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Can You Bank On Location-Based Social Networks,The Next $hiny Thing?

Is the new shiny thing - Location-Based Social Networks (LBS)? A new wave of startups taking advantage of GPS technology,the ubiquity of smart phones and location-based attributes are growing exponentially and are gaining popularity not only with users but also with angel investors. Is banking on a LBS a sure bet?

According to a new report released recently by ABI Research, location-based social networks will generate a whopping $3.3 billion in revenue by 2013. While the report didn’t mention it, the iPhone may be the likely catalyst for the growth.

Similar to Twitter, LBS has attracted a certain demographic in its early adapter stage and has gone almost unnoticed by many other tech savvy folks in social media. And like Twitter, its future success appears imminent based on the number of LBSs that have received funding in the past few years.

If investment equates to future success, here is a list of six LBS that intrigued some investors to loosen up their purse strings to bank on the next shiny thing.

1- Plazes

Dating as far back as December 2005, Plazes was founded with initial funding from Esther Dyson and Marc Andreesen and a subsequent $3.5 million from Doughty Hanson Tech Ventures.The network provides location based social-activity, which can be used by people to share and record their day to day social activities.

In late 2008, with Nokia still acquiring more space in social media that included Loudeye and a big buy off of the mapping company Navteq - it bought out the Berlin-Zurich based Social networking service, Plazes. Though there has been no disclosure of what the terms and conditions of the deal were, Nokia is already integrating its services into its own mobile devices.

2- Brightkite

In recently interviewing Rob Lawson, co-founder of Brightkite, an LBS based mainly in the US, but also with a strong presence in Canada, Europe, Japan, Mexico and Australia, he indicated his LBS's global reach has amassed over 2 million monthly users to date.

This past March, Brightkite closed in on $1M in funding from a group of private investors, and opened up a new office in Denver.

While location is obviously the most important component of any LBS, Lawson feels that it will become commonplace and less of a distinguishing characteristic - as more and more services include location. "The key part of the development of the space will be predicative analytics - being able to process large volumes of data to give you suggestions that are relevant to you," he notes and adds that "just telling you who and what is close-by will become increasingly noisy."

3- Whrrl

The attractive thing about this application, created by Seattle-based Pelago is the way Whrrl combines a number of different services into a single package — microblogging, location-based updates and reviews.

In May, Pelago announced that the company pulled in a $15 million Series B financing round that will be earmarked for strategic technology investments and partnerships, which are crucial for mobile services who need to allign themselves with cell carriers.

The new cash came from lead investor Deutsche Telekom's T-Mobile Venture Fund, with contributions from Reliance Technology Ventures and DAG Ventures. Previous investors from Pelago's $7.4 million Series A round also added to the $15 million: Kleiner Perkins Caufield & Byers, Trilogy Equity Partners, and Bezos Expeditions.

4- Loopt

Loopt, the service that lets you geo-locate friends with mobile phones called down $2.25 million of a $12 million Series B round in July.

This means that while Loopt has raised $12 million, its requested access to $2.25 of this larger amount, possibly to increase its working capital costs. The round was led by return investors New Enterprise Associates and Sequoia Capital. The company has already received an $8 million Series A round of investment. In related news, Loopt has also been signed on by Sprint Nextel to offer GPS location features for staying connected with friends. This is part of Sprint Nextel’s larger plan to provide more mobile social networking tools.

5- Foursquare

In September, the widely popular location-based game-like social network Foursquare raised its first round of funding. Union Square Ventures is one of the investors, but also participating in the round is O’Reilly AlphaTech Ventures, and some angel investors that co-founder Dennis Crowley was not ready to reveal at this point. The round was in fact for $1.35 million.

Foursquare has been a hot startup among some tech early adopters, especially in cities like San Francisco and New York. But it has since expanded exponentially and internationally into 50 new cities. Additionally, Foursquare is one of the more aggressive LBS in working with 3rd pary Open Source APIs which will extend its global reach even further. (see my previous blog, titled, "The Early Adapter APIs For Foursquare"). The service is primarily used through its iPhone application, but it also just launched Android, Blackberry and Windows Mobile App versions and there is also a mobile web interface that users can use.

Foursquare is an interesting player in the location space in that it’s just as much of a game as anything else. Users compete for mayorships, and try to earn badges and get points for checking in more places. The idea of the “check-in” rather than a constantly updated background location, also differentiates it, and makes some people less uneasy about privacy rights and the location tracking aspect, since you have to explicitly check-in at a location.

Foursquare was started by Crowley and Naveen Selvadurai, after Crowley rather famously left Google not exactly pleased with the company after they bought his previous (similar) startup Dodgeball, and decided to do nothing with it. This past January, Google officially deadpooled it.

6- Gowalla

The most recent funding for a location-based social network just occurred in December. The Austin-based startup Gowalla Inc. said on December 9 that it raised $8.4 million in venture capital to expand its social-networking features. The service is available for iPhone and smart phones running Google Android mobile software.

Gowalla received the funding from Greylock Partners, Maples Investments, Shasta Ventures and others. The company has raised a total of $10 million since it was founded in 2007.

Somewhat similar to Foursquare, Gowalla offers a free location-based travel game that lets users share where they are and track their friends as they move around geographically. Users collect electronic stamps from the places they visit, which can be traded with friends or hidden for others to find.

Jason Calacanis, the high profile founder of Santa Monica-based Mahalo, is one of Gowalla's angel investors in a mobile social networking service, Gowalla, the company said today. According to Gowalla, Calacanis invested along with angels Ron Conway, Kevin Rose, Gary Varynerchuck, Shervin Pishevar and Chris Sacca, and venture firms Greylock Partners, Shasta Ventures, Maples Investments, Alsop-Louie Partners, and Founders Fund in a $8.4M Series B funding for the firm. Calacanis is also an investor in Gdgt.com and ChallengePost.com.


As you can see a lot of the major online players who have already distinguished themselves in the social media space are using their previous successful ventures to invest in operations that they feel are the new trendsetters of the future. And while location-based social networks may come to the point of consolidation or perhaps be absorbed by larger entities such as Twitter, Facebook or Google, you can rest assured that the wise investors who banked on them way back in the first decade of the new century are going to be more than pleased with their return on investment in the years to come. Betting on the right horse is a gamble, but throwing some stakes in on location-based social networking looks like almost a sure bet!
 
Comments
Dec 13, 2009
by Anonymous

clear winner

whrrl all the way