Advertisers have long talked about the mystical possibilities of using real-time location data to target customers. The technology existed; most cell phones have a GPS receiver in case of emergency. But real-time location data was off-limits to advertisers until Web-centric phones introduced people to the concept of sharing their location in exchange for utility. Soon, along came apps like Foursquare and Gowalla, which essentially trick users into sharing their real-time location with advertisers. Suddenly, location-aware marketing is red hot.

“It’s huge and it’s increasing,” said Michael Becker, a director at the Mobile Marketing Association. “Location is going to play an increasingly critical role in enabling successful consumer engagement through and with the mobile phone.”

For advertisers, the growth of real-time location data felt like an explosion that “blew up overnight,” Becker said.

Big name advertisers seem to be throwing money at location-based services. Brightkite is reportedly charging between $10,000 and $20,000 for local promotions. Foursquare seems to be announcing a new A-list corporate partner every week, including Starbucks and MTV. And Shopkick, the treasure hunt of consumption, launched with Best Buy, Macy’s and American Eagle among its sponsors – which had to install special audio transmitters in all their participating stores just so the app will know when a user walks in.

Advertisers are excited because location-aware ads really work, Becker said, citing a study that showed nearly 50% of users who are shown a location-aware ad on a mobile device will “take some action,” beating out text messaging (37%) and Web display ads (28%).

But isn’t that because location-savvy ads are fairly novel? Advertisers were also excited about display ads in the early days of the Web, when users were so unaccustomed to browsing that they clicked on anything that caught their attention. Doesn’t it seem like the higher engagement reported for location-aware ads could be because a user is not used to seeing her city or neighborhood mentioned in an ad on her phone?

Newness may be inflating the numbers a bit, Becker acknowledged, but advertisers will just create more engaging and sophisticated ads as time goes on. But location is just one of many important factors in mobile marketing. Advertisers also consider a consumer’s age, type of phone, even time of day.

“Location is not necessarily the goal of the interaction. Rather, location is a piece of information that provides context to the user experience and can create a more relevant and engaging interaction with the consumer,” Becker said.

Advertisers in the U.S. will spend $1.8 billion on location-aware marketing in 2015, according to a recent report by market research firm ABI Research. (By comparison, advertisers in the U.S. spent $10 billion on search advertsing in 2008.)

Not every advertiser will care about location, said Neil Strother, a director at ABI Research who put together the report. For restaurants and bars, real-time location is crucial. But for NBC or Coke, not so much.

And there are lots of companies hesitant to join in the location game, Strother said. That’s because of inexperience and fears about threatening consumers’ comfort level. “The next few years will be very important for companies to get it right and not abuse the location information they’re getting,” he said.

A week ago I had a chance to sit down for a hour-long one on one interview with Google CEO Eric Schmidt. There were no rules, and the whole interview was on the record. Part of the interview was on video as well.

There’s so much material that we’ve broken the interview notes up into a few different subject areas. We’ll post separately with his thoughts on the future of search, books, news, mobile and more. Schmidt also spoke candidly about the Microsoft/Yahoo search alliance, Twitter (he mentioned them before I did!) and Facebook.

What Is Google?

I started the interview with a simple question: What is Google?

Most people think of Google as a search engine, a place to start and end the day. People also think of it as an advertising company. But Google is obviously more than that.

Google says its mission “is to organize the world’s information and make it universally accessible and useful.” But that’s too much of a 50,000 foot view of the company – and it’s so vague it’s not very useful.

Schmidt describes Google:

I think of Google as a set of overlapping things. It’s a consumer platform, consumer phenomenon of which search is its fundamental activity, but there are many other things you can do than search…I think of Google as an advertising company who services the broader advertising industry in the ways that you know. And the first and the second are inter-related. The third is I think of us as a network of partners and infrastructure. I don’t know how many billions of dollars we hand to everybody. But by the time you look at the publishers, the use of AdSense and so forth, it’s literally billions of dollars going through Google and to other people which we hope fund additional software, additional web applications, additional content and so forth and we care a lot about that.

He also says Google has a certain way of doing things internally, a theme comes up repeatedly later in the interview. It involves the small cultural things, like free soft drinks, snacks and lava lamps. But he also says Google has always focused on solving big problems:

And then I also think of Google as a cultural phenomenon in and of itself, you know, the lava lamps and the way in which Google is run and so forth. That’s how I like to think about it. With respect to product buckets, we’ve always taken the position of we want to do things that matter to a large number of people at scale. So, we don’t define ourselves as search only or ads only or what have you. We sort of wait until something comes along which could actually affect, in a positive way, a lot of people. We don’t want to work on problems that only affect a small number of people.

Five years ago (about the time Google went public), Schmidt says, he sat down with founders Larry Page and Sergey Brin to talk about Google’s strategy:

And so, we had a – Larry and Sergey and I had a strategy meeting five years ago…I said, OK, well, let’s write down our strategy. We never really had a strategy. And so Sergey basically got up and said, our job is to do things that matter to the world at scale and it should just boom, boom, boom like that. And that became our strategy. And then Larry and I wrote down in detail some of the ideas that happened from that. But it’s not just a search company or not just an advertising company. It doesn’t even have to be just an Internet company, although obviously, the Internet is key.

More interesting conversation from the interview coming up in additional posts today and tomorrow. We’ll also update this post with links to those, too.