August 20, 2010, 2:09 PM

Will location-based services be a powerful force in m-commerce?

They’re in the hype phase today, and retailers should proceed with caution.

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Yes, it’s hype time for a new technology. Suddenly you can’t get around talk of location-based services. But very few retailers are using it, and what appear to be major players have yet to launch or are in beta with a handful of clients.

The concept in retail goes like this: A shopper downloads an app to her smartphone. The app integrates with the GPS built into the phone. As the shopper walks into a store, she opens the app, it senses through GPS that she has arrived, she checks in through a couple swipes of the smartphone, and she then earns rewards points and perhaps is sent a promotion or a discount.

Location technology also can be used for advertising. For example, Facebook this week launched Places, which enables members to check in at locations; checking in posts a message to the member’s status bar and pinpoints them on a map so friends can keep up with each other or even meet when they discover they’re close to one another. Facebook will sell ads to retailers and other businesses that will appear when a member is nearby one of the advertiser’s stores.

Something in the back of my head says proceed with caution. I can’t quite pinpoint why. Perhaps it is the overhyped promise of social media begging for a payoff. There’s no doubt mobile technology overall will play a huge role in the future of Internet retailing. By the end of next year half of all mobile phones in use will be smartphones, which are driving mobile web use to new heights and enabling rich experiences in retail that consumers are using (15% of all mobile phone owners have made a purchase on their device, according to one recent study, and merchants like Amazon.com and eBay have sold hundreds of millions of dollars in merchandise through their mobile sites and apps).

So smartphone sales are soaring, and smartphone owners are attached to their devices 24/7 and use them voraciously. App downloads are soaring, and people love apps. And consumers want app experiences that are meaningful, otherwise they relegate the app to a screen distant from the home screen, or just delete it. Location apps seem like they will provide meaningful experiences. Will they be meaningful enough to make consumers pause every time they go into a store to see if that merchant is participating in that location app, and then check in? That remains to be seen.

The concept of location-based services holds promise. But it has a lot of growing up to do before anyone can say it’s a slam-dunk.

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