likely to appeal to your target group.

Sin #3 - Weak Business Case
This sin is the poor translation of the value proposition into financial terms. Root causes can include:
  • Unreasonable expectations of revenue, costs and qualitative benefits
  • Improper sizing of the market
  • Overzealous expectations regarding revenue growth
  • Simplistic estimates of start-up costs
Many of these causes can be addressed by solid financial "blocking and tackling," using the standards and processes advocated by your company's accounting department. Use, as well, the standards that your company's decision making executives demand when making investment decisions, both in form and in content.

However, in many cases LBS represents a brand new business - not just to you, but to your financial team and the executives and investors involved. Furthermore, there may be limited "apples-to-apples" opportunities to compare what your business concept would and could do against existing competitors, or there may not be any existing competitors. A weak business case is the number one reason that LBS applications get rejected by carriers and venture capitalists, yet it is often a low priority for developers who lack the business skills and are preoccupied with the technology. You can avoid this sin by getting external support (e.g. consultants) to help in crafting a strong business case.

Sin #4 - Inflexible Business Model

An inflexible business model includes poor design and management of the model used to launch, operate and grow the LBS business. Root causes include:
  • Inflexible adaptation to changing competitive landscapes and customer preferences
  • Poor risk management
It is important to distinguish an inflexible business model from a poor business model. There are many business models from which to choose - for example, flat fees, per use, advertising-based, etc. Because LBS is such a new area there will often be a fair amount of trial, error and adjustment in how customers will be charged and how you will support your services.

Even a good initial business model may need to be changed over time as market conditions and customers change (example: AOL). Many companies have made the mistake of not recognizing when the business model needs adjusting, or to be overhauled completely. That's a fatal mistake. You can avoid this sin by having an active advisory board that is close enough to fully understand the business, but detached enough to recognize market trends more quickly than management.

Sin #5- Flawed Technical and User Design

This is the failure to design toward the specific value proposition that is important to the target markets. Root causes include:

  • Inattention to use cases of the service, the associated user interface, and the degree of personalization of the service
  • Lack of creativity and innovation
  • Not recognizing all the complexities involved in an LBS deployment: application setup, network and operational processes and systems, business operations and customer service
  • Failure to adapt to realities of wireless device information presentation limitations
As the diagram below shows, there are many components to a typical LBS architecture. These components and others need to be designed, implemented and integrated in order to fully deliver the LBS service and operate the business supporting the service with both high quality and profitability.

LBS Conceptual Technical Architecture. Source: E911-LBS Consulting

Most successful LBS applications will rapidly attract competitors. While part of the "defense" against such competitors lies in intellectual property protection (see Sin #6), another key defense is in the design of the application and the ability of potential competitors to replicate it. LBS applications need to have a high degree of personalization that effectively becomes a barrier to competitive entry as well as a barrier to customer churn. Examples include:
  • Preferences and personal profile setup
  • Privacy, security and interaction rules
  • Integrated functionality
  • Easy-to-use interfaces
LBS applications that do not pay enough attention to these personalization opportunities significantly raise the risk of failure, no matter how good the concept. You can prevent this sin by bringing users and/or experienced testers into the process as early as possible to help refine your technical design, and hire experienced business people early on. (The staff will also provide management credibility to potential investors.)

Sin #6 - Inattention to Intellectual Property
This sin is the failure to legally protect your intellectual property (IP) or recognize existing IP. Root causes include:
  • Not understanding the patent process, and the rights and obligations related to patents
  • Leaving patent licensing until the end, thus offering competitors/patent holders the ability to claim infringement and jeopardize your business
Not protecting IP for any type of technology, particularly communications-related technology, is one of the biggest threats to building a long-term successful business.

These perils became evident in a major way in 2005. Patent judgments against Research In Motion (the maker of the Blackberry) materially harmed its finances and, for a time, threatened the company as a whole. Companies like Qualcomm, whose main assets are the patents they own and their willingness to go after anyone they think might be infringing on them, also pose a threat to companies that neglect thinking in terms of IP protection.

It is not absolutely essential to have a unique, patentable idea to create an LBS business. However, it is essential in the long-term that, at a minimum, you do the due diligence necessary to determine if you are infringing on someone else's patent(s), and if that is the case, you must license the patents. The risks of not doing so rise exponentially as your LBS company becomes more visible and successful in the marketplace. You can prevent this sin by consulting an experienced patent attorney as early in the design cycle as possible to explore how you can best protect and/or license the IP you are developing or that which you need.

Sin #7 - Deficient Marketing
This refers to the inability to get visibility in the marketplace. Root causes include:
  • Taking a mass market approach versus niche product marketing
  • A tendency to adopt a "Build It and They Will Come" mentality, while losing focus on the key value proposition(s)
  • Not recognizing that customer education and giving the customer a sense of personalization is essential
The foundation of any good LBS marketing strategy, and service for that matter, is niche product marketing. Taking a mass product market approach results in messages that are too generic to be attractive to customers, or too easily replicated by competitors to command a premium price point.

Examples of this can be seen in the general navigation market (and the fleet management market mentioned earlier). There are few obstacles in the way of new entrants to the general navigation space, and with new competitors, price points are pressured downward. While the services themselves are popular and will continue to grow in adoption, there is little room to stand out from the crowd if the service is generically offered as a one-size-fits-all navigation service, as most are currently doing.

Another key factor is customer education and personalization. As with any new service that uses new or unfamiliar technology, it's important to place a priority on extensive customer education via marketing efforts and initial customer interactions. Often LBS personnel, including the marketers, can become so intimately familiar with the application that they assume the customer knows almost as much as they do.

A key element of customer education and the niche product and specific value proposition essentials is the need for personalization at every opportunity. From a marketing standpoint, this starts with specific examples of the value proposition. For example, ADT, the security services company, blatantly exploits the fears of moms at home alone with their children with marketing campaigns that show a man trying to break into the house and ADT coming to save the day. While you may question the tactic, it is effective, and it specifically describes the value proposition - protection from bad guys - to a specific market - home alone moms. ADT has several of these types of ads targeted at somewhat similar value propositions of other demographics, but the ads are very different depending on the demographic. Some emphasize general safety, others... piece of mind, still others... value and convenience, etc.

As marketing gets more targeted, from media advertising to direct mail to customer education, the messages become more and more focused on the specific needs of that individual customer. You can prevent this sin by taking a niche market approach in the design, building and marketing of LBS applications, emphasizing the value proposition in every dimension of the process. Use your advisory team, external resources and/or inside resources, and charge them with the specific task of making sure the niche philosophy and underlying value proposition is adhered to during every step of the development and launch process, a form of quality assurance.

There is nothing unusual in any of these "deadly sins," and in fact many of them can be avoided with good planning and solid management. That said, it's all too easy to get caught up in the rush to market and lose sight of "the forest for the trees." It is incumbent upon developers and management to keep these issues at the forefront of the team so they will not fall victim to their very serious consequences.

Published Thursday, February 1st, 2007

Written by David H. Williams



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