Kleiner's Pick for the Killer iPhone App

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Li points out that Whrrl may appeal to more than just users. Handset makers want a reason to charge more for their devices by making the GPS more useful. Mobile carriers want to be able to charge for premium location services, or at least to garner the fees that come with downloading more content over their wireless networks. In fact, Pelago is expected to announce that Deutsche Telecom's (DT) T-Mobile Venture Fund and Reliance Technology Ventures Ltd., an investment arm of Indian communications giant Reliance ADA Group, are contributing to a new $15 million round of financing.

Pelago CEO Jeff Holden says the company has already signed deals with four big U.S. carriers. AT&T (T), the exclusive U.S. carrier for the iPhone, isn't one of them, sources say, so Whrrl won't work with other AT&T phones. While Deutsche Telecom and Reliance haven't said they'll offer Pelago's service to their users, Holden hints that may come when Pelago starts focusing on international expansion later this year.

Individual User Tracking

To make money, Pelago hopes to create a more effective marketing platform for advertisers. By mining data on users' wanderings, Pelago could let advertisers target people based not on what they say they want, but on what they actually do. "It's voting with your feet," says Holden. If a coffee shop finds out that you go to Starbucks (SBUX) every morning, it might offer you a week of free Joe. If a restaurant knows you've checked out its menu several times, it could offer you a free dinner. Over time, instead of paying a nominal amount whenever someone clicks on their ads, advertisers might agree to pay far more—but only if the person actually comes to their store.

Of course, there are privacy issues. Li points out that many people will not be comfortable letting Pelago track their every move. While there are ways to make the software "cloak" certain activities—say, a visit to a strip club or a job interview at a rival company's office—that may not be enough reassurance. "Do I really want Walgreen's to know I just went to another store?," says Li. "Do I want anyone to know if I go to a certain person's house?"

Holden, who once worked with Jeff Bezos at the Wall Street firm D.E. Shaw, has dealt with complex problems before. Holden followed Bezos to Amazon.com (AMZN), where he led development of a revolutionary inventory management system to provide fast, dependable delivery of books. After that, he ran Amazon's Web sites for a time.

The Apple Bump

Pelago is certainly not alone in looking at location-based services. Loopt, for example, offers software that lets you see the proximity of your friends. Loopt already has hundreds of thousands of users that pay $2.99 a month for the service through deals with Verizon Wireless and Sprint Nextel (S). CEO Sam Altman says the company will announce deals with more mobile providers at "an upcoming event"—clearly, Apple's developer conference. And the service will move beyond people-finding to providing more information on places, similar to Pelago's approach. Altman envisions folding in information on hundreds of categories of information that might be useful when you're out and about—apartments for rent on Craigslist or the whereabouts of clean bathrooms, for example.

Apple clearly has the ability to lift particular iPhone developers above the crowd. If Apple CEO Steve Jobs is as impressed as Murphy, look for him to feature Whrrl in his June 9 keynote. In fact, Holden is hopeful that Apple may even include Pelago preloaded on the new iPhone that's expected to be unveiled that day. Although Pelago is based in Seattle, a group of its programmers have set up shop near Apple's headquarters in Cupertino, Calif., to work closely with Apple. "We hope to become a featured app. There's no commitment on that, but we think we have a good chance," he says.

Burrows is a senior writer for BusinessWeek, based in Silicon Valley .

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