A Web 2.0 Expo panel discussion focusing on location-based services—or LBS—for mobile phones narrowed down the one fundamental requirement for any service hoping to make it big in the space: It needs to be fun.

Steve Lee from Google, Elad Gil from Twitter, Martin May from Brightkite and Nicole DeMeo from SachManya discussed the topic in a Thursday afternoon session in a room on the second floor of Moscone West. For now, one major issue for location-based services is that there is no one place to get access to location data like landmarks, businesses, etc.

Martin May (pictured here, with Steve Lee on the left), co-founder of Brightkite (a location-based service that is one of the pioneers of the check-in feature later adopted by Foursquare and Gowalla) told the audience that his company would like to see an open database of locations.

“Everyone is building their own databases, like Foursquare and Gowalla, and they are very good,” May said. “But a single source for places would open the field for all. This is an enormous undertaking [for instance, think of the millions of businesses of the world which come and go] but it would be very interesting for all of us.”

He admitted that there are already companies like GeoNames that provide places, but they are not all-encompassing. Geonames is good for landmarks, countries and cities, but not businesses, for example.

Steve Lee chimed in, saying that there are tremendous technical challenges to building an open, uniform database for everyone to use. Not only that, there are major licensing issues to resolve before this kind of step could be taken.

“Google licenses a lot of its data from third-party providers, and we can’t give that data out for free,” Lee said. “It’s really difficult to figure out a win-win situation for all of the companies involved. What may be great for one company’s strategy may not work at all for someone else.”

Elad Gil pointed out the “fun factor,” which is really what users want. In Gil’s opinion, while there are considerable problems, they are not unsolvable with enough money and enough effort. “Building a really fun and compelling service is fundamentally where the magic is. It’s easy to say but very hard to do. But you can see that there are many, sort of semi-crappy services out there that have done well because they can provide users with a compelling service, regardless of the maturity of their technology.”

Tags: LBS, location, location based services

Companies: Brightkite, Google, Twitter

People: Elad Gil, Steve Lee

If there was any doubt that location-based services such as Foursquare, Gowalla and Hot Potato are the next hot web thing, the South by Southwest Interactive conference in Austin in March hammered the point home (Om has called 2010 “the year of location”). The annual gathering of technology geeks was the site of thousands of “check-ins” from different venues, and the emergence of “flash mobs” as all the attendees saw crowds forming at various spots and rushed to join them. Watching a time-lapse visualization of those check-ins is like watching the outbreak of a virus on a medical show, or the firing of synapses in a brain.

Foursquare has gotten the most attention of all the location-based mobile applications, with Gowalla and Brightkite taking second and third place, although Hot Potato is coming up in popularity quickly. In part, Foursquare’s profile is a result of having attracted the most users — it recently hit one million users, a number that doubled in less than three weeks, and it only launched a year ago. There have been unconfirmed reports recently that some Internet giants are looking to acquire the startup: one rumor has Yahoo looking to pay as much as $100 million for the company.

So there’s no question that such services are popular — but are they a business, or are they just a feature that belongs inside another business or service? And if they are a business on their own, how do they make money? I’ve explored these questions and more in a report for GigaOM Pro (subscription required), looking at the major players and their prospects. At the moment, none of them are likely generating much revenue, since they are focused on building out their user base, but several have signed deals with media companies and other partners. Foursquare has done deals with services such as Zagat, the travel guide company, as well as several entertainment companies including HBO and Warner Brothers — and recently formed a partnership with the Wall Street Journal.

Meanwhile, two of the giants of social networking — Twitter and Facebook — are also busy integrating location into their networks and services. Twitter has implemented geo-tagging of tweets, partly by buying MixerLabs for its geolocation API, and Facebook is widely expected to launch some form of location-based features (although it didn’t do so at its f8 conference, as some anticipated).

As Om described in a post earlier this year about location, many mobile industry insiders believe that location will eventually become a core offering of major platforms such as iPhone, Android and BlackBerry, or major web platforms such as Twitter or Facebook or Google. With that kind of integration, users will be able to use location in virtually any app — such as watching a movie and checking in with Flixster or checking in at a restaurant with your Urbanspoon app — instead of using a specific app like Foursquare or Gowalla.

For a more in-depth look at this market, see my GigaOM Pro report. We’re also discussing these issues and others at our GigaOM Bunker Session today; you can view a live stream of this exclusive event here.

Post and thumbnail photos courtesy of Flickr user Dunechaser

Dutch augmented reality startup Layar has launched a store for special layers of information and graphics that you can superimpose on the world around you through your cell phone. Augmented reality is a nascent technology that can make the real world resemble Terminator vision. (Imagine holding up your camera viewfinder and seeing content tags pointing out places to go.)

Publishers can create and sell special augmented reality layers that tag places with information like real estate listings or restaurants.

