Will the future of shopping be guided by LED lights and smart phones?

Picture this scenario: you enter a mall to pick up the new iPad Mini, a warm winter coat and some groceries and you pull out a mobile app that guides you to exactly where you want to go and maybe even offers some coupons, too.  A startup called ByteLight is working to create this scenario using LED lights and smart phones to create a communication network that tracks and guides shoppers, locates items and offers deals.

The Cambridge, Mass.-based startup was founded in May 2011, and is just now coming out of stealth about how its technology could help create a whole new world of social networking services and money-making ideas. ByteLight has raised $1.25 million from investors such as VantagePoint Capital Partners, and is already doing some field trials of its technology, with undisclosed companies.

You’re probably wondering what LED lights has to do with this? Basic GPS — found in all phones these days — works well outdoors but works less well when people move indoors. At the same time common indoor wireless technologies, like WiFi and Bluetooth, aren’t very suitable for mapping the exaction location of each person, though there are companies out there working on indoor mapping using wireless networks.

ByteLight’s idea is to home in on a shopper’s whereabouts by blasting a specially designed light signal from an LED bulb in the store to the camera of the smart phone. To accomplish this feat, the smart phone will have to have ByteLight’s software on it, the phone will have to be out of the person’s bag or pocket, and each LED light bulb will have to come with a chip for sending the light signal.

The light signal is made up of a unique blinking pattern that flickers too fast for humans to see, said Dan Ryan, co-founder and chief technology officer of ByteLight. A good location-based technology has to be speedy and accurate, and ByteLight’s technology can pinpoint someone’s location to within a meter of accuracy and to do so under a second, Ryan said.

The chip inside the LED bulb and the software for detecting the light signal also create the path for delivering targeted ads or helping shoppers find what they want. Ryan says the chip will be cheap to add, and any existing smart phone camera would work.

Ryan and his CEO and co-founder, Aaron Ganick, still have to work out the business model. ByteLight won’t be supplying chips or selling LED bulbs with those chips inside, but they could collect licensing fees from giving LED bulb makers the chip design. The company also doesn’t plan to develop the mobile phone apps themselves. ByteLight wants to provide the developer tools for making those apps, so it could be collecting fees there as well.

What ByteLight has done is they’ve created a content management system that can help retailers track and deliver their ads and other messages to smart phones, which could be loaded with different ByteLight-based apps. Those retailers who don’t have the expertise at creating and delivering content — or at analyzing the results of their ads – could rely on ByteLight to do that as well.

To create a world in which ByteLight’s technology will work seamlessly will require a lot of coordination among LED lighting companies, retailers and app developers. The location-based technology might appeal to LED bulb makers because it gives them a selling point beyond the usual pitch about energy savings and replacement costs, Ganick said. That also means the adoption rate of ByteLight’s technology will depend on the growth of the LED market.

Then there are potentially privacy issues with tracking people’s movements and bombarding them with ads. This is a sensitive subject for Ryan and Ganick. They are quick to point out that consumers will not reveal their locations if they put their phones in their pockets or purses.