Published: May 15, 2020
Introduction
Marketers frequently use location data – gathered largely from consumers' mobile devices – as part of their advertising and targeting programs. This data is sourced from a set of companies that collect, anonymize, analyze and deliver it. The location data services market was changing even before the coronavirus pandemic as vendors developed new use cases and tools for incorporating this data into campaigns. COVID-19 has created stark turbulence for these firms – location data isn't terribly useful when people are staying home and not buying in stores.
The 451 Take
The coronavirus crisis came along at an impressionable moment in the evolution of the location data sector. It's hard to envision all of the current players surviving to make compelling arguments about use cases like attribution and analytics. Expecting the stakeholders that make location data viable – brand managers, agencies, marketers and app developers – to rebound quickly enough to genuinely push location data into the marketing mainstream is also a stretch. For the time being, location data looks to remain a niche technology focused on mobility and proximity marketing. More advanced use cases will probably not take shape until late 2021 or beyond.
Context
Through 2019, marketers indicated that they were keen on increasing their deployment of location data, and were looking at newer, more sophisticated use cases related to key processes such as mobile attribution and audience segmentation. Greater use of this data source across the marketing technology stack was expected to lead to marketers having finer-grained visibility into competitive intelligence and customer intent.
Marketers are accustomed to inferring characteristics based on home address in direct mail campaigns or in a banner ad campaign with IP address as a proxy. Advertising has been the most significant application of mobile-driven location intelligence in use to date. But with advertising spending slowing to a crawl in key segments like retail and travel, the prospects for vendors in this space are now questionable, even if marketers do still see its utility.
While the usefulness of location data services is hampered for the duration of the pandemic, the problems it was expected to address are not going away. When advertising and promotion returns, it will still be necessary to measure attribution and correlate offline and online behavior. The question for the space is whether the companies that exist now will be able to ride out the economic distress and emerge with solid use cases, prepared to make the difficult arguments that their technology should be at the top of the priority list when businesses address pent-up needs.
There has already been consolidation since the start of the year, with Foursquare acquiring Factual, as well as several smaller deals. That leaves a collection of smaller players clustered around the one dominant market participant. In a normal economic environment, this sector likely would have seen continued winnowing.
Marketers Expect Location Data to Measure Complex Behaviors
Location data is primarily sourced from app developers, which are paid by location data firms to include their SDKs in apps. Consumers, in turn, have the option of opting into or out of location data collection via their OS or individual app settings. 451 Research's VoCUL, Connected Customer, Consumer Representative, Q4 2019 data shows that 24% of consumers keep location services enabled all the time, and 41% have it enabled for specific apps.
Advertising remains the most significant application of mobile-driven location intelligence in deployment today. But many providers have also made strides in curating accurate data, in large part by relying on sources beyond the advertising 'bidstream.' Data that comes directly from apps tends to be more accurate because the location data comes directly from the device, whereas bidstream data often comes from the app publisher.
In a custom 2019 survey conducted by 451 Research, executives and marketers identified specific applications for location data that they thought would have the most positive impact on their business. Among the most successful were the ability to create audiences based on competitive brand behavior (e.g., store closings, price increases), which was cited by 74%; the ability to estimate the total incremental volume of visits generated by the campaign and calculate ROI (71%); the ability to tie visits to transactions and estimate the incremental revenue generated by the campaign (65%); and the ability to perform affinity analysis into consumers' offline interests and cross-channel shopping activities (75%). Figure 1 illustrates the capabilities that buyers cite as most impactful regarding the combination of location data and analytics services.
But that was 2019, before COVID-19. Today's outlook is cloudier, as those marketers' expectations are hard to square with an economy falling off a cliff. The assessment that location data would be widely adopted by marketers for mobile attribution and analytics is still valid. But it will take significantly longer to make it widespread, and there will be fewer companies around to take advantage of it.
Value to Businesses to Date
There are multiple ways businesses can extract value out of location data. The primary use case has traditionally been advertising enablement: Location information drives deployment of ads at specific places and times, and allows marketers to measure their return on ad spend (RoAS) afterward. It has also enabled proximity marketing via beacons and geofences that offer promotions or incentives to go or stay to/in a particular place.
RoAS is one of the metrics that has led vendors to find value in broader analytics products involving location data. Businesses have expressed interest in melding the marketing metrics they already collect through other sources with location, particularly to correlate online and offline behavior. Online is already heavily tracked, but offline behavior is a black box. Location data is considered a way to amplify the effects of advertising to move people into brick-and-mortar sites.
