Why do we need to know an exact location, when it is really proximity that matters?
It is not a big leap to suggest that the use of location information in modern web and smartphone apps is a Pretty Big Thing. It should also be obvious to anyone paying attention that users give up significant personally identifying information (PII) when they participate in these services. In general, the payoff for users is that they are rewarded with utility, but there is always the risk of unintended consequences. How can a user be certain that their PII will not be used for purposes other than those originally intended? The simple fact is that you cannot.
However, if you break down what happens in most location-based transactions you can see that it is actually proximity that is important, in the sense that the transaction typically compares two or more locations to see if they are near each other. If they are, then the service can make some inference such as recording the fact that two people have met, or that a person was near enough to a venue of some kind to recoup a reward. In many situations the actual underlying physical location is more information than is necessary to complete the transaction.
So if a service records the exact physical location of a person persistently, then there is a risk that this sensitive PII can leak and perhaps be used for purposes other than what the user intended or was aware of. But if the service just records evidence of proximity - and importantly, anonymises or throws away the underlying physical address information - then the risk of misuse of their physical location information is greatly reduced. For example, it would still be possible to know that two people met, but it would not be possible for some nefarious third party to know where they met.
I think that we are probably some way away from this distinction becoming mainstream, mainly because a lot of services making use of location today are doing so precisely so that they can exploit the underlying physical location data in other contexts, with or without the informed consent of the user.
Sadly, until we see some high-profile misuse of end-user physical location data via a compromise or a change in terms and conditions, it may not be front of mind.