Facebook Acquires ProtoGeo to Expand its Location Tracking Services

Facebook (NASDAQ: FB  ) recently acquired ProtoGeo, the Finnish maker of the popular activity-tracking app Moves. Moves has been downloaded over 4 million times since launching for Apple (NASDAQ: AAPL  ) iOS in January 2013 and on Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) Android devices in September 2013.

Its popularity is mainly attributed to the fact that it doesn't require an external device -- such as the Nike FuelBand, Fitbit Flex, and Jawbone Up -- to track a user's steps.

By itself, the deal simply seems like a way for Facebook to tap into the "gamification" of personal fitness, in which users win achievements as they compete against their friends to reach their fitness goals. It's a small but rapidly growing market -- research firm Canalys expects the market for wearable bands to grow 350% year-over-year to 8 million shipments in 2014.

ProtoGeo's Moves. Source: ProtoGeo.

Seeing the forest for the trees
However, when we combine the acquisition of ProtoGeo with Facebook's recent introduction of "Nearby Friends" -- which provides voluntary real-time location tracking of friends -- huge opportunities emerge beyond fitness bands. By combining Nearby's real-time location-tracking service, daily fitness routines from Moves, geotagging of photos, and friends' rankings of nearby businesses, Facebook could construct a constantly updated, dynamically changing map of a user's daily habits.

What would happen if Moves and Nearby Friends were combined? Source: Facebook

Since Moves can track a user's movements from a bus stop to a coffee shop to his or her workplace, it's not hard to imagine the app being upgraded with automatic Facebook check-ins. Moves users can already check in on Foursquare and Facebook via third-party software, which indicates strong demand for social network integration. Various third-party fitness journal and exercise motivation features can also be integrated into its main app.

ProtoGeo has stated that Moves will remain a stand-alone app, similar to Instagram, and that it had no plans to "commingle data with Facebook." Yet earlier this month, Facebook stated that it plans to use its "Nearby Friends" feature for advertising and marketing purposes in the future.

Location, location, location
Even if Facebook keeps Moves completely separate from its main social network ecosystem, it can still use the app to measure how frequently users visit businesses or how far they are willing to travel to get there.

For example, a Moves user who frequently shops at Whole Foods Market could suddenly see more advertisements on Facebook for organic foods -- similar to how Google swaps its banner ads based on a user's search history.

Yet investors should understand that Facebook and Google approach the Internet in completely opposite ways. Facebook uses a user's social web to branch out and "learn" common interests, hobbies, and hangouts, while Google searches for results in a top-down fashion, mainly based on a user's search history and location-based data.

In other words, Google needs a user to search for things to build an advertising profile, while Facebook constructs one from a user's behavior on social media.

Don't forget about Graph Search
On top of this sprawling social web, Facebook's Graph Search offers users and advertisers a way to locate specific groups of Facebook users through their posted messages, people they know, pages they "like," and places they have visited. For example, a bicycle business targeting younger shoppers could query "People born after 1980 who like cycling in Seattle" to get a closer look at its targeted audience.

Now imagine how much smarter Graph Search could be with accumulated location-based data from "Nearby Friends" and Moves. Users might be able to ask Graph Search to find "People who 'like' Starbucks but have not visited one within the past month" or "Women who shop with their friends at the Michael Kors store at the Galleria Dallas at least once a month."

In other words, Facebook's acquisition of ProtoGeo has less to do with competing with Nike or Fitbit, and much more to do with data collection to enhance Graph Search and its targeted advertising features.

After all, advertising is where Facebook shines -- last quarter, its advertising revenue surged 82% year-over-year to $2.3 billion, and 59% was generated by mobile ads -- up sharply from 30% in the prior year quarter.

Facebook's one real target
Facebook, like Google, is gobbling up a lot of companies. With each individual purchase, the media speculates on what business Facebook is targeting. In my opinion, there's only one real answer -- Google.

Facebook is where Google was in 2004 and 2005, when the search company was still scooping up seemingly harmless companies like Where 2 Technologies (aka Google Maps) and Android. Today, it's impossible to imagine Google without Maps or Android.

Like Google, Facebook is picking up some pieces that can't make much of an impact on their own, but over time, acquisitions like Instagram, WhatsApp, and Move could evolve into critical parts of its ecosystem.

The bottom line
In conclusion, the 4 million users Facebook is receiving from ProtoGeo's Moves is a drop in the pond compared to Facebook's 1.28 billion monthly active users. However, the ProtoGeo acquisition is extremely important for what it represents -- the social network's ambitions to track users and offer much richer social profiles for advertisers to peruse. Yet just like Google, which has similar ambitions, Facebook could run into lots of trouble with privacy advocates.

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