The promise of LBS is providing useful information and services at right place and right time using demographic, contextual and location awareness via the mobile. Primary applications are mostly in advertising, navigation and social networking. LBS applications have garnered the most hype since the beginning, and yet, critical mass eludes them.
With the technical challenges more or less resolved, I believe user acceptance, owing primarily due to privacy and security concerns, is the biggest challenge it needs to overcome. LBS apps face distrust by users owing to the loss of personal freedom and control over the technology e.g. intrusive advertising, commercial pressure, loss of autonomy, etc.
It is crucial for the service providers to maintain a level of trust with users by acting transparently with regards to personal privacy translating into strict application of a code of ethics on the service use combined with clear and simple information for consumers on the usages that could be made of their location data / ensure consumers have the means of controlling what they can and cannot do i.e. right not to be located, not to be disconnected, choose who will have access to his data, etc.