Commentary

Can Foursquare Find A Business Model?

Foursquare

With the rollout of the latest version of its location-based service, Foursquare has clearly taken steps to address widespread laments about check-in fatigue -- and show it's more than a one-trick pony.  

Among the key changes, Foursquare 3.0 adds personalized recommendations through a new "Explore" tab based on what you, your friends and other people like. It also makes suggestions according to things like the day of week or time of day, as well as allowing users to search for specific terms like "bratwurst" or "fireplaces."

Foursquare has also upgraded the game concept it popularized in social location apps with an expanded leaderboard that rewards users for dozens of different check-in-triggered actions, including discovering new places, trying new types of restaurants, visiting new cities, and getting groups together.

On top of that, the updated app provides six new types of specials for merchants that allow retailers and restaurants to offer deals and discounts to "swarms," groups of friends, regulars, newbies, Mayors (naturally) or "everyone." It also spotlights a list of all specials nearby, making it easier to find places that reward Foursquare users.

In a blog post outlining the new features, Foursquare co-founder Dennis Crowley noted the company last year zoomed from 100,000 to almost 7.5 million users. It also generated 500 million check-ins and counts more than a quarter million businesses verified on the company's network.

Impressive numbers. But Foursquare has been criticized for not rolling out new features sooner; in his post, Crowley acknowledged growing pains in ramping up staffing and operations to keep up with growth.

Even so, Foursquare is running with a fast crowd. Daily deal sites like Groupon and LivingSocial have quickly amassed more than 50 million and 20 million users, respectively, and stolen the buzz around Foursquare and other social location apps like Gowalla and Loopt. Brightkite dumped check-ins altogether to focus on text-messaging.

While Foursquare was readying a new version, Facebook entered the space with a direct competitor in Facebook Places. A recent Merchant Circle study found Places reach a 32% current usage rate among small businesses, while Foursquare's usage had remained unchanged from the fourth quarter of 2010 at about 9%. About 40% of local merchants are using Twitter.

Add in the emergence of mobile shopping apps -- from ShopSavvy to CheckPoints -- and the competition Foursquare faces on cell phones has grown much more formidable. The changes to its app suggest new or expanded avenues for businesses to drive traffic and build loyalty by partnering with Foursquare. But in his blog post, Crowley didn't really get into how the company is going to monetize usage by local businesses, brands or consumers.

Perhaps some high-profile new promotions are on the way, or Foursquare plans to unveil a set of new ad options soon, as Twitter did last year after taking a few years to build up its user base. But given the fading allure of check-ins and the bevy of direct and indirect competitors Foursquare faces, this would be a good time for the company to spell out its business strategy more explicitly.

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