Consumer mobile location-based services first became available two to three years ago as the performance and cost of mobile handsets—especially smartphones—made it feasible to launch mobile information services that used location data. The iPhone, and all the clones that sprang up after its introduction, accelerated adoption.

eMarketer estimates there will be over 63 million location-based service users worldwide this year, and 486 million in 2012.

“Consumers have discovered that the appeal of location-based services extends beyond pinpointing locations, businesses and other points of interest,” says John du Pre Gauntt, senior analyst at eMarketer and author of the new report, Mobile Location-Based Services. “Buddy beacons and friend finders based on location-based service technology allow mobile users to determine each other’s physical location.”

Not surprisingly, marketers, too, are interested in mobile location-based services.

“Connecting with consumers at the last three feet of a transaction is the holy grail for advertisers,” says Mr. Gauntt.

In February 2008, CBS teamed up with Loopt, a social mapping service, to offer location-based service-based advertising. CBS ran localized banners on CBS Mobile News and CBS Mobile Sports to point Loopt customers to local businesses based on their physical location.

In September, Quattro Wireless partnered with uLocate to offer location-based advertising inventory exclusive to the iPhone. uLocate’s application, WHERE, is already one of the most-popular downloads at Apple’s iPhone App Store.

“Things are moving fast, but there are some significant hurdles for marketers trying to make location-based services a standard part of the mobile marketing mix,” says Mr. Gauntt. “An obvious challenge is to address both the real and imagined privacy concerns.”

In April of this year, CTIA, an international mobile industry body, published best-practice guidelines for location-based service applications. Two fundamental principles guide the document:

• User Notice: Location-based service providers should inform consumers as to how their location information will be used, disclosed and protected so users can make informed decisions about whether or not to use the service or authorize disclosure.
• User Consent: Once users have selected location-based services or authorized disclosure of their location information, they should have choices as to when or whether location information will be disclosed to third parties, along with the ability to revoke any such authorization.

Consumers fear being tracked—and having even minor activities recorded. Or, as Kevin Ho characterized the problem in his blog, each of us is reluctant to become a “human cookie.”

“For now, the job of social engineering is taking precedence over technical engineering,” says Mr. Gauntt. “But once the privacy issues are sorted out, the payoff for marketers will be the ability to instantaneously interact with consumers as they accomplish real tasks in the real world.”