Forget Apple vs. Google; a Battle Brews Between Yelp and Foursquare

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Last week, news surfaced that Foursquare was eyeing its fourth round of funding in as many years, marking the official, if not inevitable, beginning of what will become a fascinating rivalry between Yelp and Foursquare in the realm of social discovery. