Understanding Location Based Advertising

Location Based Advertising (also know as hyper-local advertising) is a type of advertising which takes advantage of a consumer’s real world position. Using this real world position, Location Based Advertising is able to deliver relevant ads for products and services that are in close proximity to that consumers’ current location.

Location is everything...

Wait, what does this mean?

Well, let’s say that someone is on their smartphone and standing in front of a coffee shop. If this person is using a mobile app that incorporates Location Based Advertising, it becomes possible for an advertiser to know that this person is actually standing in front of a coffee shop, and send them an relevant ad (or coupon, or whatever) instantly.  This ad can be from the coffee shop they are standing in front of, or it can even be for the competition down the street and around the corner. Perhaps this ad from the competition is so compelling it entices the consumer to travel a bit farther up the street, and reap the discount from the ad they just got.

This actually happens on a regular basis with Location Based Advertising, as this form of advertising has been shown to be quite effective. It is a powerful thing for a business to know a consumer is in close proximity to their store and offer them an incentive to make them take those final steps to enter the store.

This is exactly what Location Based Advertising does. It knows where the consumer is positioned in the real world and delivers an ad for a product/service that is “close by” the current location of the consumer.

OK, that’s great!  But how does it work?  Sounds complicated…

Yes, you are right, the technology behind Location Based Advertising is insanely complicated, but we won’t let that get in our way of learning some of the basics about Location Based Advertising!

How about a quick Q&A?

Q: How does Location Based Advertising “know” the current location of a consumer so they can send them an ad?
A: Most of today’s high end smartphones (iPhone, Android, Blackberry, Nokia) have what is known as a GPS chip.  A GPS chip is a little microchip that interprets signals from GPS satellites in space and figures out your current position based on those signals. These chips can also figure out your position by using cell tower triangulation to “jump start” the process of getting your GPS position. This “jump start” makes the process of getting your current location much faster. By using cell phone tower triangulation, it means getting a consumer’s location can now happen within seconds, and not minutes as is the case when using GPS radio signals alone.  Most of the same modern smartphones that have a GPS chip also have the ability to use cellphone triangulation. In reality, the differences between these two technologies is not something you necessarily need to worry about, but still it is some good background info to have.

Q: If I am walking down the street, how close do I have to be to a place of business before I get one of these “Location Based Ads”?
A: Traditionally you would get an Location Based Ad served to you as soon as you cross a Geofence.

Q: Geofence?  Eh, what’s that?
A: A geofence is nothing more than an predefined area on a map.  In Location Based Advertising, the place of business doing the advertising is usually in the middle of the area defined by the Geofence.  Traditionally, the defined area (Geofence) is nothing more than a simple circle drawn around the place of business. (or a square or a polygon). How far out this geofence is drawn, (a few blocks, a few miles, etc) all depends on the ad campaign and the goals of the advertiser. Once a consumer is inside the area of the geofence, they are served up a Location Based Ad.  To reiterate: Outside the Geofence, no ad, inside the geofence, you get served an ad. Simple!

Blue area denotes Geofence with coffee shop in the middle. Green marker is outside the geofence. Red marker is inside the geofence.

Q: Why should I care about this Geofence?
A: The timing of the delivery of your ad to the consumer needs to be useful and relevant based on their location.  For example, in a large city with many coffee shops and lots of pedestrians, it might be most effective to make your Geofence small, and send out the ad to consumers only within a 3 block area.  Anyone outside that 3 block area will usually not feel compelled to travel more than 3 blocks for a  coffee shop and your ad will not be as effective . Conversely, for a coffee shop in a small town on a major highway, it might be most effective to stretch that Geofence out to 3 miles and get people as they are coming into town on the highway.  Finding the “sweet spot” of the size and shape of your Geofence to make your ad campaign the most effective will be the thing that distinguishes your marketing skills from the rest of the pack.

So, there you have it, a quick overview to some of the more important concepts associated with Location Based Advertising.

Location Based Advertising is set to become the new norm in the coming years, so start your education now. You will want to position yourself and take advantage of this emerging field in the future.  And remember, “the early bird gets the worm”, and Location Based Advertising is one worm which you will want to make sure to be early enough to get!

About Greg Rose

Greg Rose is a geospatial professional with over 10 years in the field. Since 2008, Greg has been focused on the mobile geospatial developer space and has extensive experience in building and maintaining Developer Communities using social media tools. Greg is technically focused and understands the needs of Geospatial Developers, yet is a Marketer at heart who knows how to message his audience. Greg has taken these two talents and combined them in his journey to become a thought leader in the geospatial world. You can follow Greg on Twitter at @gregrose.


  1. Marc Poirier Marc Poirier says:

    Hi Greg, great article – How can anyone get started with this? I mean, if I’m an advertiser and I want to test the waters, what are the ad networks or app developers I need to look at?

  2. Greg Rose says:

    Hi Marc, Thanks for the feedback and glad you liked the article. This is a great question! Basically there are big players and small players in this space. Big players would include Google, Nokia, Apple and others. For me personally, I am a fan of the LBS ads served up by the where.com app. You might want to check into them. (http://site.where.com/where-ads/) But honestly, this space is changing rapidly and many players are entering and exiting the location based advertising game all the time, so I don’t really have a complete list or more specific recommendations. (Perhaps this would make a good topic for my next blog post?) In the meantime, check the folks out at where.com as they are a good mid-sized player that will give you a flavor of how to get started that is relatively pain free.

  3. Keith says:

    Hey Greg,
    Same question as Marc, but different background. I work in GIS and am a geospatial professional any suggestions on tools to use? platforms to develop?

  4. Greg, nice article, which explains very well the concept of location based ads! Thanks for the clear words. If you are creating the list of players in the space, please add us to the list – YOOSE: the hyper-local mobile ad network. We engage consumers through location targeting and mobile couponing http://www.yoose.com and https://twitter.com/YOOSE

  5. Greg Rose says:

    Hi Christian,
    Thanks for the comment! Yes, I will add YOOSE to the list! I remember you guys from the NAVTEQ LBS Challenge a few years ago. Thanks for the reminder!

  6. Bart says:

    Dear Greg,

    I enjoyed reading your article and it certainly helped me understand the basic idea behind location-based advertising. Currently, I am working on a paper on LBA; however I have yet to define my ‘working scope’. My intention was to focus on traditional advertising agencies to see:
    - which efforts they are making to integrate the location factor in their campaigns;
    - if they are getting demand from customers (i.e. retailers who want to start an advertising campaign) specifically on location
    - ..

    I have yet to understand how the market is actually working. I have the feeling that these advertising agencies are not a necessity for a retailer to start a campaign. I was wondering if you could give me a few pointers on where to look for information to get a grasp of how LBA works in the real world. It would be very helpful.

    Thanks in advance!

  7. Greg Rose says:

    Hi Bart, thanks for the comment!

    You might want to check out the case studies at NAVTEQ Media http://navteqmedia.com/ (disclaimer, I am a former Navteq employee)

    You might also want to check out Google Mobile Ads Case Study. http://www.google.com/ads/mobile/advertisers/case-studies.html

    I am not sure if this is the kind of information you are looking for, but if it is, you can also try a more generic Google search on “Location Based Ads Case Study” and see what you can dig up. Does this help at all?

  8. Jim Moore says:

    Great Overview Greg!

    Well written and clear – but I have a follow-up that I hope you won’t think is too silly… It’s about the entire location determination through ad delivery process itself, and more specifically the LBS providers out there providing the location data to ad developers…

    Is the location data currently being delivered to smartphones using the various “free” location APP’s (i.e. life360, GTX Corp., etc.) being sold to location based advertising providers? Which might explain how those APP’s are free…

    Can you direct me to other sources that can educate me on this process? I’m an art director / writer just trying to stay a bit ahead of the curve…

    Thanks! Again – a very informative overview.

    Jim Moore

  9. Kalana says:

    Hi Greg,
    Very interesting article, But I have a small question to ask. You are saying “it becomes possible for an advertiser to know that this person is actually standing in front of a coffee shop”. Actually, how does the advertiser know the customer is really near the shop? That means advertiser should know the customer GPS location. Since customer has the GPS enables Smartphone, he will receive his GPS location, and he should have passed that info to the advertiser, when he goes inside the geo-fence. Otherwise how does the advertiser know customers GPS locations?
    I am trying to learn this subject area, please help me to understand above scenario.

