Location-based services such as those from Foursquare, Facebook and Gowalla allow users to share details of their physical location at any given time, with others on the same network. The services are designed to let members use their smartphones and other mobile devices to communicate information about a new restaurant they like, or about a store that might be offering deep discounts or about a great theater show that they might be watching.

Location-based services typically allow users to ‘check-in’ at a participating location, tag friends that might be accompanying them and to let others know where to find them. Many services let users quickly find out if any of their friends are at nearby locations and to learn about discounts and promotions that participating business in the area might be offering.

For small businesses, such services offer a great local online marketing and communication channel. Location-based services allow a local business to broadcast its presence more widely, put itself in front of new customers and communicate better with existing ones. Most such services allow a small business to carry out local online marketing campaigns, announce promotional offers and communicate details of new products and services. Importantly, location-based services allow users to submit reviews and opinions of the businesses they frequent. As a result, these services have become a very important channel for word-of-mouth promotion for local businesses.

Foursquare was one of the first to launch location-based services. Individuals can use the service to check-in at participating locations, submit reviews and recommend businesses to their friends. Foursquare uses a system of ‘points’ and ‘badges’ to reward users who frequently patronize participating businesses. Local merchants can use the service to offer special discounts and promotions to new customers who check-in at their locations, or they can use it to reward existing and loyal customers with special offers and freebies.

Facebook Places is a relatively more recent, but rapidly growing location-based service. Facebook Places borrows many of the same concepts that Foursquare pioneered with its service. However, what makes it very different is the sheer size of Facebook’s member base. Just like Foursquare, Facebook Places too supports a feature called Facebook Deals that allow businesses to offer incentives to attract and retain customers. For example with Facebook Deals, a local merchant can offer special discounts to new customers and reward frequent customers with special offers when they do Facebook check-ins at their business.

Importantly, Facebook check-ins result in the name of the business and its location being automatically broadcast to all of the user’s friends. A business can get more local exposure by buying and placing pay-per-click advertisements that are automatically served up on a Facebook user’s mobile phone when they are in the vicinity of the business.