Foursquare v. Yelp, the Sequel to Facebook v. Google
The battle between Yelp and foursquare isn’t just heating up (with foursquare’s website relaunch), it’s also starting to smell a lot like the Google / Facebook war. (For what it’s worth, Facebook is winning that war.) And for good reason - by leveraging their respective social graphs, both Facebook and foursquare can and will give users information that is more relevant, useful, and actionable than can/will Google, Yelp, and other companies not infused with social DNA at inception.
Here’s the Parallel….
Seeing the imminent threat posed by Facebook, Google built and launched Google+. Google knows Facebook will launch products competitive with and potentially better than Google search and Adsense; thus, full throttle into social (after dabbling with Orkut, Buzz, Wave, et al.) More on that here. And about a year ago, Yelp added check-ins and more Facebook / social functionality after catching wind of the potential threat from foursquare. Smart moves on both parts, but by almost any account, neither Google+ nor Yelp check-ins has had a materially negative impact on Facebook or foursquare activity. For example, as of midyear, foursquare had over 10 million registered users, crossed a billion check-ins, and averaged 3 million check-ins per day. Yelp claimed 5 million total mobile users in its S1 and I can’t imagine check-in volume (even per user) is anywhere close to foursquare’s. I’d also argue that neither Google nor Yelp has become particularly ‘social’ relative to their social-from-the-ground-up peers, despite their valiant efforts.
[[MORE]]Foursquare at the Plate
Now, foursquare fires back at Yelp with a web relaunch. The relaunch brings large parts of its 'Explore’ functionality to the web so foursquare.com web users now can find fun things to do based on where they are and to whom they’re connected - functionality that has been available to (and, frankly, awesome for) foursquare mobile app users since March. Where the foursquare web app is (currently) lacking is that when users want to find a place to go in the future and/or somewhere where they’re not they are out of luck (well, mostly - there’s a klugey workaround). But it doesn’t take a genius to figure out foursquare’s next move - competing directly with Yelp by letting users find places to go in the future and somewhere where they’re not via Web or mobile applications based on where friends (and friends of friends and so on) have checked-in and 'tipped.’ We’ve all learned to decode Yelp reviews, but those days will be over soon. foursquare will do 'social Yelp’ - and do it well. This is social discovery. This is real. And this is foursquare’s killer app. Finally, there will be a good answer to, “Why do people check-in?”
Foursquare Nailed Social Search and Disovery
There is perhaps no better example of what social search and discovery is than foursquare’s Explore feature. So what is social search and discovery? First, here’s what it’s not:
It’s not searching your Facebook or Twitter timeline for something you may have posted in the past. This is great, useful, and necessary technology (and Greplin and others have built some cool tools to do this), but this is not leveraging the graph to find or discover new content relevant to you.
It’s not just looking at a piece of information (e.g., a piece of content, a restaurant, a product) and seeing how many of your friends 'liked’ it. Also neat, but not even close to complete.
Social search and discovery utilizes a PageRank-like algorithm to determine how relevant is a piece of information (e.g., content, restaurant, product, etc.) based on how a person is connected to the rest of the people in the world and how the piece of information is connected to the rest of the people in the world. So where Google’s PageRank looks at how the entire network of Web pages 'points’ to a particular piece of information (website), social search and discovery (from foursquare and forthcoming from Facebook, et al.) looks at how all of the people in the world point to a particular piece of information. While similar in theory, this dynamic and personalized approach is fundamentally different from how Google (and others) determine information relevance in a more static and meta way. (Again, more on that here.)
Let’s find a wine bar….
Here’s a real world example. My wife and I went to see The Book of Mormon (highly recommend) and wanted to go to a wine bar in midtown for drinks and snacks afterward. If I had used Yelp, I would have come up with these results (and similar on the mobile app). The sort options are best match, highest rated, most reviewed, etc. I’d then have to read and 'decode’ the reviews to figure out which spot was right for us.
Foursquare’s counter: the recommendations aren’t only based on what’s near me and popular, but also which of my friends have checked-in to which places. When we saw that three (specific) friends of ours had been to Casellula, it was a no-brainer. No need to read and decode lengthy reviews. It just works.
Again, Yelp did add check-in functionality so could do this (and probably will if they haven’t already), but this isn’t how people use Yelp so the percentage of people contributing to the graph is significantly lower. For foursquare users, however, check-in activity is the starting point.
What does the Yelp IPO mean for foursquare?
So Yelp filed its S1 and is looking to raise $100 million. Speculation says the valuation is somewhere around $1-2 billion (big range, but hey). And here are some statistics picked out from the filing from the always insightful David Lifson (founder/CEO of Postling)….
22M reviews of 19M businesses, averaging 100 words per review.
529k businesses have 'claimed’ their page.
19k local businesses pay for advertising, spending an average of $234/mo.