  10. Greg Rose says:

    Hi Kalana,

    Sorry, I guess I misspoke a bit… What I mean is that and advertiser knows when a user crosses a geofence and that is when they push out the ad. So the advertiser does not really know the user’s “exact” position (like if they are standing in front of the store, or a few doors down), but they just know when a user crosses a geofence and that is when the ad gets served. Of course, the advertiser does not know the personally identifiable information of the user either, they just know that some user has crossed a geofence so the add gets served up. Also, I should mention that this scenario only works if a user has an app open or if it is running in the background. If neither of these scenarios is applicable (meaning the app with Location Based Advertising is not currently being used or is not running in the background), then even when a user crosses a geofence, they won’t get the ad. Does this help at all?

  11. Kalana says:

    Thanks for the reply…I just wanted to know how does the advertiser know that any of the users have crossed the geofence? Kalana

  12. Greg Rose says:

    Hi Kalana,

    Ah, OK! Yes, the phone sends the users’ location to the Location Based Advertiser. You know that list of permissions that come up when you install an app? (This app has access to your contacts, full internet access, your location, etc?). Well, the permission about “getting your location” is the function that let’s the Location Based Advertiser know when a user has crossed a geofence. This “user location” function only works when the app is on (or running in the background). I know it sounds a bit scary having companies track your location, but most Location Based Advertisers go to great lengths to make sure they are not capturing your personally identifiable information and associating it with your location… They just know that “some user” has crossed a geofence and then they serve up an ad. But yeah, basically your phone is sending your location to the advertisers and that is how they know to serve you an ad. :-)

  13. Lyn says:

    Hi Greg, what value do you think Near Field Communications ( NFC) will make to location based advertising? The current NFC tags and QR codes carry data storage of 1000 kilobits (size of URL). What if an NFC tag could provide 2-8 megs of data what would be the value to a) the user and b) the advertiser? Would love to know your thoughts. Thanks.

  14. Greg Rose says:

    Hi Lyn,

    I think that NFC has a place in location based advertising. However, I think NFC would be most useful to the consumer who was already in a building and provide them a coupon (or something similar). Meaning if I was at the grocery store and there were two products (toothpaste for example), NFC could help me choose which one to buy. One product could have a NFC tag associated with it and have a coupon, while the other would not, so I could grab the coupon with my phone to use at checkout. Also, if I was able to “browse” all the available NFC coupons with my phone when I was in a store, that would be neat also. These are only a couple of use cases I can think of off the top of my head,(but I am sure there are many, many others) I really do think there is a place for NFC for advertising, especially as more and more mobile phones integrate the NFC sensors into their hardware, but I don’t think NFC could get you to the store like location based advertising currently does. However, once you were at the store NFC could play a huge role in swaying a customer to purchase one product over the other by providing coupons (or other incentives).

  15. Greg Rose says:

    Hi Jim,

    Sorry I missed your comment!

    The location data is being provided by the phone’s GPS chip. The GPS chip “knows” the phone user’s location and is pushing that location to the location based advertising service. Most modern smartphones have this ability to broadcast the phone’s location in a way that the location based advertising service provides can tap into. Then, this information can be used by the app builders when they integrate the location based advertising into the apps they build. Not sure if this answers your question or not…

  16. Fredy Prabowo says:

    Hi Greg,

    Thanks for your article, it helps me a lot to know how LBA device works.i’m sorry if my english not good because i’m not using it in a daily conversation. by the way could i ask you about how to connecting a database i create using .Net to this LBA device?
    and may i ask you how to entry database into this LBA device if you don’t mind.
    i hope you’ll understand my question because i think my english need lot of improvement.

  17. adam says:

    Hi greg ,your article is awesome man. I am not able to understand the whole concept. I mean this is all about sending the ads of the advertisers to the users which are currently wandering inside geofence. Since the user had agreed to share its location info while installing the application, thus,when a user passes the store advertiser how the user get tracked by the advertiser? and how is geofence created around the store ?

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