Infographic

Executive Summary

Three years ago, Dennis Crowley and Naveen Selvadurai were two office workers developing foursquare in the kitchen of Dennis’s New York City apartment.  They launched the first version in March 2009 at South by Southwest Interactive in Austin, TX[i]. The company has since leveraged a multitude of resources for competitive advantage and grown to become a powerful social networking site.  The concept behind foursquare is simple.  After creating an account and downloading the app on a smartphone, foursquare can be used to “check in” to physical locations.  If a location is not already in the system, the user can add it.  Users can earn badges based on their check-ins, and the user who checks into a location more than anyone else becomes the “Mayor” of that place and can receive special rewards[ii].

Since its 2009 launch, the social media network has garnered more than ten million members who have made a total of over one billion check-ins, adding millions more each day.  Founder Dennis Crowley has taken over as the company’s CEO and Evan Cohen has stepped in as foursquare’s General Manager.  The team, consisting of over eighty-five employees on two coasts, has made leaps and bounds to expand the company as much as possible- an effort reflected in the numbersⁱ. In addition to the millions of members, over five hundred thousand businesses have hopped on the foursquare bandwagon using the company’s “Merchant Platform” and “Brand Platform,” excellent examples of how foursquare is emerging as an incredible marketing tool for businesses.  With the “Merchant Platform,” businesses can find new customers, interact with customers, and discover customer demographics through users’ check-ins- for free[iii].  The “Brand Platform” takes marketing even further, offering brands the opportunity to create a profile accessible on foursquare.com and through the application.  Companies use these pages to interact with consumers and offer tips[iv].  Furthermore, for a fee, brands can set up “Partner Badges” which users can win through their use of foursquare and interaction with the company.  To preserve both foursquare’s brand, which will be expanded upon later, and the brand of the partners, these badges must meet a series of requirements.  When the badges are passed, however, it means even more exposure for both companies[v].

 This leads to the next point, which is that foursquare makes most of its current money through partnerships.  In addition to using sponsored badges as avenues of revenue, the company has struck up unspecified deals with a wide array of companies large and small such as Conde Nast, Marc Jacobs, HBO, and other smaller merchants[vi].  Considering the company is private, revenues and stipulations of such deals are not known to the public.  It is known, however, that many of these deals bring in varying amounts of revenues for the company.  Essentially, the company really makes its money through advertising because partnerships promote the companies involved.  Foursquare literally revolutionized local advertising by allowing small businesses to interact with its customers and perform actions such as distributing coupons and specials to people who check-in to their stores[vii].  What makes foursquare so successful in advertising and therefore so easily profitable is that the advertisement results are directly reflected in the physical check-ins consumers make to business locations[viii].  More information on where exactly all the firm’s profits come from will be made available when the company goes public, but do not hold your breath- companies such as this tend to wait a while before going public so that more time and energy can be spent focusing on profitability[ix].  Until then, this information will only be completely accessible to the management and the many venture capitalist firms with a stake in the program, as well as the multitude of Angel Investors funding the projectⁱ.

As unique as the concept of foursquare seems, it does have a variety of competitors in the location based social network industry.  According to Pew Research Center only four percent of Internet users utilize location based social networking[x].  This large number of non-users gives foursquare a great potential for growth, as there is still a vast number of Internet users to potentially join their service.  However, there are number of competitors trying to lure these potential users away from foursquare and grab the top spot in the industry.  These competitors include companies such as SCVNGR, Gowalla, and MyTown. SCVNGR currently has approximately 2 million users, Gowalla has around 1 million users[xi], and MyTown has 3.3 million total app downloads[xii].  Yet if all three competitors’ user bases were combined it would still be less than that of foursquare.  In 2010 foursquare’s market share grew 3400% and it now has ten million users.  People have checked in using foursquare in 169 countries, and one person even checked in from the international space station[xiii]! This rapid growth has helped foursquare establish its position as the leading firm in location based social networking.

One of the most important strategies contributing to the wild success and growth of foursquare is its utilization of technology.  Every aspect of this firm leverages technology in innovative and interesting ways.  It is inherent that a social networking company be based on the use of technology to connect people.  Just to sign up for the service, one must use either the company’s website, download the application on his or her smartphone, or sign up with Facebook[xiv]. A member can update his or her profile through either the website or application as well and he can connect his profile to his Twitter and Facebook profiles to share his locations and tips with friends on others sites. Technology comes into play in perhaps its largest role when users use the app to check in to physical locations either with the app on their smartphones or through SMS messaging on their cell phonesⁱⁱ.  In addition to the use of the physical technological device, when a member checks in, a Global Positioning System can physically locate the user with technology provided by Google Maps, showing the nearby foursquare locations relative to the user’s position[xv].  Additional innovative ways technology is used by the company become even more evident upon an in-depth analysis of the resources foursquare leverages for competitive advantage. 

