By Heather Clancy
FORTUNE -- Welcome a frequent customer with a personal message. Offer an in-store deal on excess boot inventory before summer sandals hit the shelves. Remind tailgating season ticketholders to head to their seats before kick-off.
Ever since smartphones became virtually ubiquitous, marketers have fantasized about mobile engagement scenarios like these, specific to a certain location. The biggest obstacle has been technical: GPS positioning satellites and Wi-Fi wireless networks aren't reliable when it comes to pinpointing an individual's whereabouts, especially indoors in multi-floor shopping malls or sports arenas.
But the emergence of Apple's iBeacon late last year -- and the very visible use of the technology in U.S. retail stores to guide shoppers and even help them complete purchases -- has rekindled interest in systems that can broadcast messages to the right person, in the right place, and at the right time. High-profile retailers such as Macy's and American Eagle Outfitters, along with Major League Baseball and the National Football League, are actively testing them.
"As much as we try to understand our fans and members, we need more insight, provided they are willing to share it," says Tery Howard, senior vice president and chief technology officer for the Miami Dolphins football team, explaining her organization's interest. "This technology could be transformational for us in allowing us to understand behavior at the pace that the fans allow us to."
In simple terms, iBeacon is a way of sending messages using a Bluetooth Low Energy connection. Early installations use specialized, battery-operated transmitters that detect when someone using an enabled smartphone is nearby and trigger a "welcome" greeting. (This only works if the phone's Bluetooth connection is on and location services are active.) If the recipient is interested and opts in, he or she downloads a mobile application that lets them receive messages specific to their location in the store, entertainment venue, convention center -- wherever they happen to be. Every iOS device since the iPhone 4S and the third-generation iPad -- approximately 200 million gadgets in all -- is theoretically capable of sending or receiving these messages.
"We like to talk about this as a digital sixth sense," says Kevin Hunter, director of product management for Qualcomm's Gimbal technology, the system behind the Dolphins trial and in Apple stores. "We provide context around location and proximity; we make it more filtered and more relevant."
Along with Qualcomm, the Dolphins tested 22 different iBeacon use cases during the last two home games of its 2013 season, with 50 transmitters installed in Sun Life Stadium. Among them: Its marketing team distributed collectible video cards (including one that triggered the first time fans walked by a statue of Hall of Fame quarterback Dan Marino), advised them about which concession lines were shortest in their section, and offered up coupons for snacks and beverages.
These messages were geofenced: Only a few hundred season ticketholders chosen for the test received them and, even then, only if they were actually in the stadium. Based on positive initial feedback, the Dolphins marketing organization is planning to meet with some of the early users to define its future strategy, Howard says. "We know that this is something we want to integrate into our experience," she says.
Alongside iBeacon are more than 10 different technologies competing for mindshare, estimates ABI Research. "We see huge growth for infrastructure-based technologies like Wi-Fi and iBeacons, with [Bluetooth Low Energy] deployments forecast to break 20,000 by 2015, largely focused on retail," writes ABI analyst Patrick Connolly in a new report. "With over 800 million smartphones actively using indoor location for applications by 2018, it will be as standard as GPS is today."
For retailers, this new breed of location-sensing applications can be both a source of additional revenue and a means of collecting far more specific data about individual shoppers, their habits and their product preferences.
One high-profile startup in the sector and the company behind the Macy's deployment, Shopkick, estimates its technology drove $500 million in sales to partners during 2013. That's twice the amount it influenced during 2012. Within its 6.5 million-user-plus demographic, 70% of shopkick members are women; the typical user is a thirtysomething mother. "If you get them through the door, you stand a very good chance of making a sale," says Cyriac Roeding, co-founder and chief executive of the Redwood City, Calif.-based company.
Given all the information that bombards the average person daily, why would someone opt in for location-based marketing messages -- especially amid this age of heightened privacy concerns? Apparently, the same motivation that drives people to join customer loyalty programs: incentives.
Shopkick rewards shoppers with a type of digital currency, called "kicks," that can be redeemed toward gift cards, products, or other items. As a Shopkick member browses, he or she receives alerts about products from more than 150 brand partners: the likes of Procter & Gamble, Unilever, Mondelez, L'Oreal, Revlon, Pepsi, General Mills, and Hewlett-Packard.
Someone is only bothered when he or she is near a specific item or if it looks like they might be enticed to visit a certain department. The last thing marketers want is for these apps to become a nuisance. "There is a big difference in knowing that someone is close and knowing someone is here," Roeding says.
Aside from Macy's, the Shopkick system is being installed at more than 100 American Eagle Outfitter locations in major cities including Boston, Chicago, Dallas, Houston, Los Angeles, Miami, New York, and San Francisco. Other stores that have deployed systems or plan to do so this year include Best Buy, Crate and Barrel, J.C. Penney, Office Depot, Old Navy, Target, and the Sports Authority. A similar system offered Pikato is being tested by Kmart to deliver coupons and other incentives to mobile devices. And more than 200 Safeway and Giant Eagle grocery stores are investing in the technology, in collaboration with inMarket.
Beacons are relatively simple to install. For example, it took the Dolphins less than a day to scatter and stick 50 of them onto walls at Sun Life Stadium. They are also relatively cost-effective: Qualcomm's models range from $5 to $10, depending on transmission intervals and battery life (anywhere from one to three years); others are priced around $40.
Still, most organizations are proceeding with caution not just because of the mobile design work and back-end technology integration required but because of sensitivity over consumer privacy. The Dolphins, for example, are consulting with a mobile developer to develop appropriate marketing goals and to decide where to draw the line on collecting information. "The hard part is understanding how to execute," Howard says. "The technology has to be relevant."
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