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In this four-part series, we'll look at how small businesses can leverage the power of location-based services such as Foursquare and Places

There's growing realization among large and small companies that location-based services are becoming one of the most important digital services in the next few years.

Such services have the potential to revolutionize the age-old coupon model. Instead of asking users to cut out and print a discount offer, businesses can now make such offers digitally, straight to a customer's smart phone. Best of all, because virtually all smart phones come equipped with GPS, a business can make sure the customer gets that discount offer just as they're near the physical location of the store, increasing the likelihood they'll stop by and purchase something.

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But even as companies such as Google and Facebook hop on the location bandwagon, it's worth researching exactly who's using such services, and what's stopping others from taking part.

According to an October 2010 report from research firm SNL Kagan, usage of location-based services in the U.S. - including everything from "check-in" tools such as Foursquare to navigation systems - tripled in 2010, compared to the year before. The surge had a lot to do with the increased adoption of smart phones.

The research firm found Foursquare was the fastest growing service, with an average quarterly growth rate of 273 per cent since the second quarter of 2009.

But in absolute terms, the numbers are still small. A recent survey by the Pew Research Center's Internet & American Life project found that just 4 per cent of online adults use location-sharing services such as Foursquare. That number jumps to 7 per cent for adults who go online using their mobile phones.

As with most new digital trends, the highest uptake was among the younger demographic. Usage was highest among the 18-29 age group, at 8 per cent. Men also used location services at twice the rate of women: 6 per cent, compared with 3 per cent.

Depending on how broad a definition one uses, the most popular location-based applications include navigation services, social networking tools and weather report apps.

However, the survey notes that as services such as Facebook and Twitter integrate location-based tools into their core software, it's going to become more and more difficult for users to say what is and isn't a location service.

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"It is possible that as the lines between different types of services become increasingly blurred, it is difficult for respondents to always pinpoint exactly what sort of software they are using - especially on their mobile devices," the report states.

In Canada, the numbers are similar. A recent Microsoft survey found almost 60 per cent of Canadians say they've heard about location-based tools. But the survey also found that 44 per cent use them less than once a month, and only 3 per cent use them every day.

It is tempting to believe that two major factors - the increasing replacement of cell phones with smart phones, and the integration of location-sensitive features in most major social networking services - will eventually make location-based services the norm on the Web.

However, there remain significant barriers to widespread acceptance of such tools. Many users still access the Web from desktops and other devices that don't offer much in the way of precise location data, for example. Other services, such as group-discount sites, are content with only knowing a user's home city, without needing their precise location.

But the primary reason for resistance among some users to the location trend appears to be privacy concerns. According to the Microsoft survey, almost half of Canadians have some concerns about sharing their location info, and 64 per cent are specifically concerned with controlling which organizations have access to that information.

Such concerns are in many ways similar to the same kind of worries some consumers had (and in many cases still have) about the kind of personal information shared on sites such as Facebook. The concerns are heightened because many location-based services make money off an advertising model, raising issues about whether users' location data will be shared with third parties. That's why, perhaps, the most important first step for small and medium-sized businesses looking to take advantage of location-based tools is to make sure the business and the customer are both clear on exactly what will and won't happen to the information collected.

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Special to The Globe and Mail

The series continues with a new post every Thursday for the next month. Stories can be found on the Web Strategy section of the Your Business website.

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