The store already has a few products. Travel-guide publisher Berlitz has an augmented reality layer pointing out hotels and places to shop, while EyeTour is selling an augmented reality layer for tourists in Puerto Rico. iPhone app E-Ticket is offering a similar layer for Disneyland and Disney World.

Layar will handle payment processing in multiple currencies and markets for both iPhones and Android devices. Right now, it’s using PayPal to support the U.S., U.K., Canadian and Australian markets.

Layar splits the proceeds with publishers 60-40. The company says the 40 percent it takes covers the legal, administrative and banking costs of running the store.

With last week’s declaration by Twitter that it intends to start identifying places based on the coordinates of geo-coded Tweets, the location land rush is in full swing. A long list of companies including Twitter, Google, Foursquare, Gowalla, SimpleGeo, Loopt, and Citysearch are far along in creating separate databases of places mapped to their geo-coordinates.  Mapping businesses, in particular, to the GPS locations near where people are checking in, Tweeting from or pegging a photo is the first step to be able to show them geo-targeted ads, which could help fuel local mobile online advertising in a major way.

Here is the problem: These efforts at creating an underlying database of places are duplicative, and any competitive advantage any single company gets from being more comprehensive than the rest will be short-lived at best. It is time for an open database of places which all companies and developers can both contribute to and borrow from.  But in order for such a database to be useful, the biggest and fastest-growing Geo companies need to contribute to it.

I put this suggestion to Foursquare CEO Dennis Crowley the other night at a party, and he was enthusiastic about the idea. Foursquare is building up its own comprehensive database of places, which it calls “venues,” through its users who add places they want to check into, if they don’t already exist. Foursquare matches their GPS lat/long coordinates to its database of venues (businesses, points of interest, even people’s homes). Later I followed up by email and asked Crowley, “Isn’t the quality of your places directory, built by your users, a competitive advantage?” His response:

yeah, but so was the social graph. but facebook connect showed that things work better when we all play nice. the “facebook connect of places” would be amazing. not sure who will build it – goog, fbook, twitter, etc – but i bet you it’s a problem that’s mostly fixed by next year. there’s a lot of people working on this problem.

For what it’s worth, Twitter founder Jack Dorsey also happened to be in the room that night, and his reaction was a little bit more lukewarm and cautious. (I should note that Dorsey was not speaking in any official capacity for Twitter and this was just idle cocktail chatter).  But given Twitter’s recent moves to claim more parts of the Twitter eco-system for its own and the resulting controversy, it strikes me that Twitter could regain some lost developer goodwill by creating such an open database of places. I suspect Twitter does indeed want to create the “Facebook Connect of Places,” and open that up to developers through its APIs.  Mixer Labs, which it acquired, was certainly going in this direction with its GeoAPI, which Twitter is still supporting.  Hopefully, all the places data from geo-coded Tweets will go in there as well.

A Facebook Connect for places doesn’t quite go far enough.  Crowley’s analogy falls short because Facebook still controls the social graph. It exposes that social graph (the connection of its members to each other) to other Websites and developers, but other Websites cannot add to that social graph on their own. A truly open database of places should allow both give and take. It should be one that everyone can contribute to and nobody necessarily owns. Foursquare should be able to update it as easily as Twitter or Google, or any other Geo startup. The best data should prevail.

The counter-argument is that somebody—Twitter, Google, Facebook—needs to be in control of the database in order to ensure its quality.  If you let any random developer with a geo app update the database, it could end up being filled with inaccurate geo-data or worse, geo-spam.  I got the feeling Dorsey’s hesitation was partly due to such concerns.  But surely there are ways to design a places database which rewards good data over bad.  Maybe a place doesn’t become official until two or three contributing databases agree it is the same place, or based on the overall trustworthiness and historical accuracy of the source.

An open places database would also self-correct over time.  And companies could choose to refer to it only when a specific business or place is missing from their own vetted geo-directories.  In other words, let the best data prevail.  And instead of a dozen companies all building the same geo-directories, thousands could be innovating on top of an open database with new Geo services, advertising, and apps. It should just be part of the basic fabric of the mobile Web.

Image: Flickr/Nate Bolt

CrunchBase Information

Foursquare

Twitter

SimpleGeo

Information provided by CrunchBase

It is becoming alarmingly apparent that Foursquare is strongly considering a sale to Yahoo. As of the end of last week they had put the venture capitalists vying for their attention on ice. Those VCs happily provided term sheets valuing the company at $80 million or so. But in the meantime, Yahoo and maybe others expressed interest in the company, and are reportedly offering way above that $80 million.

There are so many reasons why this deal shouldn’t happen. Here are just a few:

1. It’s bad for Yahoo: Yahoo’s senior team is grasping at straws, and they desperately want to find a way to stay relevant. But this is not it. What the heck is Yahoo going to do with Foursquare that will somehow turn around their business? Absolutely nothing, that’s what. M&A for PR purposes is not what savvy executive teams do. Whatever tech cred they think they’ll get by buying Foursquare is in their imagination.

