According to Compete, smartphone owners who use location based services are also likely to have a higher monthly cell phone bill ($75-$125) than users who don't use these services. Chances are, though, that these users also tend to have data plans, so these numbers are not exactly surprising.

Currently, there are still a number of technical and privacy issues that are holding back some of the most interesting services. Due to the absence of background processing, the current generation iPhone, for example, can't regularly ping a server with a user's location and then send alerts to the phone based on this information. Alerts you have to actively pull up are, after all, not nearly as compelling as automated messages that tell you that you are heading right for a major traffic jam.

Underserved Markets: Local Alerts, Special Offers

Advertisers will also be happy to hear that a large number of consumers would like to receive special offers tailored to their current location, but only a very small number of current smartphone users are actually aware or able to use these services.

According to Compete's Andy deGaravilla, this means that companies that manage to provide users with more compelling and relevant ads based on their location will "likely see higher clickthrough rates and subsequent engagement." At the same time, though, we can't help but wonder if at least some users would also like to simply receive a text message or another kind of alert on their phones if, for example, a nearby store has an offer for them.

User Initiated vs. Background Services

The current generation of location based apps mostly relies on users to initiate the process. It would be interesting to see how consumers would react to a background service that actively monitors a person's location and sends out alerts when a user enters a certain location, for example. Of course, this could get highly annoying quickly, but there is no reason to believe that it couldn't be done right.