TechCrunch recently wrote about how to save FourSquare. Although FourSquare was the hottest consumer web startup just a few years ago, today they're vulnerable. After building up a rabid user base, they have failed to effectively monetize. They still incur very large operating and development costs, and generate little revenue to show for it. VC money can only keep them alive for so long.
Keith Rabois, former COO of Square, recently took a jab at FourSquare. He effectively stated that FourSquare has no business model and needs to be bought out to be saved. Dennis Crowley, FourSquare's CEO, refuted Rabois's assertion, rebutting by stating that FourSquare is the "location layer of the Internet."
I'm not convinced that a business that is the location layer of the Internet can exist as a independent, profitable business.
In order to understand FourSquare's long term viability as the location layer for the Internet, let's consider the value that they and some of their complementary companies in the mapping business provide.
It's been widely reported Apple and Google were unwilling to share key user location data, hence Apple's decision to create it's own mapping database. Both companies placed an enormous amount of value on owning that data, and neither was willing to compromise.
Apple doesn't directly generate a penny from Maps (however, Maps provide a reason to buy iPhones, which is the most profitable product in the history of the world). Google, having been in the mapping business for ~7 years, still doesn't detail revenue breakdowns about Maps because Maps doesn't meaningfully contribute to Google's top or bottom lines. Yelp has never been profitable for the entirety of its existence. It appears that everyone wants and needs maps, no one is willing to pay for them, and the maps companies can't run those business profitably. All of the empirical evidence suggests that Maps are simply a very large cost of doing business, not businesses in and of themselves.
Given what we've seen in the mapping business, I find it pretty hard to believe that FourSquare can somehow create an independent, profitable location layer of the Internet. Although FourSquare has a lot of valuable data from their users that their competitors don't have, I don't find the nature of that data to be compelling enough to justify FourSquare's independent existence. User reviews and checkins are useful pieces of data that 40,000+ developers have implemented, but that data isn't the foundational element of mapping. Google, Apple, Nokia, and others spend billions annually to gather, manage, maintain, and provide access to maps. None of them have been able to sustain a profitable standalone mapping business. FourSquare provides less valuable mapping data than the big boys. How can FourSquare, who provides decidedly less valuable data, exist as an independent profitable business?
FourSquare's best option is to sell out to Apple. FourSquare has taken in north of $100M in funding. That means they need to find an exit to please all of those investors. Not many people have hundreds of millions of dollars laying around to spend on mapping data. Apple has hundreds of billions of dollars laying around, and they have a every reason to improve their mapping database as quickly as possible. It has been rumored that since Apple's Maps debacle with the release of the iPhone 5 in September 2012, Apple has been licensing data from FourSquare to improve its mapping database. Perhaps that's all Apple needs from FourSquare today. But if FourSquare starts to lose traction and checkins (there are rumors that FourSquare check in growth is negative), Apple is probably FourSquare's best suitor because Apple needs to ensure continued access to that valuable mapping data, and Apple is one of the few companies in the world that values that data enough to pay for it.
