Location-based services: Controversy at every level

Location-based services: Controversy at every level

Like it or not, commerce increasingly involves keeping tabs on the customer's location.

Jody Stevenson doesn't know she's been using location-based technology -- and doesn't care.

"I've been having a ball for almost a year," says the New Jersey homemaker. She enhances her shopping experiences with a service called Shopkick, which gives her loyalty points (convertible to gift cards and cash) just for walking into a participating store.

Or, rather, an app on her smartphone (if she has remembered to invoke it) decides that it is inside a participating store, and rewards her with loyalty points (called "kicks"); the amount varies by individual store and the promotional policies of that store. She also gets varying points for scanning bar codes of specific merchandise, whether she buys the items or not.

Overall, location-based services use three different levels of accuracy -- vicinity to within a block or two (derived from GPS coordinates), presence (establishing that you are inside a given building or store) and department (pinpointing your location within a given store).

Shopkick makes use of the presence level, primarily; it's also the level that's demonstrating the most commercial success and producing the most fears about Big Brother-style surveillance.


With modern smartphones able to locate themselves using the GPS satellite network, applications that allow multiple users to compare their locations for specific purposes are becoming well established.

Here on Biz, a mobile app, locates nearby business people one might be interested in meeting, based on their social media entries.

"I was in Chicago for a client meeting and was interested in meeting with the people in a large firm located there," recalls Garen Mareno, director of strategic partnerships for a design firm in Los Angeles. So he consulted his Here On Biz app, which locates nearby businesspeople he might be interested in meeting, based on their social media entries.

"When I got there, many people from that firm popped up on my Here On Biz radar. I was able to set up drinks and make that first step. Another time I was in Russia and was able to reach out to colleagues I did not know were there," Mareno recalls.

The main controversy at the vicinity level appears to involve the question of whether to display the results on a map, since doing so would seem to allow, or even promote, stalking.

"We refuse to do mapping; we think it's a security issue," says Nick Smoot, one of the founders of Here On Biz.

Another example of a vicinity service is POS REP (Position Report), intended to let military-service veterans find each other. It displays a map showing nearby veterans by branch of service, but the locations are only approximated until a user "pops a flare" indicating a desire to be found, explains Anthony Allman, co-founder.


GPS signals typically don't penetrate buildings, so determining presence inside a store requires additional technology. Meanwhile, if the information is shared with other stores, it raises all sorts of questions, notes Evan Schuman, founding editor of the Storefront Backtalk newsletter and a retail technology consultant.

"As you enter a gift store they could know you just left a flower store -- but what if you were a married man buying for another woman?" he suggests, adding that stores are not sharing such data yet.

Shopkick -- the service that Stevenson uses -- bills itself as the most popular location-based service gathering data at the presence level. Since its introduction four years ago, Shopkick has been based on a box that emits a 21,000Hz tone overlaid with a modulation that is different in each store, explains Cyriac Roeding, co-founder and CEO of Shopkick. A free app on the user's smartphone hears the tone, decodes the modulation and decides what store its owner is inside of.

Mobile app Shopkick gives customers loyalty points -- convertible to gift cards and cash -- just for walking into a participating store, among other transactions.

Adults cannot hear tones higher than 16,000 Hz, and so shoppers are unaware of the signal, Roeding says, adding that while dogs -- some of which enter stores as service animals -- can hear the tone, it is not loud enough to bother them.

The company started shipping the product in 2010, and its ultrasound boxes are now emitting pulses in about 10,000 stores in the U.S.; the company claims revenue of $500 million annually.

Roeding says Shopkick users spend 30% to 60% more than other customers when shopping. For her part, Stevenson says her shopping habits have changed "just a little" since adopting Shopkick. "It might bring new products to your attention that you might not have noticed," she says.


Beyond knowing that a customer has entered the store, the merchant might like to determine the position of the customer within the store. Traditionally this has been done with routers that triangulate the strength of the Wi-Fi signal of a customer's smartphone. The Wi-Fi emissions of a phone can be tracked passively, without any need for the owner to opt in, and each phone can be identified uniquely through its MAC address, although the tracking system will not know who owns the phone. There may also be a store app that provides various shopping services, but also encourages the customer to opt in so the store system can identify him or her.

"Any meaningful retailer has some effort in this space underway," says retail industry analyst Charles Golvin.

The most recent development has been adding Bluetooth low-energy (BLE) detectors, confusingly called beacons, to the triangulating routers. BLE is part of the Bluetooth 4.0 standard used on late-model smartphones, and permits one-foot detection accuracy with small, inexpensive devices that have a battery life of several years, explains Kevin Hunter, director of product management at Qualcomm Retail Solutions. Passive tracking with Bluetooth is possible just as is done with Wi-Fi, without any need for the phone's owner to opt in, notes Schuman.