2. Yahoo is a horrendous choice for Foursquare. It’s where startups go to die. They’ve bought so many companies that were so promising, only to see them wither on the vine. And the founders always leave in disgust (see Flickr, Delicious and the rest in the left sidebar on their CrunchBase page – how many of these were successful?). And sometimes they buy companies just to shut them down entirely a year later. See Yahoo Kills Maven: From Acquisition To Deadpool In 17 Months Try to imagine what Facebook would be today if Yahoo had successfully acquired them in 2006.

3. You only sell now if you think your business doesn’t have legs. Aardvark did it because of very slow user growth and the founders got nervous. They were in a similar situation at Foursquare – lots of VCs ready to put in money at a great valuation, but they took the sale to Google instead. Now we’ll never know what Aardvark could have become had it stayed independent. Guys like Facebook and Twitter stayed independent despite outrageous acquisition offers. If the Foursquare team believes in their product, they should stay in the game.

4. The Dodgeball/Google debacle should have given founder Dennis Crowley enough of a taste of what happens to most companies when they get acquired. Dennis, remember when you wrote this – “It’s no real secret that Google wasn’t supporting dodgeball the way we expected. The whole experience was incredibly frustrating for us – especially as we couldn’t convince them that dodgeball was worth engineering resources, leaving us to watch as other startups got to innovate in the mobile + social space.” You sold your startup too soon once before. Why do it again now?

5. You can hedge. Lots of startups take money off the table in a venture round instead of selling outright. The WordPress guys did it, for example. The Aardvark team had the option of doing it. You can ask your VCs to redo their term sheets and double the amount raised. Take half off the table and you, your children and their children will never want for anything material in their lives, even if Foursquare goes south right afterwards.

Foursquare has a destiny. It may be to go out of business. It may be to go public and be a huge force in our culture. It may be something in between. But selling out now is like dropping out of college to take up drugs. Whatever you would have become, that isn’t what you’ll become once you sell out to Yahoo. Call Caterina from Flickr and ask her if she wishes she hadn’t sold to Yahoo. Call Joshua Schachter from Delicious and ask him the same thing. My guess is both will privately tell you NFW would they have sold to Yahoo knowing what they were stepping into.

Facebook and Twitter hitting the geo space must be a scary thing for a small startup to contemplate. But there’s real momentum and that intangible buzz behind your product right now. Play this out. In ten years, you’ll be glad you did. Unless you’re broke then because Foursquare failed, of course, and bitter that you didn’t take the money from Yahoo when it was offered. But there’s a reason why you became an entrepreneur and didn’t just stay a mid level developer grunt at a variety of large organizations. You have the fire to change the world. So go do it.

CrunchBase Information

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Yahoo!

Information provided by CrunchBase

With 197 million augmented reality-capable smartphones set to be in the global market by 2012, up from nearly 91 million in 2010, the building blocks are falling into place for people to merge digital information with their view of the physical world. But while we’re just getting to the point that normal users can see the promise of augmented reality for themselves, there’s still a long way to go.

Right now AR is a big load of hype (and why not? it’s super cool), but the market will supposedly be worth anywhere from $350 million to $732 million by 2014, according to projections by ABI Research and Juniper Research, respectively. How do we get there? GigaOM Pro (subscription required) this week has a great report by John du Pre Gauntt on the technical and business challenges and opportunities ahead for consumer AR apps. They include:

Pinpointing Geo: Today’s AR apps depend mostly on location information, but location data is only accurate to 10-20 meters. The most pressing priority, says du Pre Gauntt, is to make geolocation data more granular and optimized. And mobile social networking apps could actually help us get to a mapped globe quicker, writes du Pre Gauntt. “Foursquare and Gowalla have the potential to be foot soldiers for geotagging the world.”

Opening Eyes: The next area of development will be image recognition, something Google is working on with Google Goggles and Nokia with Point and Find. These early systems are often out of their element unless they can depend on scanning formal markers like barcodes. But a barcode experience tends to take the user out of the lens of AR to bring them to a web site or another resource.

The Apple Roadblock: Though AR developers have begged for access, Apple has a lock on the iPhone’s video feed API. As du Pre Gauntt puts it, “Without a public API to access live video in real time from the iPhone’s camera, it is impossible to do effective image analysis of the object in front.” This barrier could foretell an Apple push to innovate image recognition on its own, or it could mean that more open platforms (aka every other smartphone) are able to harness developer enthusiasm to get ahead.

Teaming Up: The hybrid nature of AR means it’s ripe for cooperation. Diving into today’s major AR app categories of navigation, location overlays, geo-information services, and gaming, du Pre Gauntt finds companies like Mobilizy and Lonely Planet, and Layar and Zehnder collaborating on some very cool travel and event apps. But cooperation seems to only make things more complicated; the implementations require both an AR browser and an app or a separately purchased guide.