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Earlier this week, we told you about Pirq, a new Kirkland startup that uses a mobile phone user’s location to deliver discounts at local restaurants. It is one of a number of Seattle area companies — ranging from Starbucks to Point Inside — looking to capitalize on location-based services.

And, according to a report out today, that’s a booming business that’s only going to get bigger in the coming years. In fact, Survey Analytics predicts by 2016 close to $10 billion will be spent in the category.

Search advertising will account for roughly half of that revenue, one of the big reasons that Google purchased AdMob for $750 million and eBay gobbled up Where Inc. My prediction: We’ll likely see some other M&A deals in this space this year.

The report says:

Consumers are increasingly demanding services such as search, maps, or navigation, for which location information is either fundamental to or provides greater context, utility and therefore appeal. For advertisers, location data provides opportunities for ad targeting and optimization.

The one potential hold-back? Consumer privacy issues, highlighted by the recent iPhone location tracking dust-up. But those issues will be overcome because “there is simply too much money at stake,” the report says.

[Hat tip to GigaOm]

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