"It costs 40 bucks, you stick it on the wall, and its batteries last five years," adds Roeding, whose firm is offering BLE as an enhancement for its Shopkick system. "It can also remind you to open the app in the store, if you opted into that; the fact that the user had to remember to open the app was a drawback in the past," he says.

The resulting location data is not usually overlaid on a map, as that would involve the additional expense of mapping each store, Hunter adds. The stores are typically content to know what department the user is in, he notes, so they merely need to label the beacons by location.


But map or no map, customers are being electronically followed around the store. Storefront Backtalk's Schuman recalls a department store that put up a sign telling customers that their smartphone's Wi-Fi emissions were being tracked unless they went to a website and entered their phone's MAC address to opt out -- generating so many complaints it stopped the tracking.

"The lesson is that the customers don't like it -- or that putting up the sign was a bad idea," he notes.

The obvious pro-privacy move of turning off the phone's Wi-Fi and Bluetooth facilities assumes the owner knows how. Meanwhile, turning off Wi-Fi may inhibit the owner's ability to make calls from inside large stores, notes Schuman.

Roeding says Shopkick protects customer privacy because it, not the retailer, interfaces with the customer and hands out the loyalty points. "We don't supply any names, only aggregate numbers," he says.

Hunter says that special features of Qualcomm's BLE beacon promote privacy by emphasizing the need to opt in, and for transparency. After opting in, users can turn off selected features, or opt out entirely and even erase all data about them that has been collected on the device, and do it easily, he claims.

Fujitsu's "U-Scan shopper," shown at a trade show in 2005, allows customers to view uploaded shopping lists, check prices and locate items in stores. The monitors also allow retailers to offer loyalty incentives and personalized advertising based on individual shoppers' profiles. REUTERS/Tim Wimborne

Schuman is not impressed. "If you use your phone to make a payment they will know who you are every time you walk in until you get a new phone," he notes. "They can pull your history. If you were fond of red sweaters, an associate can approach you and mention a 17% sale on red sweaters. What a coincidence!"

Beyond that, Schuman says the ultimate goal of in-store tracking is differential pricing, based on an ability to identify individual shoppers combined with accumulated information about their backgrounds. Price tags will be dispensed with, and customers will swipe a product's bar code and be given a price derived from various factors including their "price sensitivity" (i.e., their known spending habits combined with their presumed income level).

"You may be shown a higher price, because you are less price sensitive, while the next person may get a deep discount since they know that person will not buy it otherwise," Schuman predicts.

Analyst Golvin disagrees. "I would be surprised at any attempt at that kind of approach -- after all, they [the customers] are walking around with a very powerful communication tool that can provide price transparency."

In other words, there is nothing stopping customers from checking prices elsewhere.


Indeed, the implications of research from various sources -- gathered by Qualcomm and shared by a corporate spokesperson -- hint that the retailers are not trying to establish some kind of "1984" or "soak the rich" environment. Rather, they are primarily hoping to counter the practice of "showrooming," where shoppers go to the store to examine a product, and then go home to buy it online at a presumably lower price.

Around 43% of U.S. adults have engaged in showrooming, making the practice a real threat to brick-and-mortar retailers. Even if they are not showrooming, nearly half of customers have been known to check prices on their mobile devices while in a store to make sure they are getting the best possible deal.

But consumers are also 46% less likely to go comparison shopping if they have a particular retailer's app running on their device.

The issue is not going to fade away; some 73% of smartphone owners have used their phones while shopping (PDF), primarily for checking prices but also to take photos to send to friends or family members. Wal-Mart found that 55% of the shoppers who walk into a Wal-Mart store are carrying a smartphone. Those who have a Wal-Mart app on their smartphone enter the store twice as often and spend 40% more during their visits as does the "average" shopper.

But privacy-conscious or skinflint customers are not the only problems facing retailers when it comes to location-based services. Hunter at Qualcomm noted that Web retailers can send people into the showrooms of brick-and-mortar retailers (with non-Qualcomm equipment) to "wardrive" the Wi-Fi and BLE routers in the electronics departments of those stores -- in other words, use passive devices to collect the network IDs of routers in the vicinity of high-dollar items. The Web stores could then send offers to anyone browsing in those departments, telling them the same products can be acquired cheaper online.

One shopper's version of welcome personalized offers might have another person wondering if his favorite big box store has become a Big Brother store. "It's a question of how the retailers communicate the benefit of what they're doing," says Golvin.

And for those who remain unconvinced, "Turning off your phone is always an option," he adds.

This article, Location-based services: Controversy at every level, was originally published at

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