Location-based ads killed by confusing tech, GDPR, shifting consumers

Location firms are trying
to get out of advertising.
AP
Photo/Rogelio V. Solis

• A number of location-based tech firms are trying to
  ditch their advertising businesses that target ads based on
  someone’s whereabouts to focus on data instead.
• GDPR and privacy questions have cut back on investor
  interest, but a couple of companies that don’t focus on
  advertising have recently gotten new funding.
• Agencies say they want to use location data in more
  ways than tech firms offer — like being able to mash it up with
  their own email and app data.

Marketers have long been intrigued by the potential to zap ads at
consumers’ phones with precise targeting based on the stores they
routinely visit.

It’s become a tired ad industry cliche: “Someday, you’ll be
walking by a Starbucks and you’ll get a coupon for your favorite
drink.”

But the hype hasn’t worked out the way that industry veterans
once expected. It’s still safe to walk by Starbucks.

In fact, explaining to advertisers
the complex ways that ads are served to someone from GPS
technology built into phones, as well as mounting consumer
privacy concerns, is causing tech firms to rework their
businesses.

Over the past few years, a number of location tech firms
have tried to shift their business models from advertising into
software that brands use to track foot-traffic patterns. Firms
are also under growing scrutiny from the European Union’s

General Data Protection Regulation that puts strict
regulations around how businesses can explicitly use data to
serve and measure ads without explicit permission from consumers,
causing investors to cool.

Just this week,
The Washington Post reported that Google’s practice of
collecting location data is under investigation in Arizona.

“It has definitely been morphing over the years and as far as
investor interest, I would say that it has probably waned a bit
if it is focused on advertising exclusively,” said Brian
Andersen, cofounder and head of digital marketing investment
banking at Luma Partners. “But with things like data-focused
companies, there’s still definitely interest.”

Case in point: Two of the most recent companies to receive
funding in this space don’t sell ads.

Venture capital money is moving away from location ad companies
to newer models

Hyp3r is a startup that plugs into Salesforce and Adobe’s
marketing clouds and matches up location data with CRM data from
email, apps, and websites for brands like Marriott and 24 Hour
Fitness. The company has attracted $17 million in Series A
funding that CEO and cofounder Carlos Garcia said will go to
growing a team to partner with other enterprise companies.

And last week, Factual raised $42
million to expand its Asia-Pacific business, bringing its
total funding to $104 million. The firm’s business is split
between an arm that helps advertisers analyze and measure
location data and a non-advertising arm that pipes location stats
into apps like Uber and Apple Maps.

“Because we’re a data company, we don’t sell any media — we
primarily work with brands and agencies to help them understand
how to use location data but they access it through a network of
ad-tech platforms across the ecosystem,” said
Factual CMO Brian Czarny.

“Today there’s a lot more companies calling themselves location
data companies than there probably were 12 or 24 months ago.
You’re starting to see companies change the way they position
themselves like a data company but yet still sell media.”

Location-based firms are rapidly trying to shed their media
businesses             
                 
                 
                 
               

Firms like PlaceIQ, GroundTruth, and NinthDecimal built
businesses years ago latched onto the rise in mobile advertising
by amassing pools of location data and then tying the data to ad
networks and media campaigns that promised advertisers superb ad
targeting.

“It’s relatively easy to build some level of scale by having a
media business, but it’s one that the markets or acquirers
haven’t valued as much because it’s
not predictable and stable,” said Dick
Filippini, partner and head of mobile investment banking at Luma
Partners.

Justin Sullivan/Getty Images

But over time as margins on digital ads get squeezed, and the
duopoly of Facebook and Google
continue to eat up ad budgets, location companies are quickly
trying to move away from media businesses and spin their data
into software, analytics, and subscription-based models more akin
to the business models of enterprise companies.

According to eMarketer, US mobile advertising will make up $75
billion this year. Google will bring in more than $23 billion of
that money while Facebook is expected to generate $19 billion. A
separate report from BIA/Kelsey found that all location-targeted
mobile advertising spend — including ads sold by tech companies
and publishers — will
reach $22.1 billion this year.

