Can Foursquare become the mayor of location intelligence services?
Self-proclaimed "Yelp-killer," Foursquare, aims to transform its business from restaurant recommendations to a highly accurate location-based insights data company… Can it be done?
The Check-In Mayor Loses Its Title
Many of us may remember Foursquare as the social networking app where you competed against friends by checking into restaurants, venues, and stores to earn points and badges. To some, the ultimate goal was to become “mayor” of a certain location, and to others, the app was a fun game to play with friends with the added benefit of receiving “specials” at certain establishments. The app quickly generated buzz among young, city dwellers and college students, reaching over 5 million users by December 2010 since its launch in 2009 [1]. The founders attribute much of the app’s success to its search and discovery function (akin to that of Yelp) as well as its competitive and social nature which encouraged friends to join the network [1]. However, as location-based online services became ubiquitous – Twitter and Facebook both began allowing users to include location data with posts and Yelp added the ability to check-in to locations – Foursquare’s differentiation to consumers and value to investors began to shrink [1].
The Evolution of a Data Company
As the app landscape intensified, Foursquare knew it needed a radical transformation to remain viable leading the company to split into two apps: Foursquare – an exploration and discovery tool and “a true Yelp-killer” – and Swarm – a check-in based social networking app [2]. The CEO, Dennis Crowley, knew that at its core, Foresquare was a location-based data company that had amassed years of users’ traffic patterns based on (1) Foursquare’s “cutting-edge” technology called Pilgrim* that pinpoints a user’s exact location and (2) its extensive database of over 60 million establishments around the world [2]. By splitting the apps, Foursquare could focus on using its massive data collection to cater to users in a more personalized way, including providing targeted recommendations on Foursquare and sharing locations on Swarm. While the apps each served a different purpose to distinct user segments, both relied on Foursquare’s foundation of capturing user data that could be used for monetization going forward.
Foursquare’s Data Brings in the Money
As Foursquare’s business model evolved, the company began focusing on monetization through several mechanisms beginning with traditional advertising and shifting toward enterprise sales.
- Business Advertising / Pinpoint: Early on, Foursquare incorporated ads into its app, which provided businesses with a hyper-targeted audience based on location [2]. This service has evolved into Pinpoint which helps advertisers “identify, reach, and measure audiences based on where they go in the real world” [4].
- Location Intelligence / Places API: Back in 2009, Foursquare opened its API (application program interface) to allow third-party developers to build apps on top of the company’s location and mapping services [1]. Flash forward to today where Foursquare can charge software developers for this API which provides businesses with accurate point-of-interest data [4]. Customers such as Microsoft, pay Foursquare a licensing fee to use its location data to power its Bing search engine and Cortana, while others, like Apple, Uber, Twitter, and Pinterest, rely on its point-of-interest intelligence to power their software [5] [6] [7].
- Place Insights: Probably most exciting is Foursquare’s foray into predictive analytics based on its wealth of consumer foot-traffic data. Place Insights is targeted toward Sales, Finance, Real Estate, and Retail to help companies determine patterns in consumer behaviors based on where they’ve been [4]. In a blog post, Foursquare alluded to the power of its foot-traffic data by predicting Chipotle’s drop in sales and Apple’s sales revenue [8] [9]. While this data is inherently useful for companies in determining site selection, I think the opportunity to use Place Insights as alternative data for investment firms is tremendous.
Uncertain Road Ahead
While Foursquare has made strides in leveraging its data to transform its business, the company will undoubtedly face challenges as it seeks to grow revenues to prove it’s worth more than its ~$325 million valuation [5]. For Foursquare’s data to remain valuable, it needs to maintain and grow its user base to have the most reliable and complete picture of consumer foot-traffic patterns. This user growth is predicated on an investment in marketing to ensure that consumers understand its value proposition, one that is different than its historical value. In addition, Foursquare will need to differentiate itself from competitors like Facebook and Google as a valuable source of accurate location intelligence. Finally, Foursquare has an enormous opportunity to innovate its product offering based on its location intelligence, such as partnering with weight loss services to track gym usage.
The potential for Foursquare is tremendous, but it’s up to them to capitalize on it.
* “Foursquare’s ‘Pilgrim’ location-guessing engine factors in everything from your GPS signal, to cell tower triangulation, to the number of bars you have, to the Wi-Fi networks nearby” to map out location patterns with a high degree of accuracy and precision. [2]
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[1] Piskorski, Mikolaj Jan, Thomas R. Eisenmann, Jeffrey J. Bussgang, and David Chen. “foursquare.” Harvard Business School Case 711-418, January 2010. (Revised March 2013.)
[2] Popper, Ben and Ellis Hamburger, “Meet Swarm: Foursquare’s ambitious plan to split its app in two,” The Verge, May 2014, http://www.theverge.com/2014/5/1/5666062/foursquare-swarm-new-app, accessed November 2016.
[3] Foursquare, “What is Pinpoint?” Vimeo, January 2016, https://vimeo.com/147509561, accessed November 2016.
[4] Foursquare, https://enterprise.foursquare.com/, accessed November 2016.
[5] MacMillan, Douglas and Lisa Fleisher, “Foursquare to Begin Charging Fees,” The Wall Street Journal, June 2014, http://www.wsj.com/articles/foursquare-labs-to-begin-charging-fees-1403820982, accessed November 2016.
