Perhaps the most important element of the recent iOS update is a bit of software Apple isn’t saying much about: Called iBeacon, it enables your phone to talk to the low-energy, wireless Bluetooth Beacon sensors currently being deployed throughout millions of square feet of buildings all over the world. Why? To track and market to you as you navigate through physical spaces, ranging from retail shops to museums.

The launch of iBeacon came less than six months after Apple purchased WiFi Slam, an indoor mapping company (and Lightspeed Summer grant company) that had built a system that was able to pinpoint more accurate positions and maps, especially when users are indoors, using a combination of GPS, WiFi and a few other top-secret technologies. If there was any suspicion that Apple wasn’t very interested in the indoor mapping space, the WiFi Slam-iBeacon combo eliminates it.

The emergence of Beacons — small wireless sensors placed inside any physical space that transmit data to your iPhone using Bluetooth Low Energy — combined with the surge in smart phone usage and recent explosion in indoor mapping databases over the past two years has created something of a perfect storm for the emergent industry known as indoor marketing. Indoor location technologies have been around for several years now, but have largely been focused on navigation within large retail outlets like malls and big-box stores.

This is a priority for retailers today. Walmart, for example, found in a study that although its average customer spends more than 20 minutes in the store–a great amount of shopping time for any retailer–they also leave without all the items on their list, simply because they can’t find them. That amounts to millions of dollars in lost sales that could be recouped by simply helping consumers find out if the store has an item in stock and, if so, where it is.

Walmart now has an app that helps customers find their way around, as do Home Depot, Best Buy, and several other large retailers. The challenge for these retailers has been engagement with these apps. The use case is too episodic and limited to drive consumers back again and again or stay top of mind for moments of need.

Navigation was a big help for large retailers and their customers, but the next wave of these technologies holds exponentially more promise. Being able to find and communicate with customers when they’re in the aisle is extremely attractive to retailers, as is being able to study aggregate data about how consumers behave in their stores.

While apps like Shopkick and Shopular have long used geofencing to (in Shopkick’s case) offer deals once a customer enters a store or  (in Shopular’s case) push coupons to them when they’re in the vicinity of a store in order to lure them in, apps enabled to take advantage of new low-energy tracking technologies, working in tandem with providers of mapping and product inventory databases, can go one step further.

In addition to alerting you when you enter Dick’s Sporting Goods that a holiday sale is on, for example, the aisle411 app (a shopping app, similar to Shopkick or Shopular, except that it provides indoor mapping and shopping list functionality), using Beacon technology, can push a golf club discount to you when you’re in the Golf aisle, and can even ask if you need help and send staff directly to you if you’ve been standing in one place for more than a few minutes.  This opens the door for retailers to do real time, in store A/B testing in a way that they have never been able to before.

This technology however, shouldn’t just benefit the retailers.  If consumers end up being willing to live with the reduced privacy, indoor location technology will certainly help surface better and more relevant deals and products  as well as enabling more personalized search experience, both in and out of stores. Such features would improve on the work of companies like Bloomreach, for example, which provides personalized, context-specific mobile and web searching for retailers like Neiman Marcus.

And then there’s the analytics component. By combining indoor location capabilities with other data-gathering networks (loyalty cards, for example, or, in some cases video surveillance), physical retailers are suddenly able to build a much clearer picture of who their customers are and how best to serve and market to them. Companies like Euclid and RetailNext are already using a combination of these systems to provide offline retailers with more information about their customers, ranging from their age and gender to where they tend to spend time in a store, and how they move around it.

In many ways, these technologies could help level the playing field between offline retailers, who have largely been shooting in the dark for years, and online retailers who have always had large amounts of granular data about their customers. While analytics will be interesting, I tend to think the most value will be created by the company that owns the front end mobile consumer experience if they can “close the loop” with retail purchase. They will have a much easier time moving into analytics than the analytics providers will have competing on the front end.

Offline retailers need to invest in these technologies not only to wrest some of the profits they’ve lost to online retailers over the past several years, but also because consumers are increasingly expecting a blend of offline and online in their retail experience. The most recent report on retail from Forrester Research puts online retail sales at about 7 percent of all retail sales, a number that is projected to climb 2 percentage points by 2016 and has risen by 10 percent since 2010. The report also found that retail consumers spent $202 billion in online sales during 2011 and they are expected to spend $327 billion by 2016.

