Why Foursquare can win in local search and discovery

Foursquare recently signaled a major change in strategy when it announced plans to split its app into two distinct products, spinning out its signature check-in feature in a friend-finding app called Swarm to be released in the next week or so.  Its flagship app, meanwhile, will be redesigned to lose the check-ins and instead will offer personalized search recommendations based on users’ tastes, the recommendations of friends, and location. The new Foursquare app is expected to be released within the next several weeks.

The move places Foursquare in direct competition with heavyweights such as Yelp, Google and Facebook. But while Foursquare enters the space as an undeniable underdog, there are a few reasons to believe it can thrive:

  • It has an enormous amount of data. Foursquare said last December that its users had surpassed five billion check-ins, and the company is already selling location and other user-behavior information to third parties looking to deliver highly targeted ads. The company’s ever-growing mountain of data will grow even more quickly now that Foursquare is constantly, passively tracking its users through their phones, even when the app is turned off. That data is invaluable to advertisers, but it also enables Foursquare to send customized recommendations to its users.
  • It’s still growing. Many users grew weary of cute gamification hooks like badges long ago, but Foursquare has grown steadily over the last few years, surpassing 45 million users in 2013. That’s a far cry from the 132 million monthly users Yelp saw in the first quarter of 2014, but it’s a solid foundation upon which Foursquare can build.
  • Tips are also growing fast, and they’re mobile-friendly. Yelp’s lengthy user reviews can be extremely valuable on a PC or tablet, but they’re more difficult to peruse and evaluate on a smartphone. Foursquare’s tips are quick snippets that are easier to digest on the smaller screens, providing quick information like which menu items to order or which hair stylist to choose. And Foursquare’s tips may be growing faster than Yelp’s reviews.
  • Yelp is vulnerable. Yelp’s revenue jumped 66 percent last quarter from the year-ago period, as The Motley Fool recently pointed out, and shares have surged more than 90 percent over the past year. But the veracity of user reviews is a growing problem, and Yelp has conceded that up to one-fourth of all reviews are suspicious. If Yelp can’t find better ways to police its user reviews, it may see a backlash from users that could benefit Foursquare.

Foursquare will face enormous challenges in these early days of hyperlocal search and discovery, of course: It is largely seen as a novelty for tech enthusiasts, and its brand can’t lay claim to the cachet among mainstream users that Yelp enjoys. Yelp and Google not only have far bigger audiences, they continue to build out their networks of local advertisers. And Foursquare’s decision to split its offering in two is sure to cost it some loyal users.

But the market for local mobile search is still largely untapped, and it will explode over the next few years as location technologies improve, ad networks grow and advertisers learn how to leverage enormous amounts of data. Foursquare has a lot of catching up to do, but it has the weapons to compete with its bigger counterparts. Brick-and-mortar retailers and other businesses should be paying close attention.

Relevant Analyst
Colin Gibbs

Colin Gibbs

Mobile Curator Gigaom Network

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