Before businesses can make use of location data, consumers have to provide access to it. They have control over general permissions via their device operating systems, and can allow access to location for particular apps. According to our VoCUL: Connected Customer, Consumer Representative survey, roughly one-quarter (24%) of consumers leave location services on all of the time. Another 41% turn it on for specific apps like navigation, shopping or social networking, while 27% never turn it on or always disable it. That provides a large enough group of devices to make meaningful inferences about aggregated behavior for multiple purposes such as audience creation.
Looked at another way, consumers have a slightly dimmer view of how they view the marketing that comes their way due to location access. Almost half (47%) find location-based offers to be either annoying or intrusive, and another 37% don't mind receiving them but are not sure they would actually use those offers. The population of consumer enthusiasts for this technology is just 16%.
This suggests that use cases beyond simple promotions or proximity marketing have more room to run because they don't force the consumer into a position of having to respond directly to location-based messages. Instead, companies can use the data to make assumptions about large groups and promote in ways that are more subtle and less intrusive.
On the business side, custom 451 Research surveys have indicated that the majority of marketers consider location data valuable and useful, but many are challenged by the complexity of integrating it with existing data resources. More than two-thirds (69%) indicate that location data is a strategically important part of their planning, but only 32% say they have already devoted resources to employing it to enhance marketing efforts.
The most cited use to date has been to measure the relationship between offline and online promotions, suggesting that vendors should be amplifying their messaging about metrics and their analytics capabilities. And indeed, as the availability of location data has proliferated, companies in the space have begun to differentiate based on tools for manipulating that data to build segments and target customers. Some vendors are moving away from dependence on serving advertising and promotions to consumers who cross a location's threshold.
Serious Headwinds Exist
Despite the potential, location data vendors are facing some serious headwinds. First, the coronavirus pandemic has cut the legs out from under the business' basic premises. With most people under lockdown, there is little value in knowing where they are (at home). With no one shopping at brick-and-mortar locations, and locations not explicitly competing with one another for foot traffic, promotional opportunities are limited. And with advertising spending way down, much of the underlying rationale for using this data is minimal.
Beyond the immediate economic crisis, there are other signs that location services have to overcome some obstacles to wider deployment. For example, consumers prior to the crisis (late 2019) were decidedly ambivalent about receiving personalized information based on their immediate location. More than one-third (38%) were completely or mostly against that premise, while just 18% completely or mostly agreed, with the rest in the middle. (Based on data from our VoCUL: Connected Customer, Consumer Representative survey.) When asked why they turn their devices' location services off, most people cited privacy (55%) or security (44%), while 21% said they do so to avoid advertisements.
This doesn't have to be a deal-breaker for the industry – in fact, most of the vendors in the space have been emphasizing their commitment to privacy and security for some time, to the point where solid protective practices are essentially table stakes for clients. Additionally, research suggests that consumers are more likely to recommend a brand if they make robust privacy and trust features available. They are also more likely to be more loyal to a retailer that lets them opt in or out of tracking features like location.While location may be considered strategic information by marketers, it will still be a challenging environment for the many companies in this space. Marketers perceive little difference among the precision and accuracy of the competing data sets available, and we anticipate a lengthy war of attrition before we know which vendor (or combination) will be viewed as the alternative to Foursquare, currently the largest player.
New use cases will continue to be promoted by vendors. Some are focusing on attribution and analytics, notably Cuebiq with a new multitouch attribution offering. Others like Factual (prior to its sale to Foursquare) look to data enrichment as a differentiator.
With multiple companies willing to pay publishers for access to device-level information from their applications, the basic GPS-level data is gradually becoming table stakes, not likely to differentiate one vendor from another. This has pushed firms like Unacast to target different buyer personas, and has spurred companies to work to differentiate based on data quality and privacy, not just quantity.
And the industry faces scrutiny from a public that is growing more aware of the extent of location data collection. The end result of these forces will likely be a series of consolidations and perhaps a pause in the deployment of some of the advanced use cases that vendors were depending on to grow.
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.
Jordan McKee is a Research Director for Customer Experience & Commerce, and also leads 451 Research’s coverage of the payments ecosystem. He focuses on digital transformation across the commerce value chain, with an emphasis on the major trends impacting payment networks, issuing and acquiring banks, payment processors and point-of-sale providers.
Csilla is a senior analyst for 451 Research’s Data, AI & Analytics channel. She currently focuses on decoding the blockchain market to help replace confusion and complexity with an examination of the technology, the competitive landscape and available solutions that are driving the market, as well as real-world use cases and deployments.