But offline retailers don’t just have to worry about traditional online retailers. According to a recent Accenture study, 65 percent of consumers plan to browse online, then buy offline during the holiday 2013 shopping season. As research begins to indicate that the pundits got the whole concept of “showrooming” — offline retail outlets acting as physical showrooms for shoppers who would then make a purchase online — backward, and that in fact more shoppers browse online and buy offline, online retailers are opening up physical spaces right and left. In the last several months I can think of at least three examples: Warby Parker, Bonobos, and Storenvy. Everyone’s going “omni channel” these days and offline retailers need to integrate some digital into their experience to compete or else be beaten in the offline space by online competitors, too.

And in one crucial way, indoor location technology could actually help offline retailers to beat their online competition entirely. By connecting online and offline activity, indoor location might be the Holy Grail digital marketers have been seeking for years: a way not just to convert online browsers into offline purchasers, but to track and report on that conversion.

While many are calling indoor location “the next big thing,” a number of open questions have prevented it from widespread adoption. Front and center are several key hurdles that the companies above have not yet solved: First, selling into large offline retailers is difficult and requires long sales cycles. It gets significantly harder still once a company has to sell across multiple functions.

For example, if a company requires a retailer to rollout hardware across their physical stores in order to better track and market to their customers, it has to both sell through marketing and through operations which is very difficult indeed.  Secondly, none of the current shopping solutions have nailed the user experience. They’re trying, especially Shopkick with its multiple UI changes and Shopular with its commitment to turning a common offline and desktop behavior (deal-seaking) and turning it into a good mobile experience.

But there’s still more to be done and no one has yet emerged as the definitive must-have app in this space.  Also  looming in the background is the privacy question: In many ways we’re just beginning to figure out the nuances of protecting, and communicating about, privacy in the online world and it’s likely to take equally as long, if not longer, to sort out the privacy question offline.

Most people feel far less comfortable with their offline movements being tracked than their online movements, according to a recent Pew Report, which indicates that while many smart phone users want to use their phone to navigate, the majority do not want their phone’s navigational capabilities to be used to target them.

Euclid and Nordstrom became the poster children for the indoor location privacy problem last year when the two rolled out a pilot that enabled Nordstrom to track shoppers through some of its stores, using their WiFi-enabled smart phones. Nordstrom posted signs telling customers it was tracking them, which caused some consumers to complain.

Then The New York Times ran a story about it, and the complaints increased, as did the negative attention around Nordstrom. The store quickly backpedaled, telling the media its Euclid installation had only been an experiment, that it was over, and that it wouldn’t be doing any more shopper tracking.  The incident scared many retailers away from embracing indoor location technologies, but it shouldn’t necessarily.

The problem in Nordstrom’s case was that they weren’t providing anything of value to consumers in return for allowing themselves to be tracked. The company also did a poor job of communicating what it was doing both before and after consumers began to notice. Posting a sign somewhere most people might not see it doesn’t exactly make people feel less spied on, and the company’s response once the New York Times story broke–back-pedaling and swearing off the technology altogether–only made it seem more guilty.

The other potential issue I foresee as this technology and the market being built around it mature is the conflict between the proprietary apps that retailers want because they want to generate and control their own data, and essentially create their own mobile ad network, and the brand-agnostic maps created by companies like Google and Nokia, which consumers tend to like because they don’t want to have to download multiple retailers’ apps.

This is where third party apps like Shopkick, Shopular and aisle411 could really capitalize on the emergence of indoor mapping–because they’re not a Google or Facebook that retailers may see as a threat to their potential revenue in the space–retailers may be more amenable to sharing their floorplan and inventory information with such apps.

Irrespective of which specific apps win, and even with the privacy question looming large, we at Lightspeed see huge potential for indoor location, and for indoor marketing in particular. In some early tests of shopping lists connected to indoor location technologies, retailers have seen double-digit improvements on conversion rates for marketing campaigns: Just imagine how much more effective an ad for a particular cereal would be, for example, if someone was already in the grocery store and had cereal on their shopping list.

That sort of relevance could make it much more likely that consumers will opt in to location tracking. And for retailers and brands, I think the promise of more effective marketing campaigns married with the ability track the efficacy of campaigns across various media and into the real world is too attractive to pass up, particularly with Amazon delivering on Sundays and everyone’s favorite online stores opening up offline competition.