In Defense of Foursquare

by Katharine Nevins (blog: http://katharinenevins.posterous.com/)


Last week, half of my LTV classmates declared that they’d short Foursquare stock if they could.  I wonder whether their bearishness is driven by the popular caricature of Foursquare as a tool for urban hipsters to get sloshed together in the trendy bars.  Given that all of my classmates are interested in technology entrepreneurship, I’d like to think we’d have more imagination than that. After all, many normal people still think Twitter is primarily a tool for the self-absorbed to share the minutae of their day. (NB:  This use case actually does exist... in the past half hour as I write, fifteen people tweeted what they had for lunch.  Fortunately, it is far easier to avoid bores on Twitter than it is in the offline world.  But I digress.)

There are a number of interesting consumer use cases for Foursquare, of which the “serendipitously meeting friends at bars” scenario is among the least compelling.  I strongly believe that driving more customers to local shops by collecting user attention and data is a promising business.  Having worked at Intuit (which makes tools for very small businesses), I can safely say that any marketing tool more advanced than a sign in the storefront and a phone book listing could be a huge win for most local businesses.  My only question is who will win.  Though it has stiff competition, Foursquare has a shot at any combination of the following use cases:


Google for the Physical World

Last summer, I got lost in Beirut looking for a bar my aunt had recommended.  Beirut doesn’t really do street addresses (street names are inherently political and therefore problematic) and I don’t speak Arabic, so I was glad Foursquare could tell me the exact location.   From the business’ perspective, the ability to be found on Foursquare and then track the user’s check-in is quite valuable as well.

This isn’t an inevitable win for Foursquare.  Today (in the US at least), Yelp has better local search functionality for things like bars, free wi-fi, etc., but Foursquare could potentially compete in two ways.  Firstly, they could include more venues that Yelp doesn’t cover well.  These would include temporary venues such as conferences and street fairs, as well as places people don’t often review on Yelp such as airports or drugstores.  Secondly, if they can build more check-in volume among more people, they could provide reliable ratings of businesses based on actual customer behavior rather than written reviews. 


Location-Aware Groupon (Do I get buzzword points?)

Foursquare’s “nearby deals” feature provides a good reason for anyone, including non-hipsters, to check in to a venue.  It also has the potential to drive new customers into local stores at a much lower cost than Groupon.  Foursquare (1) can do a better job of targeting new (rather than existing) customers because they have previous check-in data and (2) may not have to offer as large a discount because the user doesn’t need as big of an incentive to go to a shop less than a block away.

Universal Loyalty Card

Clearly, American Express beat me to this conclusion, but the obvious killer application for Foursquare is in merchant loyalty programs.  Grocery stores have trained every soccer mom in the country to use loyalty cards, and Foursquare provides a way to manage the wallet space constraint.

Of course, Foursquare is not the only company with this idea.  Facebook, Google, and Yelp all have larger user bases and are trying to capture this space as well.  To beat the competition in check-in volume (assuming they can’t beat Google or Facebook in terms of user count), Foursquare needs to convince normal people that their privacy is protected.  It would seem they have a better shot at this than Facebook does, but they still have a long way to go before people can get past their preconceived notion of Foursquare as a broadcasting tool for bar-hoppers.

To make the loyalty program successful, they also need to collect more actionable data for merchants, ideally by tracking customer purchases.  The American Express deal helps immensely, and partnerships with Square and/ or Blingnation could help as well.

For any of these ideas to make Foursquare a billion dollar company, of course, Foursquare has a long way to go.  They need to build awareness, understanding, trust, and usage among a critical mass of normal folks.  Toning down its image as a game for drunken hipsters could help; last night I had the questionable honor of earning the “krunked” badge for checking in four times in one evening (even though not one check-in was at a bar!).

Assuming Foursquare can build customer usage, they’ll also need to find a scalable way to reach local businesses.  For now, they seem to rely on PR and consumer word of mouth in combination with an online self-service tool.  Facebook, Google, Groupon, and Yelp all have substantial sales teams, and Foursquare may have to do the same in order to compete for the attention of busy small business owners.

Foursquare has plenty of challenges ahead and is by no means a sure thing, but I wouldn’t short it yet.  

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