When you walk into the mobile advertising firm xAd’s headquarters in New York, you'll notice a pair of digital screens showing maps of the United States. On the left, a map plots out more than 150 billion monthly pings from smartphone owners opening advertising-supported mobile apps and sites across the country. Meanwhile, the map on the right is zoomed in to show a small sliver of midtown Manhattan. Each time someone clicks to refresh a piece of mobile content, a dot lights up showing their exact location—down to the closest street corner.

A list of locations runs alongside the screens, pulling in data on smartphone-toting users' location. At 9 a.m. on a Thursday, the list sluggishly pulls in information from hotels and commuter hubs; by noon, it will flip through data collected from quick-service restaurants and retailers.

Several unnamed retailers are reportedly using this beta map product—dubbed Footprints—to home in on Black Friday traffic this year. The idea is to help marketers visualize where and how consumers use their mobile devices based on a latitude-longitude coordinate.

Is Mobile’s Contextual Promise Paying Off?

The new hyper-targeted ad format is the latest move from the mobile advertising industry to capitalize on the growing interest in location-based marketing, which BIA/Kelsey estimates will bring in $4.5 billion this year. By 2018, per BIA/Kelsey, that number will grow to $15.7 billion.

But while the tactic seems intrusive, you may be surprised to learn that xAd throws out 80 percent of inventory from publishers because the location data isn't accurate. Similar numbers from mobile firm ThinkNear back up xAd's claim—a mere 34 percent of ad requests based on latitude and longitude data are accurate within 100 meters of a consumer's location.

"[With] one of the big players in this space, we saw 85 percent of all impressions [in a campaign] served were not within the location that we specified for our client," noted Jon Hook, head of mobile at Mediacom International. "I'm not talking about minor discrepancies—these are significant discrepancies that we're seeing."

Ironically, Hook said that the campaign was deemed a success, indicating that brands may be getting more ripped off from location-based advertising than they realize.

Part of the problem is that the number of location-based ads available to marketers has grown significantly over the past year as big players like Facebook, Twitter and Foursquare try to inch in on the lucrative market.

With that though comes more skepticism on where networks get their data from and which type is best for individual campaigns. First-party data (information collected directly by the ad network) is preferred for advertisers since it doesn’t pass through another companies’ hands. But, third-party data (which is supplied by another company) is more readily available, helping campaigns scale.

Michael Lieberman, CEO of Joule U.S., echoed Hook's concerns about not knowing where data comes from, even with first-party data that ad networks claim is the cleanest type.

"I don’t have a way to validate it," Lieberman said. "I don’t see the lat-long coming through necessarily, I don’t know how it was generated—I’m just told by the network that they targeted someone based on GPS data in that area."

The fogginess with mobile data has prompted more than 50 vendors, agencies and brands (xAd and Joule among them) to work with the Mobile Marketing Association to create a set of standards that are expected to come out in the first half of 2015. As mobile budgets grow, the goal is to help brands make educated ad buys.

"What we’re doing now is setting about to establish some strict definitions of location data and what the associated use cases are," said Leo Scullin, head of global industry initiatives at the MMA.

Fuzziness Outside of Location

To address marketers’ qualms for better measurement and analytics, mobile ad networks have started creating campaigns where location is only one of several targeting options.

For example, mini profiles on users include information on which apps a consumer recently utilized or a timeline of other places a person has visited.

Meanwhile, other location players like NinthDecimal and Verve have pushed into programmatic, another growing area of investment in mobile.

While the technology is clearly forward-thinking, discussions with marketers suggest that the souped-up offerings mean that companies aren’t always playing fair with brands.

Take quick-serve restaurants, for example. The vertical is known for aggressive advertising used to drive incremental foot traffic, particularly with geo-conquesting mobile tactics that serve ads to people nearby to competitors.

"The guys who are selling us location-based ads are selling our competitors as well," said one QSR digital marketing exec. "That’s sort of an arms race that's just who can spend more money serving these ads—we don't like that and we know it's happening."

Interestingly, the marketer noted that the problem isn't about zeroing in on location. Instead, mobile ad networks are setting up cookie-cutter campaigns that aren't specific to individual stores. For example, a location-based campaign around a QSR in New York requires a tighter radius than a restaurant in the Midwest.

"We haven't seen many issues with location-based services causing problems—it's more about understanding the nature of the geography and the individual locations," the source said.

Closing the Loop

The growth of location-based advertising is also putting more pressure on agencies and ad networks to prove that mobile drives in-store sales.

Dirk Rients, vp of brand solutions at The Mobile Majority, pointed out that while a number of the location-based networks are partnering with third parties to connect a mobile ad with a conversion, Apple has a few stealthy moves up its sleeve.

Apple's new iOS8 operating system includes a feature that lets brands track a consumer's location, even when they are not using an app.

Rients singled out Google's iPhone app (see screenshot above) as one such brand nailing the new feature so far. After booking a dinner reservation through OpenTable, he received a push notification an hour and a half before the reservation reminding him when he would need to leave home, tying into Google Now—the online giant's personal assistant service that tracks a person’s location to manage his online schedule. "Obviously there’s some value to that brand tracking your location even though you’re not using the app," he said.

The combination of iOS8, Apple's iAd advertising network, its newly-launched Apple Pay payment system and in-store iBeacon tracking puts Apple in a good position to reign the location-based marketing space.

Still, that scenario seems a bit far-fetched without a universal type of mobile payment or coupon accepted at all retailers. Plus, Apple's success with mobile advertising to date has taken many forms to figure out what sticks in monetizing mobile.

"Right now we're looking at, 'Did we prove that we drove someone into store?'" Lieberman said. "The lack of one or even just a few ubiquitous payment systems that can be tracked from the ad exposure is hindering the ability to say, 'Mobile drove a sale in-store.'"

This article is part of a two-part series on mobile ad fraud related to Adweek’s ad-tech issue. Click here to read the first article about mobile’s burgeoning problem with savvy fraudsters.