[6] Warren, Tom, “Microsoft’s Cortana now integrates Foursquare results,” The Verge, July 2016, http://www.theverge.com/2014/7/29/5947479/cortana-foursquare-integration-windows-phone-8-1, accessed November 2016.
[7] Panzarino, Matthew, “Foursquare Gets $45M and a New CEO to Build Out Enterprise Business,” TechCrunch, January 2016, https://techcrunch.com/2016/01/14/foursquare-gets-45m-and-a-new-ceo-to-build-out-enterprise-business/, accessed November 2016.
[8] Turner, Matt, “An unlikely source predicted Chipotle’s disastrous quarter, and it says a lot about the future of investing,” Business Insider, April 2016, http://www.businessinsider.com/foursquare-data-predicted-chipotle-results-2016-4, accessed November 2016.
[9] Glueck, Jeff, “Foursquare’s Prediction: Apple Will Sell 13-15 Million iPhones This Weekend,” Medium, September 2015, https://medium.com/foursquare-direct/foursquare-s-prediction-apple-will-sell-13-15-million-iphones-this-weekend-d7aca59a67d8#.oa6xiayf4, accessed November 2016.
Great post, Natalie! As an avid user of Foursquare, I was intrigued to read about how the company has evolved over time, how the company makes money, and what the company could look like in the future.
With the proliferation of other location-based online services, I’ve noticed that fewer and fewer of those in my network are using the app. As technology advances, competitors are offering superior alternatives, and I worry about Foursquare’s ability to grow/retain its users in the future. I think Foursquare is in a precarious position not only due to the growing number of competitors, but also because the numerous changes that the company has undergone have frustrated users. For example, I think the recent split into Foursquare and Swarm alienated and confused existing members, as users didn’t understand why the company split its functionality in two. Furthermore, Foursquare offered many discounts to users when they checked-in to locations (e.g. 10% of the dinner bill) in the past, but the company has recently veered away from these offerings.
I agree with you that to remain profitable, Foursquare needs to think about how it wants to differentiate itself. However, I think Foursquare should be careful when communicating further changes, so as not to isolate or confuse its existing user base, as I feel it has in the past.
I really liked this post and learning about all the way Foursquare is evolving to monetize its business. I think it is so smart to break the business into multiple parts to address different markets but it is confusing to customers to see the value propositions and customer promise change.
I agree in the value that location based services have for marketing and investment decisions and that Foursquares’ pivot to become a data company was smart. However, data is only as strong as the inputs from the customers. There does not seem to be any incentive for users to log in as the social clout of being a mayor has deteriorated as well as the discounts. I think Foursquare needs to go back to its core competency of being a value add to its customers through discounts and deals to encourage usage and feedback. Apps like RetailMeNot are also building their location based data by giving sales and sicoutn information to clients. As more competitors come into the space and low switching cost, Foursquare needs to find innovative offers and partnerships to encourage users.
Natalie, thanks for taking a really comprehensive take on Foursquare!
I really liked Foursquare, but now I totally agree with you on the fact that Foursquare can’t just prove its valuation with only an API, even if big clients are using the data. I’m concerned about the “fad”-like tendency of the product and the company. Such a business often becomes immensely dependent on shifts in what customers perceive as “cool”.
Also, Foursquare would need to refine its vision, in order to communicate clearly the product propositions to users, clients and investors. This is, indeed, a very difficult position to be in, but I have immense respect for Dennis Crowley, and am sure he’ll find out ways to take the company further!
Interesting read Natalie. Frankly, until I read this post, I had completely forgotten that Foursquare still existed. Coming from NYU, the founder’s alma mater, I was proud to be one of the early adopters of the app. At first Foursquare was a novelty, and many of the company’s growing pains were quirky and charismatic. I enjoyed being the mayor of a few of my favorite hangouts near school, but I remember how quickly the app became boring, repetitive and frankly, annoying. I appreciate that the company is trying to pivot to data, but such a move only works with scale, and considering other modern apps and tech, the company’s data is no longer unique. Based on rumored user figures, Foursquare is struggling to grow. It appears that users, just like myself, have left the app, and that the company is not attracting many new users as people no longer appreciate the company’s services. These troubles/rumors seem to be reinforced by the leaving of the founder/CEO in January of 2016, as the valuation has been steeply declining.[1]
[1] Nick Statt, January 14, 2016, “Foursquare’s co-founder leaves CEO role as its valuation declines sharply,” The Verge, http://www.theverge.com/2016/1/14/10772282/foursquare-dennis-crowley-new-ceo-jeff-glueck-value-drop, accessed November 2016.
NR, Thanks for the post! I think Foursquare’s shift is wise. Given the increasing number of location-enabled services these days, it seems as though Foursquare had no choice but to pivot. To Hugo’s point, I too cannot recall the last time I or any of my friends used the service. But, I would disagree that its data is not good enough to actually leverage. In contrast, I think that it doesn’t need to continuously grow its consumer base to generate good insights. Instead, my perspective is that they have now become experts in location-based anything – you name it. Their path forward could be to provide tools and services to companies to build location-based technology into their day to day business, a strategy that they seem to be pursuing at least in some way. Perhaps they won’t have robust enough data to sell to retailers on the foot traffic outside their store. But, they could potentially help said retailer with location-based services inside their store, assisting with product placement, peak times, etc.