For Foursquare, why being mayor isn’t enough to build a business

Backed by a lot of hype and millions in funding, Foursquare turned the idea of “gamification” into one of the most buzzed-about ways to design your mobile app and attract users. The idea was that if checking into Foursquare gives me the hope of becoming mayor of my favorite coffee shop, I’ll be more likely to check in and frequent that business. Or so the theory went.

foursquare todayBut now, more than four years after the startup launched at SXSW and more than $70 million in venture funding later, it seems gamification isn’t enough to keep Foursquare going. The company is rapidly embracing the concept of local search, launching a new version on Wednesday morning that highlights the “Explore” tab as a primary focus, and making clear that the quintessential Foursquare experience is no longer about being mayor of something: Foursquare wants to be your personalized version of Yelp.

“We’re crunching all our data to show the best of what’s nearby, anywhere in the world, the second you open up the app,” the company wrote Wednesday.

The app looks substantially different than before, eliminating the different tabs at the bottom that used to let users navigate from check-ins to search to profile, and instead creating one primary feed. The new design has a large check-in button at the bottom, and shows the Explore tab at the top of the main screen. It places more emphasis on where your friends are checking in nearby, and popular businesses at the moment.

Foursquare has been moving toward local search as its primary focus over the course of the last two years or so. Foursquare first launched the “Explore” tab in March 2011, allowing users to discover businesses nearby, but didn’t add a desktop equivalent until January 2012, when the company started to get serious about the feature. In October, the company opened up the search engine to everyone on the web, not just registered users, and CEO Dennis Crowley explained that they wanted users to start seeing Foursquare as more than just a place for check-ins. The company established an American Express partnership in June allowing customers to link their credit cards to unlock deals, and expanded tools for local merchants.

But it’s not just that Foursquare is tired of the whole mayor business — local search presents more opportunities to make money, and Foursquare needs to make money. A report in The Wall Street Journal in November said that Foursquare’s investors, who have put $20 million in June 2010 and then another $50 million in June 2011 into the company, wanted to see more growth than the company was experiencing. Despite bringing in more than $70 million dollars, Foursquare still only had about 8 million active users at the time, which isn’t all that substantial for a four year old company (Twitter now has more than 200 million active users, for comparison). And reports said it was bringing in only $2 million in revenue for 2012 — even after all of the new tactics for improving local search to make money.

So what’s the solution? Clearly, it’s to double down on local search.

“One of the challenges is to get people to think about Foursquare less as points and badges and more about local search and discovery,” Crowley explained to GigaOM back in October. “We really see Foursquare as reinventing ourselves with local search and recommendations. We’ve been telling users for a long time and now we can tell the same story and illustrate it for folks.”

The move presents challenges, obviously, in that Yelp is a clearly established leader in this market, and has a serious head start in convincing most businesses to set up pages there. However, Foursquare does add a social element to its business discovery that isn’t as much of a focus for Yelp. While Yelp has built a business around reviews, which are social to a certain extent, and interaction with reviewers, if I open Foursquare right now I’ll immediately see what businesses my friends have recommended. And for some people, a friend’s suggestion could be more powerful than a five star Yelp review.

Foursquare made one of the most high-profile attempts at re-building local commerce around the idea of loyal customers through app check-ins, but it seems that convincing people outside of Silicon Valley to check into their favorite establishments hasn’t worked. And without mass participation, that’s not a big enough audience to build a profitable business. Steve Wozniak might continue to maintain his mayorship of several Baskin Robbins, and the company will need people to continue checking in to build its data.

But for Foursquare, it’s time to start checking into more traditional forms of gathering revenue with discounts and desktop search.