Ever since Foursquare made an overnight sensation at SXSW (South by Southwest) in last March in Austin, Texas, its siblings emerged upon the scene quickly in both U.S. and China with more or less similar features – check into where you are to announce your whereabouts. If Facebook is all about who am I, Twitter is all about what I’m talking about, then LBS service like Foursquare is trying to tell people where am I.

 

From Fifty to Fifteen

Two years after Foursquare’s SXSW debut show, the once heated LBS market now has showed signs of cooling down in both markets. Gowalla was acquired by Facebook and the service would be discontinued in next year. Whrrl was acquired by Groupon in this April. In China, Digu shed 70% of headcounts two months ago largely due to uncertain profitability prospect. Digu claims 20.8% of Chinese LBS market according to a report by Beijing-based market researcher AnalysysInternational. For last year there’re at least 50 LBS services in China market, while in this year only about 15 remained.

Digu co-founder Huang Xiaotao once said that “LBS in China is in a place that we need tocultivate the market and users, it’s too early to explore feasible business models.”

His remark mirrored in some of the largest Chinese LBS service providers’ shift in strategy.

 

LBS Plus Ecommerce

Jiepang, one of the leading LBS service which just launched its latest apps has been providing discounts and coupons for its users who check into local merchants, a move to not only facilitate check-in behavior among hardcore LBS early-adopters but also gain traction among regular smartphone users, they might not that interested in check-ins, but with coupon and discounts, why not. Shanda’s Qieke as well as Kaikai also give benefits to their users. Qieke CEO Liang Zhen said that “after a long-term effort of trial, we believed that the combination of LBS and ecommerce will be an ideal business model.” Liang expects RMB tens of millions revenue through what he called the LBS+O2O mix.

Industry experts once pointed out that there’re three types of LBS mix in China, which are LBS + social, LBS + games and LBS + ecommerce, while the first two are both bothered by glimmer revenue picture, LBS plus ecommerce without question would be a nature choices for them. Qieke announced lately that the company will be reducing its investments into the first two model whereas increasing money into the exploration of O2O.

As of Q3 of this year, there’re 18.3 million LBS users in China, up from the 10.5 million in Q2. By the end of Q4, the number would be 30 million, AnalysysInternation estimated. And after the group buying heat, people are more or less familiar with the idea of buying online and consuming offline. The market is maturing.

 

Look out for the Big Guys

Even though, these LBS service – if they step into the ecommerce forefront- would be seeing ferocious competition from some of the local giants like Dianping. The Chinese Yelp has long claimed itself as an ideal combination of “Yelp + Groupon + Foursquare”. This maybe sound like a selling story for Wall Street, but none of these LBS services could afford to ignore Dianping’s move and determination in the market. Founded in 2003, Dianping now has indexed more than 1 million local merchants scattered in more than 2,000 Chinese cities. The site just raised more than US$ 100 million at a valuation of over 1 billion while the funding would go towards marketing, mobile businesses (such as check-in), and potential acquisition.

Except for the big one, those who just rise to the O2O market can also pose some challenge, especially some coupon-centric services.

However, Dennis Crowley, CEO of Foursquare disclosed in an interview this August that the site is about to break even through its persistent profitability expedition after started charging local merchants for once free local campaign service and real-time analytics tool. This could bode well for its Chinese counterpart that independent LBS service can still find its way and show its value to both users and merchants. Remember how Facebook Places lost its fight to Foursquare?