In my last blog post, I commented on the AVG Technologies NV acquisition of San Francisco-based Location Labs. This week, I was given the opportunity to discuss the merger with Location Labs’ CEO, Tasso Roumeliotis, and Jason Finkelstein, the company’s vice president of marketing. We discussed the company’s history, the fit between the two companies, and the business of selling value-added services.

Background and Company History

Location Labs began as WaveMarket in 2002. The company’s early business model was to license the location information collected by mobile operators (via their cell towers) and provide it to developers of location-based applications. An example of such a partnership was uShip – an online transport marketplace. Using WaveMarket’s data, truck drivers could allow their locations to be tracked by customers automatically and safely. WaveMarket also worked with Sprint for fleet and mobile worker tracking. It also powered such apps as city guides, location-based dating, and retail/shopping features.

Family locator services using WaveMarket’s technology were first implemented by Sprint (Family Locator) in 2006, and AT&T’s FamilyMap followed in 2009, with T-Mobile’s FamilyWhere launching in 2011.  

WaveMarket was relaunched as Location Labs in 2010, and the company’s model shifted from supporting developers to focusing entirely on family safety and mobile control features. For example, it launched its Sparkle platform in November 2010, combining features such as location finding, geofencing, mobile controls and monitoring, and driving safety features into one security platform.

Selling Value-added Features to Mobile Customers

In 2011, Location Labs partnered with Sprint on a comprehensive online monitoring service called Safely Social Monitor. Similar to such tools as uKnow Kids, SafetyWeb, and United Parents Online (highlighted in an earlier blog), Social Monitor was designed to help parents monitor Facebook activity. Roumeliotis notes that this venture was short-lived, as they quickly learned that this is a tough sell. This is a sentiment that is repeatedly expressed in conversations I’ve had with executives from F-Secure, McAfee, Net Nanny, SecurityCoverage, and Symantec, Roumeliotis said that while parents express a strong interest in getting a better handle on their kids’ online activities, it’s been extremely difficult to get them to pay for stand-alone features. Interestingly enough, executives at Symantec indicated that family locator services were one of the more interesting value-adds that might be added to an existing security offering. Obviously, AVG felt the same way.

Sprint is the first carrier with whom Location Labs is working to bundle its offerings – control, locator, and driving safety features – into one package. Sprint Guardian is available for $9.99/month after a free trial period. Sprint also offers Lookout Mobile Security that offers free antivirus and safe browsing capabilities. This can be upgraded to a Premium version (that includes features such as mobile lock and wipe in the event that a phone gets lost or stolen) for $2.99/month or $29.99/year.   

Success in Selling VAS

According to Roumeliotis, the “Holy Grail” of mobile value-added services is Asurion’s extended service plans. He estimates that 85-90% of people accept its insurance. Another successful model that generated “a ton of revenue,” he notes, was, Telenav, which offers subscription turn-by-turn navigation service through such wireless carriers as AT&T. In 2012, for example, Telenav generated approximately $176 million in subscription revenues. Roumeliotis believes that Location Labs is one of the top three value-added services that mobile operators are offering.

Mobile Security is Hot in 2014

The Location Labs acquisition was just once piece of financial news in 2014 reflecting the significant interest in mobile security. For example, aforementioned Lookout announced that it had completed a $150 million in financing on August 13 to help it expand its enterprise offerings.

In its Security Summit, Blackberry indicated that it was taking a stronger lead in both enterprise and Internet-of-Things (IoT) security. First, it announced that it was acquiring Secusmart, a company specializing in voice encryption. Company officials also indicated that they were going to be playing a stronger role in providing enterprises with solutions to better manage IoT security. Although they lacked specifics, it is speculated that their solutions would revolve around cloud-based security for enterprises addressing the explosive trend of employees and bring-your-own-device (BYOD) into the workplace.  

Finally, I thought that the news that an industry stalwart such as ADT was working with a competitor of Location Labs – Life360 – was interesting. As the traditional home security industry seeks to keep itself relevant in an era of do-it-yourself home control, I thought that adding a family locator service to its home alarm offerings strengthens ADT’s position in the security market by expanding its capabilities to life safety applications.

The Marriage with AVG

Roumeliotis said that the AVG acquisition was a natural extension of the traditional Internet security market, as vendors seek to keep themselves relevant in a world where mobile platforms such as smartphones and tablets continue to erode PC sales. When it came down to it, an acquisition was most likely to come from the ISV or the mobile management market (companies such as Mformation, Mobile Iron, etc.). In the end, the fact that the vast majority of mobile management is focused on the enterprise meant that Location Labs’ consumer-facing positioning was most attractive to a company such as AVG.

Looking at the numbers, it’s clear why AVG’s acquisition of Location Labs makes strategic sense. AVG has 182 million monthly active users, 82 million of whom are on mobile, but they’ve struggled to monetize. Location Labs, with 1.3 million monthly paying subscribers and a 100% CAGR in paying subs from August 2013 to August 2014, has a proven monetization model in its partnership with mobile operators. Carrier network, billing and CRM integration mean their mobile safety apps can be controlled by account holders for every phone on their plan, without having to download apps to individual phones, and can be seamlessly paid for, month after month, through their carrier bill.

Finally, the two companies’ products in combination provide a complete mobile security offering – the only one of its kind in market. AVG’s services protect devices and data, and Location Labs’ protect the people who carry devices. It’s a combination of features that expands “Internet security” into more holistic safety applications and should lead to strong growth.

Future Plans

Given that Location Labs’ key products—namely Locator and Controls—have yet to be deployed with all their key US partners (AT&T, Sprint, T-Mobile, Verizon), rolling these out to every partner is a logical next step. And of course growing its business by adding US and international partners (to date their only international partner is Telefónica) constitutes another substantial opportunity. Growing the Location Labs business, says Roumeliotis, is the biggest priority at this time, and this is the order in which the company is focused on growth tactics:

• Launch all existing products with existing partners
• Increase channel penetration of existing products with existing partners
• Launch new products (or bundles thereof) with existing partners
• Launch existing products with new (international) partners
• Launch new products with new (international) partners