Yelp made $40M in local advertising revenue so far this year, and $58M overall.
Google representing 50% of their traffic.
Only 2.78% of businesses have claimed their Yelp page, and only 0.1% of businesses are advertisers.
Some perspective:
How many check-ins and tips on how many businesses are there on foursquare? Dunno. But there were 3 million check-ins per day on average, which is almost like 3 million teeny weeny reviews. Per day. Tips may be a better measure, even though they’re not complete reviews. (Some would argue tips are better than reviews. Some would not.)
Foursquare had 500K merchants 'register’ by midyear (so I would expect that number to be higher now). That matches up well against Yelp, though in fairness none of foursquare’s merchants were paying them anything (yet).
Foursquare revenue is likely insignificant currently and definitely much lower than Yelp’s.
Most if not all of foursquare’s traffic originates from foursquare. And anecdotally I’ve noticed foursquare location pages creeping up on Google results (with what I’m assuming is little to zero SEO). Hmm.
Bottom line: Foursquare has fewer users (for now) but 2x as many mobile registrations, much less revenue (for now), much higher check-in activity, comparable merchant registrations (probably more now), and much better 'ownership’ of their users. So the potential for foursquare to grow into or past what could be a $1-2 billion Yelp-like valuation should be clear.
Foursquare’s most recent valuation of $600 million easily discounts its early stage and lack of significant revenue, but foursquare has the potential to do be much more than a socially-savvy Yelp competitor. For starters, foursquare should be able to compete in other verticals such as travel (watch out Tripadvisor). But, and more importantly, foursquare provides the conduit by which not only merchants, but other brands, products, and services can advertise their wares. We’ve seen a touch of this with foursquare getting affiliate fees from Groupon, LivingSocial, and Gilt City deals purchased through foursquare - but those are really still merchants advertising deals at or near their own locations. It gets a lot more interesting when, say, a liquor company wants to offer deals for its products at a bar (via foursquare check-ins), or when a consumer product company wants to plug their products at a grocery store (via foursquare). This is an entirely different set of potential customers that foursquare can service, but companies like Yelp really don’t have the platform to support. (LocalResponse, where I am an advisor and shareholder and therefore biased, has been doing very impressive work in this space.)
Bigger market potential, more user activity/contribution, more ownership of its users, and the potential to more affectively convert intent into action mean foursquare should grow into a valuation well north of the $1-2 billion Yelp is seeking.
Foursquare Isn’t Alone in Social / Local Discovery
Even if we exclude Yelp (and Google) from the social / local discovery competitive landscape, Foursquare is still hardly alone. A handful of startups have ventured into the space - many leveraging foursquare’s API (e.g., Dinevore, Foodspotting,Topguest, Ness, Cliq, etc.) The question for these folks is can they succeed with foursquare moving into the space in earnest by leveraging not just foursquare’s API, but Facebook’s and others’ as well and/or find a niche where foursquare won’t play as hard. And does foursquare continue to build its own products and services in these new areas or do they buy and/or partner with their ecosystem. This, too, is hardly new ground for emerging social graph standards - both Facebook and Twitter have faced this dilemma and used a combination of building, partnering, and acquiring to thrive.
This is Bigger than Restaurant Check-ins
And let’s keep in mind that it’s not just restaurants and bars we’re talking about. Leveraging location check-ins and tips should shake up plenty of other verticals - travel, for example. Currently, Tripadvisor has a rudimentary implementation of Facebook Connect that shows you which of your friends have been to cities your investigating on Tripadvisor so long as they had added those cities via the 'Cities I’ve Visited’ Facebook app (you’d be surprised how many of your friends have). Useful, but limited. Consequently, a handful of companies are leveraging foursquare and Facebook check-in data for travel including Gogobot and irrive to build products and services that beat TripAdvisor at its own game (and do you really care that every hotel review on TripAdvisor includes a tome on 'the breakfast’?) But this space may be ripe for foursquare, especially considering travel’s revenue potential and foursquare’s pending need to demonstrate its financial wherewithal.
Moreover, connecting social graphs via check-ins and other mechanics to other things we buy and consume will have profound effects on how we make those purchase and consumption decisions. We’ve seen it in entertainment (oh Philo….) via companies like GetGlue and IntoNow. Foursquare, nay, Foodspotting for fashion has kicked into high gear with Thre.ad, Fashism, and the like. And a few companies gave products and other purchases a shot (Hollrr, Swipely, and Blippy toyed around with this space before pivoting). Wouldn’t it be nice to see which friends, friends of friends, etc. bought which DSLR camera? I’d like that.
The bottom line is that we’re approaching a transition point in which all purchase and consumption decisions will be dramatically influenced by social search, discovery, and connection. And Facebook, foursquare, and companies built with social DNA stand to gain at Google’s, Yelp’s, and others’ expense.