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The Development of Location Based Services in Mobile Commerce

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1The Development of Location Based Services in MobileCommerce1Charles SteinfieldDepartment of TelecommunicationMichigan State UniversityAbstractWith the more than one billion cellular phones in the world in 2002, joined by other wireless handheldcomputing devices like personal digital assistants (PDAs) and pocket PCs, there are significantopportunities for mobile commerce growth. Although mobile commerce enables access to goods andservice regardless of the location of either buyer or seller, in many situations the specific location of thebuyer and seller is critical to the transaction. A host of new location-aware applications and services areemerging with significant implications for the future of e-commerce. Much like the experience with thedot.com era, however, the development of location-based services has fallen somewhat short ofexpectations. In this chapter, we attempt to provide a realistic assessment of the potential for location-based services, examining the market opportunity, technological origins, likely services, emerging policyissues, and potential future directions.IntroductionSince the dawn of the Web, online shoppers have mainly experienced electronic commerce throughpersonal computers connected to the Internet via some form of fixed line. In the near future this maychange, as many e-commerce transactions are expected to occur via a wide assortment of wireless andhandheld devices (Economist Intelligence Unit, October 15, 2001). Wireless e-commerce is morecommonly known as mobile or m-commerce, and, as noted in other chapters in this volume, is expected todevelop into a significant market opportunity in the coming years throughout the world. Mobile operatorsin particular view m-commerce as a critical means of increasing average revenue per user (ARPU), sinceincreasing competition has driven down prices for voice services at the same time that costs related to thetransition to the next generation digital wireless infrastructure have risen (D’Roza and Bilchev, 2003).Just as with e-commerce, m-commerce can be defined narrowly or broadly. Narrow definitions focus onthe ability to complete transactions involving the exchange of monetary value through wirelesstelecommunications networks (Barnes, 2002; Clark, 2001). Broader definitions, on the other hand, point to“the emerging set of applications and services people can access from their Internet-enabled mobiledevices” (Sadeh, 2002, p. 5). The more inclusive definition incorporates a wide range of communication,information, and entertainment, services, as well as alternative business models (e.g. advertising) that donot fit the narrow, transaction-dependent view. Within this set of emerging applications and services is atype of m-commerce that many in the industry feel represents the “killer” application: applications that takethe user’s location into account in order to deliver a service (VanderMeer, 2001). Examples of such“location-based services” (LBS) include those that identify nearby options, such as when a cellulartelephone user seeking information about restaurants is provided only the set of choices in the immediatevicinity. In the next stage of e-commerce and m-commerce development, location-based services (LBS)are expected to play an increasingly important role in helping to differentiate one service provider fromanother ((Fielt, et al., 2000; Van de Kar and Bouwman, 2001). For this reason, this chapter provides anoverview of this emerging class of mobile services, examining the LBS market potential, its technological 1 To appear in Priessl, B., Bouwman, H. and Steinfield, C. (eds.), Elife after the dot.com bust, Berlin: Springer,forthercoming.2bases, the potential services, the industry value chain and likely business models, significant policy issues,and potential future directions.Among the conclusions we draw from a review of recent work on LBS, is that while the market potentialis great, there are significant barriers to overcome. Technological barriers result from the diversity and costof approaches to location determination, creating a complex set of choices for operators and a potentialinteroperability problem that can limit users. The lack of any standard approach to location determinationand provision of location data to service providers may hinder market development, especially in theUnited States. We further find that, despite the promise of LBS for consumers, high costs, standardsproblems, and privacy concerns may limit the near term market to internal business applications amonglarger firms. LBS standards, privacy protection, quality of service, and conditions by which third partyservice providers access location information represent several of the more critical policy issues to beresolved. Finally, in the area of potential future directions, it is evident that location is merely a startingpoint for personalization and context-aware services that use other relevant information when constructingservice offers. Moreover, the rapid deployment of alternative wireless technologies, such as WirelessFidelity (WiFi or 802.11) is both a threat and an opportunity for cellular operators, and will likely shape thefuture development of LBS.Contrasting Location Awareness with the Anytime-Anyplace View of M-CommerceResearchers exploring m-commerce often point to its ubiquity and convenience as the primary sources ofsubscriber value (Anckar and D’Incau, 2002). The stationary nature of PC and Internet based e-commerceconnections limits usage to those moments when a consumer is at home or at work in front of their PC.Potential buyers who are away from their PCs are unable to access information and services, or completetransactions. The anytime-anyplace potential of commerce through wireless devices can overcome thislimitation, allowing information to be disseminated and transactions completed when the need or desirearises, even when buyers are in transit and away from their desks or home PC connections. In thisconception of m-commerce, the location of buyers and sellers is irrelevant. Rather, a key motivation is toenable access to goods and service regardless of the location of either buyer or seller. Indeed, providingaccess


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