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When Bill Schmarzo walks into a Starbucks, as he does at least once every day, the coffeehouse chain's mobile application knows that he's there. The app pulls up his loyalty card and applies any discounts he has earned. Schmarzo can pay with the app, too.
Starbucks also knows that Schmarzo doesn't like coffee -- he drinks chai lattes.
According to Schmarzo, chief technology officer of the global services group at EMC Corp., which sells computer storage and other IT products, Starbucks is an example of a company using geolocation-based apps to benefit its customers -- and itself. Starbucks is using geolocation technology to collect unprecedented amounts of data about customers, he said, and then uses that data to sell products by tailoring perks, rewards and discounts.
Geolocation apps are the long-anticipated next frontier in mobile technology. They stand to shake up industries from retail to healthcare by transforming how companies interact with customers, say industry analysts and insiders. The ability to identify a customer's location at any time opens up seemingly endless sales, marketing and business opportunities.
In the retail industry, for example, companies can use information about a customer's location -- combined with details about that person's purchasing history -- to send personalized offers to a smartphone when the customer walks into a store.
Bill SchmarzoCTO, global services group, EMC Corp.
"The biggest benefit [of geolocation technology] is the ability to deliver relevant offers to the customer -- the right product at the right place at the right time," said Schmarzo, who advises businesses on how to use big data. "If a person is walking in front of a store or within a certain radius, the company can ping them with an offer that's relevant."
But there are roadblocks. From the customer's perspective, there are privacy and security concerns. And even where consumers accept the benefits of geolocation, companies face technology issues, from data integration to the ability to operate in a real-time environment, which is crucial to make geolocation work.
The future of geolocation technology
Consumers have widely embraced what some call the first generation of geolocation-based apps. We use Google Maps for directions, Yelp for restaurant reviews and Foursquare/Swarm to earn coupons. All these apps rely on location-based technology.
More recently, location-based taxi apps such as Uber and Hailo have taken off in major cities worldwide. Rather than standing outside trying to flag down a taxi, users push a button on a smartphone and wait until one comes to them.
The next generation of apps stands to broaden the scope of geolocation. Museums and college campuses can use geolocation apps to offer virtual tours, while hospitals and casinos can use them to help patrons navigate their facilities.
The latest development -- which could revolutionize the retail industry -- is Apple's location-sensing iBeacon technology. If a customer has downloaded an Apple store app and goes into, say, a department store, iBeacon sensors can recognize that the customer has walked in and send special offers to a smartphone or guide the customer to a specific item, among other possibilities.
Marios Damianidesformer president, ISACA
Melissa Tait, vice president of technology at the digital marketing agency Primacy, said knowing a customer's location enables retailers to get the right message to the right person at the right time. Companies can create personalized offers based on a customer's location time and previous buying patterns, she said.
"This is where the future is going, and there's going to be tremendous value [for companies] in connecting where you are with your purchasing patterns," she said. "Some retailers are doing this, but we're not completely there yet."
When geolocation technology is used in the right way, customers benefit through useful offers and information, Tait said.
Geolocation technology also has implications for digital marketing, according to EMC's Schmarzo. Companies are already competing in real time for display ads based on how people are searching online, but what if they could also buy ads based on location?
Let's say a customer is browsing for new cars online, Schmarzo said, and geolocation technology later indicates that he or she is in the area of the dealership. Advertising companies can instantly offer that dealership a targeted ad. As soon as the smartphone pinged within a certain radius of the location, the dealership would be notified and offered an ad.
"Advertising companies could offer up my location to local companies for real-time bidding," Schmarzo said. "It's going to open up a whole new business opportunity."
For some people, the idea that a company knows where they are is an invasion of privacy. There's a "Big Brother" factor. Location-based apps require that users opt in before sharing location information, but some are still uncomfortable with the idea of being tracked.
According to a September 2013 Pew Research Center report, 35% of adults who have downloaded apps to their cell phones have turned off the location-tracking feature out of concern that companies could access that information.
Some customers also have concerns about what companies are doing with the data they collect. Are they selling location-based information to third parties?