“They’re just arbitraging digital media with their data layered
on,” said JC Uva, managing director at MediaLink. “There’s not
enough money moving through the pipeline to make it a business
with massive scale when you can do all that on Facebook, Google,
and the big platforms.”

While firms are trying to pivot, media still makes up the bulk of
revenue for location-based firms, according to Uva.

“They’re in this transitional phase — they’re trying to do two
things at once,” he said. “The lights stay on because the media
business is there — they’re trying to move into SAS revenue as
fast as possible but they can’t totally ditch what they’ve got
because it pays the bills.”

Most location firms offer some form of software tools that
package location stats into a dashboard that is sold to either
agencies or increasingly directly to brands to analyze their
specific stats.

For example, ad-tech firm GroundTruth sells its location platform
as software to brands that they can use to zero in on foot
traffic data for their stores and competitors’ stores. The
company also provides targeting tools that brands can use to make
location-based audiences for serving ads — like people who
regularly shop at a particular store.

GroundTruth CMO Eric Hadley declined to explain how the firm’s
revenue is broken out but said that it’s self-serve business
launched in February and “it’s an exciting new business for us.”

A PlaceIQ spokesman also declined to break out its media and data
revenue but said that the company is profitable and that media
makes up the larger portion of revenue.

The problem with dashboards is that location companies only have
a sliver of data that brands are looking for and marketers often
have to work with multiple partners to extrapolate and
package data the way they want to.

“We’re looking for a consolidated view of our marketing,” said
Jeff Ratner, chief media officer at iCrossing. “I don’t want
three dashboards — I want one dashboard.”

GDPR isn’t helping already wary investors

On top of more competition, investors and advertisers are spooked
by GDPR and similar regulation in the US that will require
companies to collect consumers’ permission before using their
data for ad targeting. For ad-tech firms that already struggle to
explain how location-based technology works, they now have to
answer more pressing questions about privacy like:

• Do consumers know that you’re tracking their
  location?
• Where is your data from and is it safe?
• How long do you keep your data?

While those may seem like basic questions for ad-tech veterans,
“the questions that need to be answered multiple times are around
privacy, consent, and the quality and safety of the data,”
Medialink’s Uva said.

“The stakes are high enough that [advertisers] have to have a
very high degree of confidence that what you’re being told is
actually in compliance,” he said. “It seems like there is enough
general confusion about what will ultimately constitute a
violation that people are taking a broad approach to this until
you can get precise about what compliance looks like.”

Concerns over GDPR have already caused location firms
like Verve and Drawbridge to shut down their European
operations.

Meanwhile companies like Factual are
scrapping their European databases completely to rebuild them
from scratch and temporarily cutting down services available to
European marketers. The company has stopped offering audience and
measurement products to European advertisers until “we’re sure
that we have the ability to get proper consent and have a sizable
enough pool to make them meaningful,” Czarny said.

According to Luma Partners’ Andersen, GDPR could help investors’
interest in location-based ad firms in the long term because
firms will be forced to clean up how they collect data.

“You’re weaning out unreliable data sources and making sure that
you’re getting clean data sets from consumers who have opted in
from quality sources,” he said. “I would imagine that the signals
are getting more accurate — we’re too early to see if that’s the
case but theoretically it absolutely could be.”

Julie Zeveloff/Business
Insider

Companies aren’t as innovative as they were a few years ago

There’s also a lack of innovation among location companies,
Jessica Peltz-Zatulove, partner at MDC Ventures, the corporate
venture capital arm of agency holding company MDC Partners,
said. 

MDC Ventures is an investor in location-based firm PlaceIQ, which
has gone through
six rounds of funding since it was founded in 2011.
Peltz-Zatulove said that MDC Ventures isn’t fishing around for
other location-based firms to add to its portfolio, partly
because it hasn’t seen much innovation in location when it comes
to granular analytics and measurement.

“We haven’t made any new investments in that category because we
always want to understand what the white space is in our
portfolio when we make an investment,” Peltz-Zatulove said. “I’ve
seen different solutions in that space [but] nothing that I
believe is so differentiated or any incremental improvement
versus solving an entirely new way of thinking about the
category.”

