Home 5 Reasons Foursquare Is Losing The Social Local Mobile Revolution

5 Reasons Foursquare Is Losing The Social Local Mobile Revolution

Foursquare has been the darling of the burgeoning “SoLoMo“(social-local-mobile) revolution ever since the company burst onto the scene at South by Southwest (SXSW) in 2009. The company’s financial fortunes, however, have not been so sweet. According to BusinessWeek, Foursquare brought in a paltry $2 million in revenue for all of 2012. Perhaps that’s why after raking in $71 million in three major funding rounds, Foursquare’s lastest funding comes in the form of $41 million in debt.

Still, that’s a lot of money, and with the new cash stash, the company is shifting its business focus away from check-ins toward selling its trove of user location and behavior data to businesses, ad exchanges and others. This may be the company’s last, best chance to succeed. 

What went wrong?

Here are five primary reasons why Foursquare failed to capitalize on the disruptive market potential of social-local-mobile — despite its early mover advantage.

1. Gamification Doesn’t Scale

From the beginning, Foursquare incorporated gamification elements deep within the user experience. Users could earn virtual points, garner “badges” and become, say, the “mayor” of the local donut shop. 

Gamification, according to Wikipedia, is the use of “game thinking and game mechanics in a non-game context in order to engage users and solve problems.” But Foursquare showed that gamification may not terribly relevant to smartphone users — nor much of a revenue generator. In its latest iteration, Foursquare has shifted the user focus away from the app’s traditional gamification elements to make local search and discovery more prominent.

2. The Business Model Remains Elusive

What is Foursquare? Does the company itself know, even now? 

Foursquare currently bills itself as:

a free app that helps you and your friends make the most of where you are. When you’re out and about, use Foursquare to share and save the places you visit. And, when you’re looking for inspiration for what to do next, we’ll give you personalized recommendations and deals based on where you, your friends, and people with your tastes have been. Whether you’re setting off on a trip around the world, coordinating a night out with friends, or trying to pick out the best dish at your local restaurant, Foursquare is the perfect companion.

That’s a lot of different things. Which ones are going to pay the bills? 

Foursquare, an early mover in social-local-mobile, is still searching for proven business model. And numerous companies now focus on this space. Google, Facebook, Yelp, Path, Groupon, LivingSocial and a slew of others are all aggressively seeking to profit from the ongoing integration of offline and online retail, marketing and advertising, and the merging of social, local and mobile data.

Google offers Reviews, Google+ recommendations and advertised links within Maps, along with search. Facebook’s local Check-In feature has no doubt already limited Foursquare’s potential.

How is Foursquare going to compete? The company has long allowed select businesses to buy promoted listings and sponsor special offers inside the app. Now, the company is allowing any merchant to purchase an ad. If users check-in to a coffee shop, for example, they may receive an ad from a competing establishment. Foursquare’s unique user behavior and location data make this possible, but users may find these kinds of ads intrusive. And both consumers and marketers now have plenty of alternatives.

3. Yelp Is Better

Foursquare’s new direction takes it into direct competition with Yelp — a battle Foursquare will have trouble winning. Yelp simply does a better job at gauging and responding to real-time, location-based user intent.

Yelp users, for example, typically start searching for establishments when they are interested in a particular time and place. Yelp makes it easy for them to filter within specific categories and by personal preference. No matter the quality of its data, Foursquare’s “search and discovery” recommendations will always have trouble competing with user-driven intent. 

The two companies also expose a core divergence over value of data that offers personalized recommendations versus data that aggregates the wisdom of the crowd. Compared to Yelp, Foursquare does a far better job telling you that a friend has recommended a particular neighborhood bar, for example. It may be far more important to you, however, to know that a nearby bar has been recommended by more than 100 people, even if they’re mostly strangers. This is the Yelp model. While recommendation algorithms and anticipatory systems may someday prove more valuable, so far Yelp’s aggregate data model has proven far more popular. 

4. Better Design Isn’t Enough

The new Foursquare app incorporates crisp, visible fonts; real-time mapping; colorful icons; and user pictures. It makes adequate use of touchscreen swiping to move across the app’s core functions. It’s slick, but a bit confusing.

The app’s home page, for example, includes a bookmark tab, chat function, search bar, small map, information on the user’s last check-in, data on “places nearby” — without details — trending topics and a large floating button that pops up a short list of nearby businesses. It’s hard to see how the new design will drive engagement or draw in new users. 

The app’s design seems to mirror Foursquare’s mash-up of old and new business models — an apt metaphor for the company’s struggles.

5. Selling Data Isn’t A Slam Dunk

Integrating offline and online, merging social, mobile and local — in real-time — seems to be the sweet spot for the future of commerce. Foursquare lives in this space. It’s user base, billions of check-ins and location data, including across the thousands of apps it’s linked to, may in fact be the single best collection of social and local personal data currently available. 

The value of all that data, however, remains unproven. Plus, Foursquare can’t just only on the existing database, it has to continually inject new information from new users to remain relevant. Even then, while some ad agency executives recently quoted in AdAge called Foursquare’s “unique and proprietary data incredibly valuable,” others suggested that Foursquare’s data didn’t offer anything they could not already get elsewhere.  

Positive Signs?

Foursquare is forging ahead regardless. On the plus side, the company’s non-financial metrics are quite impressive:

  • 30 million users worldwide
  • 3.5 billion check-ins
  • 1 million businesses signed-up  
  • API integration with 40,000 apps – including with Facebook, Instagram, Vine and Twitter

With its latest $41 million infusion, the company plans to increase its sales staff from 10 people to 40. The company claims that ad-related click-throughs on its app run 3% to 5%, far higher than the industry standard of 1% or less. These are all positive signs.

Will it be enough? Despite its popularity, for the past four years, Foursquare has failed to fully capitalize on the social-local-mobile opportunity. The move from check-ins to data mining is a huge gamble. One that Foursquare has to win, as it won’t likely get another chance.

Lead image from Foursquare

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