Sunday Yokubaitis, president of a firm called Golden Frog that sells Internet privacy and security software, said responsible geolocation services are transparent about how they use the data they collect from geolocation-based apps. They allow users to choose the data they want to be shared, he said.
"Service providers should keep the minimal amount of the data needed to do their service," said Yokubaitis, whose firm has lobbied on Capitol Hill for increased user privacy.
Information that is not needed for business should be deleted from the company's servers, Yokubaitis said. In order to prove that information has been removed, companies should be willing to undergo third-party audits to validate their practices, he said.
Companies are slowly becoming more transparent, Yokubaitis said, but there's still a long way to go. Many people would be surprised if they knew just how much data is collected from geolocation apps and how it's used, he said. For example, many iPhone users don't understand that when they allow push notifications, location data and other information goes not only to the company that owns the app but also to Apple, the manufacturer of the device.
Consumers have a responsibility to educate themselves, some experts say. Marios Damianides, former president of the Information Systems Audit and Control Association, said in a 2012 report that while businesses need to develop ethical and transparent policies for the use of location-based apps, consumers need to understand the technology and its implications.
"Like any other kind of information sharing, location-based apps can be tremendously convenient but [are] also risky," Damianides said. "Knowledge is power. People should educate themselves so they can understand how their data is being used or know how to disable this feature."
Schmarzo doesn't see it that way. "My impression is that 99.9% of people don't care," he said. "They have already resolved that these companies are gathering information about them. They care more about how the company is using the data to provide them value."
However, experts agree that giving up privacy is a trade-off. Consumers don't want to share location information unless they're getting some kind of valuable offer or deal. Trust is important, too. If people don't feel like a brand is reputable, they won't share location info.
Additional downsides to geolocation
Privacy is far from the only hurdle for geolocation-based apps.
There are security issues as well, Schmarzo said. People don't want a location-based app to know that their 15-year-old is at the mall or that their house is unoccupied because they're vacationing in Florida, he said. In the hands of the wrong people, that information presents a risk.
From a company perspective, there are data, technology and workflow barriers that undermine successfully implementing sales and marketing campaigns based on location.
For geolocation-based marketing to work, companies must have detailed and specific information on each customer's purchasing habits and preferences, Schmarzo said. Sending a coffee coupon to a Starbucks regular is pointless if the person drinks tea, he said.
Often, Schmarzo said, companies don't have the kind of detailed and segmented data they need to deliver offers that are relevant to a set of consumers. Instead, the application might contact all 200 people within a certain radius and send a generic offer.
"It's the lazy person's way," he said.
If companies send customers irrelevant information and offers, geolocation stands to go the way of email marketing and direct mail, Schmarzo said -- customers will feel put off.
Data integration presents another challenge, Primacy's Tait said. How do companies organize all the data from geolocation-based apps and integrate it with their existing CRM data? All customer data needs to be in the same place to make the most of geolocation, she said.
Some companies are better at data integration than others, Tait said. The ones that struggle are often those that opt for the lowest-cost system, or those with teams that don't talk to one another. The mobile apps team needs to communicate and share information with the marketing team and the website team, she said.
"It's all about communicating and figuring out how to connect all of that," Tait said. "That's the biggest hurdle on their end. How do you organize? ... How do you get all the data together? Some companies are a bit apprehensive," she said.
According to Schmarzo, learning to operate in a real-time environment is yet another struggle for some companies. It doesn't do any good to know that a potential customer walked past your dealership two days ago, he said, but most organizations still don't have real-time environments. "You can't do location if you can't do real time," he said.
The final ingredient to successful geolocation-based marketing, technology professionals say, is trust. Customers are far more likely to allow their location to be used if they trust a company's brand.
Golden Frog's Yokubaitis said transparency goes a long way in creating trust. Customers are less likely to be wary of companies that are upfront about what they're doing with customer data and allow users to make decisions about which data can be used.
Experts agree that companies have to earn consumers' trust as far as handling personal information -- and that even reputable companies with established brands can easily lose customers' trust, as with the Target data breach in late 2013. Failing to be transparent about how data is being used can quickly erode customer trust, according to Yokubaitis.