Bytelight uses LED lights to pinpoint your exact indoor location

LED lights have magical possibilities. WIth them, you can light up toddlers in delightful Halloween costumes, rave on the playa at Burning Man, or conduct a light symphony on San Francisco’s Bay Bridge.

You can also use them track people who are shopping and hit them with marketing campaigns, which is what Bytelight enables.

Bytelight has raised $3 million for its indoor positioning system that connects LED lights with the cameras in your mobile device. Retailers can pinpoint your exact location in a store and deliver coupons or redemptions to your phone at “critical points in the buying cycle,” like when you are in front of a product or at the checkout.

Indoor location is one of the biggest tech trends of 2013. ABI Research predicts it will hit $4 billion by 2018.

People spend a vast majority of their time inside, where GPS doesn’t work or is not accurate. While online retailers can track the online shopping activities of site visitors and target them with relevant offers, brick-and-mortar retailers can’t really. Yet.

A vast majority of commerce still happens in physical stores, and the opportunities to deliver hyper-targeted, geo-located advertising are huge.

Consulting firm Deloitte found that 65 percent of consumers use mobile devices while they shop, and mobile-influenced retail store sales are expected to amount to $689 billion by 2016.

Big-name players including Apple, Google, PayPal, Qualcomm, and Samsung are thus working to bring indoor location tech to market, as are startups like Bytelight, Swirl, WifiSLAM, Estimote, and Shopkick.

Most of Bytelight’s competitors use Bluetooth Low Energy (BLE) sensors to detect the location of nearby smartphones and communicate.

Bytelight turns LED light sources into positioning beacons, which transmit signals and calculate a positions without requiring an active network connection. The company claims its tech is accurate to less than one meter and can compute location in less than a second.

The applications extend far beyond retail. Building owners, public safety officials, and public spaces such as airports, museums, and convention centers could use the technology to send customized information, special offers, and data directly to users based on their precise location inside a building.

People can use it to find a way around a grocery store or locate a specific booth at a large trade show.

Businesses can also use Bytelight’s analytics to optimize their employee operations, analyze traffic patterns, and measure customer engagement.

Bytelight has partnered with LED manufacturers who license and incorporate its tech into their products. LED lights are commonly used as a cost- and energy-efficient mode of lighting. Every indoor space needs lighting, and Bytelight’s CTO Dan Ryan said this approach turns “an infrastructure cost into a valuable source of data,” not to mention a valuable marketing channel.

Flywheel Ventures, Motorola Solutions Venture Capital, the eCoast Angel Network, Sand Hill Angels, and Google’s Don Dodge (who is particularly bullish about indoor location tech) contributed to this round.

Boston-based Bytelight closed its seed round of $1.25 million just over a year ago, led by VantagePoint Capital Partners.