Where will we play next?

Of all the new sectors of gaming we’ve profiled, location-based is perhaps the most under-developed, but also the most exciting.

That’s because the genres that will truly popularise it have not yet been created nor the tipping point for mass adoption yet been reached.

Fresh from helping a very promising new location-based entertainment venture, I’m going to profile a sector that combines mobile, social and gamification, and is attracting major investor interest.

Most of us in the west will be upgrading to smartphones this year. A third of American adults have them already and half of British mobile subscribers will be using smartphones next year. Usage of online services dramatically increases on smartphone, contributing to mobile data traffic growth of 60 per cent between 2010 and 2011.

Unsurprisingly games lead our favourite activities on smartphones, but what about that latent functionality in every smartphone – location tracking? Today, only 18 per cent of smartphone users have used a location-based service like finding an ATM or playing location-based games. Several reasons lie behind this slow adoption.

LOCATION, LOCATION, LOCATION

Firstly, many location-based services are drab and utilitarian. Some, like Foursquare and SCVNGR, are little more than gamified navigation or coupon apps and games designers have had low impact so far.

The dominant gameplay mechanism is checking in, which has done little more for gameplay than ‘Kilroy woz ere’ did for graffiti. Limited gameplay, low social integration and only 10 million registered users hasn’t stopped Foursquare recently raising $50m at a remarkable $600m valuation.

Leaderboards, points and achievements might have worked for early adopters but there’s evidence such services face significant churn once players realise gameplay is paper-thin.

A more interesting company moving beyond checking in is Finland’s Grey Area, which raised $2.5m in early 2011 for a stylish mobile MMORPG played on real city grids. With solid engagement and monetisation, it hints at the sector’s future potential.

However, too few of the success factors that exemplify mobile and social games have yet been employed in most location-based games. Foursquare’s eco-system of app developers has been limited by its relatively modest active user base. There’s too little iterative development, analytics-driven monetisation, and deep implementation of freemium models.

Foursquare has turned its commercial eye towards the lead-generation advertising model epitomised by Groupon, all but ignoring the freemium and microtransaction model exemplified by Zynga.

I can’t blame SCVNGR, which raised $15m with a valuation over $100m in January, for making ~$1m/month from 1,000-plus mainly retail businesses, but there’s money from virtual goods/services left on the table.

Location-based games have minimal access to that powerful marketing channel for social games, the social graph. Billion dollar gaming giants DeNA and Gree, and Blackberry manufacturer RIM, are placing massive bets on creating the first true mobile social networks in the west but they are fragmented, relatively unsophisticated and under-utilised by location-based games.

A user experience that should be immediate and relevant to where you are is today high friction, friend-free and peopled by strangers. Location-based games lack the social context of enough friends telling you where they are as well as what they’re doing, missing the social momentum that drove Facebook’s first great games.

ANONYMOUS IS LEGION

Finally, consumers are pretty spooked by privacy issues at the moment. Anonymity appears a thing of the past, Anonymous has damaged consumer trust and so, when asked about sharing one’s location with the world, most of us say no.

Mind you, if you had asked most of us in March 2004 whether we’d be happy sharing our innermost thoughts, posting intimate photos, or asking everyone we know to help us play casual games on Facebook, most of us would have said no too.

Legislators will regulate this sector more heavily, but we believe that great games will de-sensitise us towards sharing our locations with friends and companies, just as they did on Facebook. Actually, the market-makers of so many recent technology trends – the young – are doing this already. The consumers driving Facebook, Twitter, digital music and microtransactions seem happier to share their entire lives including locations. This key demographic will unlock this market.

So, the right hardware is in the hands of gamers already spending billions on other kinds of games. What we need is game designers free to innovate in this space, not just to port genres from other platforms but to create genuinely new genres that bridge the gap between the virtual and the real world in dramatically new ways. Arguably there’s more raw creative potential on this platform than on any other.