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Will Facebook Places revolutionize location-based mobile advertising?

With a half-billion users and 100 million of those mobile, Facebook will make major waves in the mobile space with its location-based Places platform?if it is able to get it right.

At last night's awkwardly timed press conference to announce the launch of Places, Facebook professed that it wants to collaborate, not compete, with other location-based mobile social networking platforms, promising to open up APIs to developers. Facebook even called executives from Foursquare, Gowalla, Booyah and Yelp on stage to talk about each platform's integration with Places.

?If Facebook goes full throttle as a location-based mobile social network and develops [brand and retailer] partnerships like Foursquare, Gowalla and shopkick have, and if they can do this correctly, which remains to be seen, the implications are huge,? said Josh Martin, senior analyst of wireless media services for the global wireless practice at Strategy Analytics, Newton, MA.

?Facebook has 500 million users, and these other platforms have maybe 10 to 15 million combined,? he said. ?Introducing these types of location-based services to a larger audience is key, and the potential is huge, but will Facebook fall on its ear due to the privacy issue?

?Historically, Facebook has not been good at protecting privacy, and that could cause people to be fearful.?

Private Places?
Mobile social networks that leverage location such as Foursquare, Gowalla, Booyah?s MyTown, BrightKite, buzzd, Loopt and MocoSpace, have courted consumers and brands with check-in features and gaming elements.

Compared to those platforms, Facebook clearly has the reach advantage, but it has been held back from ramping up location-based services due to backlash related to privacy concerns.

To address those concerns, Facebook executives offered a litany of bullet points designed to set people's minds at ease about Places:

? The default setting shares a user's location with friends only

? Places users have full privacy control and customization

? Just as with photos, users can untag themselves from a Place

? Users can only tag their friends when they are checking in at the same Place

? Users are always notified when they are tagged

? Places users can opt out of having friends tag them

What about monetization?
Because of Facebook?s impressive reach, brands and retailers will flock to its mobile properties, especially if they are able to target their mobile campaigns using location data.

Strategy Analytics' Mr. Martin said that if even 10 percent of all Facebook users ? a conservative estimate ? adopt location-based services in some way, shape or form, that would add up to 50 million users, which would be huge.

Tens of million of new consumers using a service such as this could multiply the location-based mobile social networking market by three times or more, according to Mr. Martin.

However, at the press conference, Mark Zuckerberg, founder/CEO of Facebook, deftly dodged a question asking him about plans to monetize Places via brand or retailer partnerships, rewards earned for checking in or advertising.

Mr. Zuckerberg said that while one could certainly imagine such things in the future, for now Facebook is focused on getting the Places user experience right.

Which, of course, left more questions than answers, and sparked speculation among marketers and analysts about the possibilities.

"One question Facebook avoided was about monetization," said Augie Ray, San Francisco-based senior analyst of social computing for interactive marketing professionals at Forrester Research Inc. "When asked how Places will make Facebook money, they instead refocused attention on the benefits to users.

"There is no question that knowing where people are and what places they visit will be valuable data for Facebook and its advertisers," he said.

"It will permit Facebook to better understand [the] individual?s likes and dislikes not simply based on what buttons they click but on their actual real-world behavior - and knowing where an individual is at a given moment will permit Facebook to serve better and more relevant ads based on user location.

"To date, Facebook has not been in the mobile advertising business, but it's easy to see how Places will change that."

Boon for mobile advertising?
EMarketer estimates that advertising spending this year on Facebook will reach $835 million in the United States, up from $500 million in 2009.

Worldwide, Facebook is expected to bring in an estimated $1.28 billion in advertising revenue.

?With a quarter of its users on mobile and being the largest social network, bigger than many countries in terms of users, the impact [of Facebook adding geolocation features] is potentially significant,? said Noah Elkin, senior analyst at eMarketer, New York.

?Facebook has a degree of scale and reach that no other social network can offer, and adding location features really helps to bring the advertiser closer to the consumer at the point of his or her interest, which is likely to influence purchase intent,? he said. ?I think that?s why you see so many companies trying to wrap their heads around this location factor.

