Apps Firm Keeps Customers in the Loopt

Whiz kid from Stanford has a 'Eureka' moment in connecting people via cell phone.
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You've heard this story before.

A young computer whiz has an idea, drops out of college and changes an entire industry. Meet Sam Altman. In 2006, Altman, now 23, dropped out of Stanford his junior year to launch

Loopt

, a mobile application that turns your phone into a "social compass."

Altman was on his was to graduating in just three years with a degree in computer science when he had a simple idea: Open your mobile phone and see a map of where all your friends are.

"Loopt is really about using the location of your phone and other people's phones to connect with the world immediately around you," says Altman.

For example, Loopt recently released a new feature called Mix, which allows users to connect with new people nearby who share common interests and affiliations. For a conference attendee, this could help him locate an individual or company that matches his needs. Also, because Loopt geo-tags other users, a business owner could use Loopt to easily manage a fleet.

Altman didn't get Loopt off the ground by himself. He had four other young bright minds helping out: Nick Sivo, Alok Deshpande, Rick Pernikoff, all 23 years old, and Tom Pernikoff, 25. But even then it wasn't easy. Altman says phone carriers and the government were initially weary of an invasion of privacy for users.

"Even if consumers want it and consumers aren't worried about privacy, it looks like a big liability," says Altman. "So we had to spend a ton of time designing the product and working with the carriers to make them feel comfortable that we were (a) making this very opt-in, upfront of what was happening; and (b) designing features to protect privacy and safety."

Boost Mobile

was the first carrier to jump aboard. Today, Loopt is carried by all the major U.S. carriers including

Sprint

(S) - Get Report

,

AT&T

(T) - Get Report

,

Verizon

(VZ) - Get Report

,

T-Mobile

(DT) - Get Report

and

MetroPCS

(PCS)

. In addition, Loopt is available on more than 100 devices, from

Apple's

(AAPL) - Get Report

iPhone and T-Mobile's G1 running

Google's

(GOOG) - Get Report

Android to the BlackBerry from

Research In Motion

(RIMM)

and the Razr from

Motorola

(MOT)

.

In addition, Loopt syncs with existing social networks that users may already be using, like

Facebook

,

MySpace

and

Twitter

. If users want to discover places instead of people, Loopt also works with

Yelp

, a user-review Web site. Loopt has made a lot of connections fast, but in the beginning, it was built more on determination than intelligence.

Y Combinator, a seed-stage start-up funding firm, was the first investor, giving Loopt $6,000 to get off the ground. Before that money arrived, however, Altman remembers riding his bike to the local Sprint store in Palo Alto, Calif., during his sophomore year to purchase a cell phone costing more than $300 to help program the application. At the time, Altman says, that was an unimaginable amount of money, which would have lasted him all month. He made the purchase because it forced his commitment to the project.

Since that time, Sequoia Capital and New Enterprise Associates have invested, though Altman would not say how much. Altman did reveal, however, that Loopt is not yet profitable, but believes it's just a matter of time with the various revenue streams running through the company.

Depending on the carrier and relationship, Loopt sometimes shares a monthly service charge with the carriers. Loopt also gets paid a licensing fee when included into data bundles. Moreover, Loopt sells its location platform to certain carriers and enables other applications to use its location-based software. Lastly, while not a huge revenue generator at the moment, Altman views local advertising as a big slice of the pie in the future.

"My hope, with the economic climate tightening down, is that people who are spending money on advertising really want to make that money count and want the most targeted advertising possible," says Altman.

With Loopt, retailers could deliver coupons to customers who happen to be near their store. But Altman knows that the ad market has been hit hard by the recession, but believes there may be a silver lining.

"So I'm optimistic that, in a perverse way, the tightening down in ads will be a good thing for us. No question it provides challenges but we have seen more interest in this hyper-targeted advertising than ever before," he says.

For Altman, tomorrow's challenges are to expand abroad and get foreign governments and carriers to connect with his company's vision. Altman says one of Loopt's big competitive advantages in the U.S. is the trust it's gained and interoperability between all the different carriers and devices. Altman concedes that getting there in foreign countries won't be easy.

So will Altman reconnect with his classmates at Stanford and finish out his degree? "I would say that's not super-likely," he says.

Steve Cooper was most recently managing editor of Entrepreneur.com and research editor at Entrepreneur magazine. He runs his own business, Hitched Media Inc. (www.hitchedmag.com).