Significant new technologies often emerge as “stacks.” You can look at stacks through a technological (e.g. OSI stack) or business lens. Here I am using a business lens, thus dividing layers by function and including things that aren’t technologies but have economic value, e.g. relationships with customers and users.
Normally stacks are constructed from the bottom up and some layers turn out to be valuable and others do not (Christensen argues compellingly that stacks tend to alternate between commodity and non-commodity layers).
The PC is a famous stack. In the 80′s and 90′s the most valuable layers were the processor (Intel won), OS (Microsoft won), and applications (Microsoft mostly won with Office). Assembly of desktops became a commodity which Dell exploited (you can still make profits on commodity layers, you just need to take a low-cost strategy). The PC demonstrates how hard it is to predict which layers will become valuable: otherwise IBM would never have allowed Microsoft to own the OS.
The internet is another famous stack. In the 90′s a ton of investment went into the infrastructure layer – switches, fiber, CDNs etc. Innovation on that layer continues (particularly in wireless), but mostly the action has moved up the stack to web apps.
An interesting new, emerging stack is the “geo stack.” The first layer is latitude/longitude location detection. This is mainly provided by satellites and GPS chips which seem to be getting so affordable they will be in every mobile device soon.
The next layer is connecting lat/long to human-understandable locations. Google Maps, NAVTEQ etc. do this by connecting lat/long to roads. Location-based apps like Foursquare, Gowalla, and Yelp do this by connecting lat/long to “venues.” It seems Gowalla is building their own venue database. I assume Yelp has built their own. I don’t know how Foursquare gets theirs. I suspect venue databases will become mostly a commodity as they are fairly inexpensive to build and once built mostly interchangeable.
The next layer is the relationship with the user, particularly getting a user’s permission to track her location. Apps like Foursquare require explicit check-ins at each venue. Other apps like Loopt automatically check in for you. Building this trust relationship with users could be very valuable.
The next layer is what I’ll call “recommendations”: giving useful advice to users based on their location. Maps do this by providing driving direction, traffic info etc. Foursquare is doing this with “tips.” I think recommendations will be critical for geo apps to appeal to Normals. Geo apps are currently wooing early adopters with badges, games, and the idea that you might have a serendipitous meeting with your friends at a bar. I suspect these incentives won’t work for the broader population, but recommendations could. Recommendation data is hard to build and vast, hence could be a very valuable layer. (I am biased here as Hunch is working on this layer).
Social graphs could be a geo layer. It’s rumored that Facebook will be adding venue check ins soon. Facebook has by far the largest (opt in) social graph. As the recent Google Buzz debacle demonstrated, it’s not obvious that the people you email with are the same as the people you friend on Facebook. Perhaps the people you want to share your location with are different than the people you friend on Facebook. If so, there could emerge valuable geo-specific social graphs.
Finally, monetization could be a very valuable layer. There are (at least) two parts to monetizing location. Getting local businesses to embrace the internet has been very slow going. Companies that make money on local businesses today (Yelp, Yext, ReachLocal) use expensive outbound calling and other “push” techniques to sign up local businesses. There remains a huge opportunity to supplant the yellow pages as the default advertising platform in local business owners’ minds. If apps like Foursquare can build up enough marketing / PR momentum that every restaurant, dry cleaner etc feels like they need to “get on Foursquare” this could finally open the floodgates for local business advertising.
The second part of monetizing location is facilitating and tracking offline purchases. 90%+ of purchases are still offline, although for many of those transactions people do research and make their decisions online. The internet doesn’t get paid for these transactions. Companies like Milo (disclosure: I’m an investor) are doing interesting things in this space and I expect we’ll see a lot more activity on this layer soon.