?Place has a lot of power, because it?s very much in line with what the consumer is doing or what he or she is intending to do.?

However, in addition to assuaging users? privacy concerns, Facebook and the marketers that run campaigns on its platforms must provide a compelling value exchange.

Why would people want to share their location unless there is a tangential benefit to them as consumers?

For some consumers, a branded badge, sticker or other virtual goods may be enough. For others, a mobile coupon or discount offer on real-world goods would be more compelling.

Whatever the incentive may be, an I?ll-scratch-your-back-if-you-scratch-mine proposition is key to encouraging consumer participation in marketing campaigns, location-targeted or otherwise.

Growing ecosystem
While it is too early to evaluate how Facebook Places may affect other players such as Foursquare and Gowalla, there is no doubt that it will have a huge impact on the intersection of mobile and social, which is a burgeoning field.

Collaborating with other developers may turn out to be a deft move by Facebook.

?Facebook has felt some degree of competition from mobile social networks, but part of what gives the site its appeal is that it ties into a broader ecosystem,? eMarketer's Mr. Elkin said.

?I don?t see Facebook as eradicating these supposed competitors, but rather finding a way to tie them into Facebook,? he said.

?Facebook sees that Foursquare and Gowalla have tapped into something that is important to consumers, and that?s the motivation for Facebook to get into this game.?

Others analysts agree that Facebook is correct to court developers and encourage rivals to integrate with its platform, rather than compete outright with it.

?My anticipation is that Facebook will be both competitor and partner with the existing location-based service companies,? Forrester's Mr. Ray said. ?I look to social gaming as the model?Facebook doesn?t create social games, but they offer a platform on which social games can thrive.

?I don?t think Facebook is interested in creating a true standalone geolocation service with mayors and points, but instead will weave individuals? self-reported location into the data they have,? he said.

?How this data gets used?be it for new social games, for loyalty programs or for Foursquare-like mayorships?will likely depend upon how developers make innovative use of that data.? 

Facebook dominates the Internet experience of an entire generation of people who spend their lives interacting via the platform.

Many of these consumers do not use Foursquare or Twitter, so when Facebook adds different features, they pay attention to it.

Location will bring out different uses of Facebook, and raise the profile of mobile location-based services.

If a rising tide lifts all boats, then Facebook may provide a boost to competitors, or ?frenemies,? as the case may be.

?If Facebook gets location right, it will bring a bunch of new people to interact in that way and be willing to share their location,? said Oren Michels, CEO of Mashery, San Francisco. ?The potential for location-based advertising is obvious.

?The point of a great mobile app is to do a couple of things incredibly well and easily, so it will be interesting to see if Facebook will be able to really dive in and do geolocation really well, or if apps that make use of Facebook Connect and integrate with Facebook can provide a more compelling experience,? he said.

?Facebook's open platform provides an opportunity for people to see what Facebook is doing and maybe do it a little better?smart entrepreneurs will work on a more compelling experience but still leverage the compelling experience that Facebook provides, with reach to half a billion people that are connected to each other.?

Influencing purchase decisions
The real potential of location-targeted advertising for brands and retailers is influencing consumers? purchase decisions when they are out-and-about, close to various points-of-sale.

Location increases the relevance of advertising, and the more relevant an ad, the more likely it is to be effective.

?Adding location to advertising on mobile phones makes the inventory more valuable if there is a buyer,? said Julie Ask, vice president and principal analyst at Forrester. ?One of the challenges is that it is hard?or has been?to sell truly local inventory from local shop and salon owners.

?Events and movies tend to be local, as do restaurants,? she said. ?With cell phones, applications tend to have more ?curated? experiences?so, I have an OpenTable application, I have a Yelp application and I have a movie application.?

Hopefully the powers-that-be at Facebook realize the ability of location-targeted advertising to impact consumers who are low in the purchase funnel.

?The real power of location is when it is coupled with intent to buy,? Ms. Ask said. ?If consumers are low down in the purchase funnel and close to buying, they can be directed into a store or theater to make a purchase.?

Final Take
Dan Butcher, associate editor, Mobile Marketer