Which startups will bridge the physical and virtual worlds?

In our pockets sits unprecedented processing power, in the form of smartphones that are morphing into superphones. And they’re on the verge of having next-level software that can provide us with deeper immersion and more interactive experiences. As networks improve, we’ll roam the world virtually, seeking relevant information regardless of time and place. Still, there is a gap between the physical world and the digital experience of it. The question: How do we cross it?

As much as location-based services like check-in games Foursquare, Gowalla and MyTown are picking up heat in the early-adopter scene, we are still far from having a unified experience that bridges our offline, real-world lives with our online existences. So we can share our location with our friends and stalk the digerati at their favorite bars. So what? For these particular services, many are thinking the next step will be adding coupons or special deals to them. That way, services and businesses will target users for marketing and this, in turn, will be a way for these services to coin money. Whether this will pay off remains a mystery to many, but doesn’t kill speculation, as Foursquare is speculatively valued at $80 million by some. And Gartner has forecasted that free, ad-based location-based services will appeal to 40-50 percent of North American and Western European users by 2013, up from 10-15 percent in 2009.

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Having said that, coupons and other offers are just one of way of trying to tie in the real world with the virtual, just one consequence an online declaration of location can have. There are people trying to figure out how to make things relevant beyond the check-in and beyond just simple targeted marketing, and these people work in games, social networking, or the arts.

The common thread of these next-generation location-based services: They’re concerned not with isolated yelps of location—”Look at me, here I am!”—but with the stories that we can weave around our location.

Maybe the real world will turn into a narrative in a scavenger-hunt-style game, where users will solve virtual clues to find objects in their physical surroundings, such as many of the games covered here and here. And there are those who believe that ‘gamification’ of life will be a way to really engage people and make a difference in the way virtual applications are used.

Then we have companies like Zerista and DeHood who are building social networks around hyperlocal entities: temporary and ad-hoc networks like conferences and soccer clubs in the case of Zerista, and more permanent networks like neighborhoods in the case of DeHood.

Or consider companies who are taking so-called geotagged messages a bit further. Twitter has the feature of marking a location in its users’ status updates. Others are providing specific services to attach information to a real-world location or an object. One of these companies is Blockchalk, which provides a means of typing up information that is then attached to a location. Once users browse a map on their phone they will find notes “chalked up” by Blockchalk users. This is reminiscent of “warchalking,” a practice inspired by hobo symbols which used chalk symbols on pavement or walls to reveal an open wireless network in a certain area.

Many other services have geotagging features: For example, Foursquare has the option of writing and reading tips for locations. And Tagwhat brings an augmented reality approach to this, as user-generated content like photos and videos can be discovered by using the cell phone’s camera to display virtual information on a real-world view.

Objects, too, will have stories beyond their immediate uses. Stickybits recently announced an experiment with PepsiCo, where cans and bottles will have additional information tagged on their barcodes and accessible on smartphones, be it promotional video or user-uploaded commentary.

In the case of utilizing information on users’ location, some feel the current hype will die down soon. Location will be a part of the infrastructure, unless it is an application that’s based solely on this information, such as the scavenger hunt or the check-in. Nevertheless, location presents an opportunity for every single product out there, and many retailers and other businesses are just beginning to innovate and create uses around location.

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North America and Europe are playing catchup to Asia, and in particular Japan, which has already had GPS-ready cell phones available since 2007. There, many services are already reality which are mere speculation here — such as Naviwalk, a service which gives pedestrians real-time walking directions.

The location-based services which survive beyond the initial stages will be the ones who experiment with new, cutting-edge technology to provide users with information and experiences that are relevant to their real lives. They have to tap into what the users already want and care about instead of trying to invent a new need for people and cajoling them into fulfilling that need. Those are the ones that will locate the market.

[Photo by: netsnake]

(Many thanks to individuals in the LBS space for their comments when researching material for this article.)

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[This story is part of a weekly series on location-based services, written by VentureBeat’s JP Manninen. If you have an idea for a story you would like to see in this series, drop a line at jp@venturebeat.com]