The South by Southwest Interactive festival starts Friday in Austin, and it looks as though the buzz is all about location-based services.

Twitter, which got a lot of attention at SXSW three years ago, officially added an option to its site that allows users to share their location in their tweets. In a posting on its blog, the site said “a recent burst of interest in location sharing” prompted it to add the feature.

Users can opt in to enable the sharing service and can decide whether to attach their location on a tweet-by-tweet basis. They also can choose whether to provide exact coordinates or just a neighborhood or town name. It’s an ideal feature to add in time for SXSW, which is spread over venues throughout a large area of Austin and also includes important music and film portions.

But the real attention is focused on two services that have been in the location-sharing business longer than Twitter — Foursquare and Gowalla. These two applications let users share where they are and compete to earn virtual prizes based on how often and where they “check in” to the app.

Foursquare, which launched last year at SXSW, has 16 new badges that users can collect as they check in at different places around Austin. The service updated its iPhone app in time for the conference and has teamed up with PayPal and Microsoft to raise money for Save the Children’s Haiti fund with each Austin check-in. Rival location-based service Gowalla is up for some competition with Foursquare. It is offering challenges and prizes for users, and it has a big party scheduled that benefits Lance Armstrong’s Livestrong Foundation.

Aside from the competition factor, though, a real question about these geolocation apps is what they are doing to make money off of their services. Foursquare’s founders, for their part, have been particularly excited recently about offering stats to businesses that show what customers are checking in at their location and when.

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