Agencies want to roll up location data and use it elsewhere

Agencies want location data but not in the way that location
firms can provide.

Agencies are increasingly asking tech firms for the ability to
take their data and use it in a completely different way than it
may have been originally intended, Peltz-Zatulove said.

Instead of tying location to specific ad campaigns, advertisers
instead want to roll up location data and mesh it with
first-party data collected from email or loyalty cards, for
example. Or an advertiser might want to combine location stats
with purchase data stats from a survey to estimate how many
people bought something after going into a store.

Both of those scenarios are hard to do when a location-based firm
is only looking at data through the lens of serving advertising,
she said.

“If you look at the history of how location data has evolved, the
secret sauce initially was access to a data set but now
advertisers and marketers want that data to be more flexible,
real-time and they want to mash it up with multiple data sets to
create new dimensions of insights,” Peltz-Zatulove said. “There’s
so many different ways to layer on additional data on top of
location — location becomes one ingredient into a much robust
perspective into the customer’s daily life.”

Shutterstock

Agencies want a deeper look under the hood of ad-tech

WPP’s GroupM is currently in the process of auditing a handful of
location-based companies specifically for verification. The goal
is to understand how often the location of devices that firms
report are accurate.

“Very often, the only proof of performance for a data provider is
the resulting attribution or conversion tracking that we can
generate from a campaign,” said Joe Barone, GroupM’s
managing partner of brand safety in the Americas. “As the
location space has matured, we’ve taken more of a
verification-oriented approach to it.”

Dentsu Aegis Network-owned Carat also routinely vets
partners, starting with a test among 20 companies in 2016. Three
of the 20 companies passed the agency’s review.

“Every year we’ve been able to refresh this test because new
entrants are coming from a pure data perspective,” said Michael
Liu, director of mobile and innovation strategy at Carat. “We’ve
done a bunch of tests where we’ve tried to sift through who is
coming into our agency because we have so many uninformed
campaigns where people will take the salesperson at face value
and believe that their data is the best.”

The agency also asks some location companies to dump their data
into its own systems and is piloting a data-licensing program
that helps retailers and fast-food companies make sense of
location data without working through third-party companies.

“We don’t want to be so dependent on one person’s platform,” he
said. 

Another problem: A lot of location data is the same but packaged
up in different ways.

“They’ll all tell you that they have the best data and the
biggest footprint but at the end of the day, most of them are
drawing their location data from the same couple of SDKs
(software developer kits) or the same kind of apps,” said
iCrossing’s Ratner. “It again creates a bit of confusion in the
market.”

Location companies don’t want to be known for location

It’s no surprise then that some ad-tech companies don’t want to
be associated with the word location.

“I don’t even like to use the term location anymore because I
think it’s somewhat antiquated,” said David Staas, president of
NinthDecimal. “We think of it more as offline behavior — it’s not
just looking at where you go but also what you buy, what you
watch, and offline signals.”

CMOs, he said, are struggling to grow their brands and are
folding location platforms into marketing stacks to follow
foot-traffic trends for longer periods of time than a campaign.

“The CMO is saying, ‘I don’t want you just measuring a couple
things here and there. I want you to measure everything all the
time across all of my types of media and let’s do this on a
two-year basis.’ We get into that kind of level, which is much
more like an enterprise model from a mar-tech versus an ad-tech
perspective,” Staas said.

Foursquare is another example. The company’s roots are in
location data collected from its consumer apps but Foursquare
wants to use that data to help brands make broader marketing
decisions — like how to slice up a budget between social media,
television and billboard ads.

“There’s a lot of consultative work that we’re doing and we
want to do more of,” said chief revenue officer Liz Ritzcovan.
“Putting advertising and monetization on campaigns is really
important but it’s an output — customers offline and online are
discovering new ways that maybe they didn’t know about because of
data.”

Agencies said those are the kinds of talks that get their
attention but it can be tough for companies to provide enough
data for them to actually make bigger decisions when it comes to
ad budgets.

“This has always been an interesting thing,” said Carat’s Liu.
“What [data companies] aren’t getting is more nuance — they’re
trying to understand more about the consumer that can supplement
the data.”