Location-based services may still be searching for their purpose in the larger world, but they’ve found their niche at music festivals. Attendees at Lollapalooza, a major music festival taking place this weekend in Chicago’s Grant Park, will be able to take advantage of an application for iPhone and Android that uses the location capabilities of smart phones to update and improve on common festival activities.

“One of the biggest things people are trying to do at these festivals is keep up with and connect with their friends,” says Michael Feferman, digital marketing director at C3 Presents, which produces the event. Feferman described how the app builds on common practices at festivals.

For example, people typically plant flags in the ground as rallying points where friends can meet up. The Lollapalooza app lets users drop a virtual flag, complete with privacy controls so only a user’s friends can see the signal.

Attendees often send flurries of text messages to coordinate with each other, and the app simplifies this by letting people communicate on friend walls so that everyone can see the messages.

Feferman believes that similar apps will eventually be taken for granted at festivals and will be entirely ubiquitous. This hasn’t yet been realized, however, because connectivity is often a problem at events–festivals are often at remote locations without great connectivity in the first place, and they’re flooded with a huge, sudden population all trying to use the network at once.

This year, Lollapalooza hopes to better serve the population hoping to post status updates, use twitter, and share and upload photos. Instead of relying on wireless carriers, who often suffer heavy criticism during such events, Feferman says festival organizers decided to take matters into their own hands. They installed free Wi-Fi over the 100 acres of the festival, which involved setting up temporary infrastructure to carry that load.

Feferman stressed that “it’s very hard to provide people with the connectivity and service that they’re used to,” but he hopes that wireless access will help to make the location-based application more useful for attendees.