Date: May 19, 2011 Author: Peter Cohan Source: Forbes.com (
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Companies want insight into whether their ads have any effect on consumers' driving route and what they purchase along the way. Delivering such insight is how Locately, a start-up founded by two MIT PhD graduates, is getting paid. And in the process of commercializing their technology, Locately is winning millions in grants from the U.S. government.
In a May 13 interview with Locately co-founder and CEO, Dr. Thaddeus Fulford-Jones, we started off our conversation watching a presentation that Fulford-Jones narrated of Nikki, a woman who volunteered to share her location data via the GPS chip in her mobile phone.
Location analytics revealed that Walmart (WMT) was a favorite shopping destination, with Nikki willing to drive past rivals Target (TGT) and Costco (COST) just to get there. But on Friday afternoons after leaving work early, she would head to the Family Dollar (FDO) instead, to avoid the after-school rush at her favorite Walmart.
Fulford-Jones started Locately in 2008 with the idea of applying location analysis to the then-recently-introduced Apple (AAPL) iPhone. To finance the company, Fulford-Jones and fellow MIT PhD, Eric Weiss, saw success in the MIT $100K Entrepreneurship Competition.
Their idea was to make use of what they called "valuable location data from mobile devices [that] was going unprocessed and unharnessed every single day."
And they saw a business opportunity in packaging and analyzing that data for national brands, market researchers, and advertisers. Their goal was "to provide new insights into consumers' location-relevant lifestyles" while keeping individuals "always in control of their data."
The company's analysis of the data would let corporate decision-makers make "better-informed choices about how to engage with mobile consumers."
Though Locately's co-founders had technical expertise in signal processing and data management, they needed to find an unmet customer need to which they could apply the technology.
So they took a page out of the s0-called Lean Start-up methodology to do customer development, the practice of talking to potential customers. For that, they formed an advisory board drawing on the MIT alumni network.
Through customer development, they discovered two unmet needs of consumer marketers:
Consumer insight. Companies were hungry for reliable data on how consumers actually behaved when they went to a store. For example, consumer marketers wanted to know which stores a consumer visited to buy specific items and which competitors they passed by on their route to the store.
Advertising effectiveness measurement. Companies wanted to be able to measure how their advertising altered behavior of consumers at the local level. For example, if McDonald's (MCD) offered a breakfast special in a region, it wanted to measure whether the advertisement for that special resulted in a boost in traffic to the stores in the region where the advertising was broadcast.
Through a partnership with Nielsen, Locately can combine its location analytics for "where people go" with Nielsen's extensive databases on "what people buy." Locately combines data on foot traffic and purchases and correlates it with retailers' and restaurants' ad campaigns — thereby revealing which marketing messages are most effective and why.
Locately has managed to accomplish something unique — it is financed mostly by "direct grants" and is on track to win up to $1.2 million from government grants alone, according to Fulford-Jones.
While some came from winning business plan competitions in 2008 and again in 2010, much more came from the National Science Foundation's Small Business Innovation Research (SBIR) program. The SBIR wants to help companies bring socially useful technologies to market — but to get the funding, a company must meet specific technical and commercial milestones agreed on with the SBIR.
But not all of Locately's funds come from the government — it also raised a round of Angel financing in August 2010 from the Hacker Angels.
Locately is focused on four market segments:
Retailers and restaurants who want to know when consumers visit their locations and when they pass competitors'
Hospitality and resorts that want to know how consumers split their stays with other brands — particularly when they have loyalty points with one but sometimes stay at competitor locations
Consumer packaged goods companies that want to track the shopper's path to the retail location where they make their purchases
Media companies. Fulford-Jones pointed out that advertising agencies want to know how their advertisements intersect with "real live consumers."
Locately generates revenues in two ways. It does focused projects for clients who want to know how consumers within specific geographies behave — specifically, when they visit their stores or buy their products and when they deal with competitors. Locately also offers a subscription service that clients can use to see how consumer behavior changes over time.
In order to grow, Locately needs to build a great team of software developers, algorithm developers, and researchers. And it has to make effective use of cloud-based computing resources from Amazon (AMZN), Google (GOOG), and Microsoft (MSFT) so it can respond quickly to changing customer needs while keeping its costs variable.
