Location-based services were certainly the craze at SXSW Interactive this year — there really *wasn't* another story told at the event.  Or maybe there were other stories, but you'd never know.

LBS 2.0

The funny thing is that we're really on LBS 2.0.  The first wave of location-based hysteria took place in 2008 as the first location-aware cell phones hit the market.  That wave resulted in the expected level of chaos — some LBS providers went straight to the deadpool, some are today "living dead", and others survived and are redefining themselves.

Foursquare, Gowalla, and to a lesser extent MyTown are driving LBS 2.0 and all the hype today.  I'm going to go out on a limb and call it all "hype" right now because the numbers don't suggest anything else.  Facebook has over 400 million users today.  Twitter has well over 75 million (although it's hard to say how many of those are legitimate).  MyTown claims the highest number of users at just over 1.5 million.  Foursquare has half that.  Who knows exactly how many users Gowalla has attracted?

Why are people so crazed about location-based services?  My guesses?  Growth rates, the potential of a virtuous cycle, and new features.  And as innovators, most folks attending a show like SXSW Interactive all want to be part of something that will become ubiquitous.  It's congruent with our personalities and our reputations.

Weaknesses

It certainly remains to be seen whether or not any of these services can achieve mainstream adoption — as defined by three things:  stickiness, adoption across early adopters/into an early majority, reaction by major tech companies.

• Stickiness - Is the concept of "checking in" a fad or is it something we'll continue to do long enough for that action to be automated?  Are game mechanics a lasting means of collecting checkin data?  If not, can the act of checking in be effectively automated?  And will privacy concerns limit the geodata they're willing to expose about themselves?
• Mainstream Adoption - Can growth continue and perhaps even accelerate so these relatively new services become interesting to mainstream users?  Will soccer moms use LBS?  How will LBS become valuable to a larger group of users?
• Reaction by big tech - We've already see Yelp, Twitter, and now Facebook announce plans to integrate location data into their applications.  How will these affect major LBS players?  And what happens when Microsoft, Apple, Yahoo, AOL, and Google jump in?

Characteristics of a Winner

If you think about it, there are many more questions than answers.  That said, I think that the hype can be made into reality if these LBS providers play their cards right.  Here are a few things I'd do if I were running an LBS provider:

• Enhance the user experience — new features, new experiences, better connections, brand integration, etc.
• Partner — seek large audiences and go get them as quickly as possible.  This is a race.
• Open the platform — we know from crowdsourcing that the crowd typically has better ideas than any closed group of people.  Become a standard an open the platform to read & write access to make the platform more immersive.

I can understand concerns about allowing a ecosystem to grow up around a maturing product.  But that's what helps a product graduate into a true platform.  It's happened time and time again — those who keep their platforms closed ultimately lose because they can't innovate as fast or as effectively as the crowd.

All the while, there are a wide range of interesting products and services that can be built atop location-based services.  A world of innovation awaits, but is held back to some extent by the fact that popular location-based services are still effectively closed platforms.

At a certain point, a baby grows into an adolescent and into a young adult.  Parents have a tough time dealing with the transition, because the illusion known as control slips away.  Startup LBS services that have emerged over the last 12-18 months have grown into adolescents very fast.  They have the potential to become adults.  It will be interesting to see how and if this transition takes place over the coming year, and whether or not openness has a significant impact.  My guess is that it will.