In an industry that is constantly growing with emerging competitors, foursquare maintains an edge over its rivals through its large scale, network effects, switching costs, partnerships, and brand.  As previously mentioned, foursquare has gained over 10 million users since its launch in 2009.  With check-ins from all around the universe, foursquare takes advantage of its scale through its large customer base and distribution channels[xvi].  While many associate foursquare with solely the United States, in reality 50% of its users come from outside the US[xvii].  The company recorded 358 million check-ins from outside the U.S. as of June 2011^xvi.  While it is indisputable that foursquare has a large presence in communities all over the world, the true competitive advantage of the company lies in the overall number of users.  As more people gain memberships to foursquare, the value of the network rises. Foursquare’s database grows in direct relationship to the number of users, meaning more reviews, tips, feedback, and rankings as the numbers of users increase.  As subscribers use the foursquare application, they build a profile through past check-ins and friends’ check-ins.  Foursquare analyzes this information to make recommendations, and the larger database, which is created through network effects, provides more accurate suggestions based on the user’s location and profile[xviii].  For instance, when a user checks in at a location, recommendations for nearby attractions are provided based off fellow foursquare users’ rankings. As network effects work together to make this growing database, another competitive advantage appears: switching costs!

“High switching costs” is an important resource for competitive advantage leveraged by the company.  By switching to a rival, foursquare users forfeit all past data, such as accumulated points from check-ins, badges, prizes, and leaderboard positions[xix].  There are also learning costs that make a member’s switching costs even higher.  Foursquare is a user-friendly service[xx] and  switching to a competitor would require users to bear the inconvenience of learning the functions of a rival’s more confusing location-based social network.

Foursquare also succeeds because of its distribution channels. Foursquare can be used on all mobile phone devices.  Furthermore, as previously mentioned, foursquare collaborates with various companies large and small, and both parties benefit from these partnerships. For example, last year foursquare signed a deal with Zagat, the popular restaurant rating guide. In addition to the special badge, which brings in revenue, foursquare benefits from this partnership with Zagat because of its newly acquired access to Zagat’s resources, primarily tips and recommendations provided through the company’s profile[xxi]. This is marketing in its most modern form!  Companies that partner with foursquare have the opportunity to build a new customer base and form deeper connections with their existing ones, while foursquare expands its own network with these alliances. Both parties are incentivized to form relations because both benefit from the cross-promotion!

One final note to be made on the company’s sources of competitive advantages is brand. Brand is built through customer experience and because foursquare provides a fun, engaging customer experience, brand is key to the company’s success.  The brand continues to grow and foursquare is utilizing viral marketing to capture ever more customers.  The marketing opportunities associated with foursquare are capturing the attention of high-quality firms that want to partner with foursquare, increasing its proxy quality and therefore strengthening its brand. These partnerships also legitimize the company and inspire trust for the users, who more often than not choose to stick with foursquare after experiencing its excellence. Thus, the strengthening of foursquare’s brand continues, and it will only get greater with time.

While foursquare is growing at such an alarmingly fast rate, it still has many obstacles that it must deal with to remain atop its industry. Thus far, foursquare has been able to outmatch rival competitors Gowalla and  MyTown in terms of total users, but the firm must be watchful for the company SCVNGR and their slightly different approach to the same industry. SCVNGR’s mobile payment platform, LevelUp, allows the customer to pay with his mobile device. The company also rewards its users with real life monetary rewards, while providing similar “mayor”-like deals to anyone who meets certain requirements set by the individual company’s “trek”. SCVNGR is thus aiming to tap into the huge user base that foursquare has acquired and it is a threat foursquare must look out for[xxii]. On a broader scale, the location based social networking industry is restricted to primarily the smartphone sector of the mobile phone industry as its large yet limited consumer base. This restricts all companies to fight over a limited number of consumers, which makes any possible advantage extremely important. While a limited consumer base is a major issue presently, it does not necessarily need to be a negative restriction in the future. Expansion is a huge issue for the entire industry, but all location based social networking firms are constantly looking for new ways to have their services expand into larger markets with larger profit and application capabilities. This possibility of great expansion will inevitably be either a blessing or a curse to the success of foursquare and other firms as they push up against the limits of their current industry[xxiii].

After analyzing foursquare and its place within the industry, it is evident that although obstacles loom in the future, foursquare’s use of technology and its top-notch resources for competitive advantage will help the firm maintain its position on top.

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