As I mentioned in my previous post, the main components in this chain are the LBS service provider or developer (LBS APP), the data carrier (a mobile operator like T-Mobile, AT&T, etc), and the customer. We can identify 3 basic types of relationships.

In the first one the LBS APP provides an application to the carrier and the carrier provides the service to their customers for a fee – or free of charge to encourage the use of data services. For example companies like Loopt are offering their LBS social networking services through carriers like Verizon Wireless, applications like Autodesk family finder, and others.

Location Based Services Value Chain 1

Location Based Services Value Chain 1

The main challenge for the LBS APP is to find one of the mobile operators willing to buy and offer the application through their network. Once the service is running, all the promotion, billing and collection is performed by the mobile operator. The LBS APP revenues can be smaller but the risks are reduced as the investment in infrastructure and operations are minimal. On the other hand, the ownership of the customer usually remains with the mobile operator, minimizing the LBS APP possibility to up-sale other products.

On the second scenario the customer pays a fee directly to the LBS APP and they take care of the costs of the wireless service fees. For example companies like Zoombak, Laipac, and other Personal Locator Devices have the customer pay directly to the company.

Location Based Services Value Chain 2

Location Based Services Value Chain 2

In this case the LBS APP carries most of the obligations, liabilities and risks. They need to develop, promote and market their products, maintain the logistics (delivery, billing, collection, customer support, etc), and create a communication infrastructure that allows them provide the service. If the LBS APP succeeds to establish a large and stable customer base, the business receives a recursive cash flow for the life of the product or the subscription and the company keeps the customers’ ownership.

The third scenario is based on web 2.0 paradigms. The customer pays the cellular carriers for the internet access. The LBS APP offers a free product/service with the vision of creating some collective user value. Most LBS social networks work under this business model.

Location Based Services Value Chain 3

Location Based Services Value Chain 3

The LBS APP enables a service through internet connection (fixed and or mobile) assuming the customers already have a data plan with their mobile operator. The service is usually mobile operator agnostic, and the LBS APP needs to invest in basic infrastructure and development/maintenance of the application. As the service is free of charge, the LBS APP is investing towards the future value of the network and the information generated by the users such as people’s locations, movement habits, etc. – just figure out what are they going to do with the information collected about your location.

The story doesn’t end here as there are many other factors to consider in the costs. These include among others M2M communication providers, maps providers, and interface to maps developers, who do care about their profits.

In part 2 and 3, I’ll elaborate on the extended Value Chain and Location Based Services models based on Web 2.0 strategies and their specific value chain.

As usual YOUR COMMENTS ARE WELCOMED.