Location-based services, the biggest can’t-miss technology of the mobile era, are floundering. Analysts are dramatically scaling back their growth projections for such applications as GPS-enabled buddy lists because users have concerns over the potential for privacy breaches and much more.

“The backers of this technology are going to have to invest significant sums to work on how people perceive the technology,” said John du Pre Gauntt, senior analyst at eMarketer. “Carriers and marketers are finding out that getting people to adopt and integrate location-based apps will take far longer than they expected.”

Location-based services, which have been around for about 5 years, make use of global positioning technology to locate mobile devices and people attached to them.

Early analyst projections for the technology were beyond bullish, but the technology, which has truly emerged only in the last couple of years, has languished. And chastened analysts are scaling back projections for the market.

A couple of years ago one research group projected the number of worldwide location-based services users to rise to almost a billion by 2011. This week eMarketer projected 329 million by 2011.

“Analysts have been burned by location-based services so they are starting to revisit their projections, but we are still bullish on the technology,” said John Fletcher, an analyst with SNL Kagan. “The carriers are wary of doing anything to jeopardize their relationships with their subscribers especially in a saturated market.”

There is a lot that can go wrong at least in the minds of privacy-sensitive American consumers. Having a buddy network where people know where you are could become a liability if you break up with a girlfriend who is part of the group.

“People can get freaked out by location-based technology on all kinds of levels including things like the fear of being tracked,” Mr.Gauntt said.

Consumers have the choice of opting-out of most location-enabled networks but “your friends can read a lot into your opting out, so many people would rather not opt-in in the first place,” he said.

But it is not all bad news. Two firms, Networks in Motion and TeleNav, have been successful in marketing cell phone-based navigation apps. Together the two generate about $100 million in annual revenue.

“I don’t see a business case for the friend-finder apps. They seem silly to me,” Mr. Fletcher said. “People don’t bring up privacy concerns around navigation apps.”  

Mobile app marketplaces such as Apple’s App Store could help sort out the LBS market, Mr. Fletcher said, because users can shop around for whatever location-enabled services they choose.

The App Store has a large number of location-based applications such as friend-finder apps from uLocate and Loopt to a location-aware polling app from Quibblo.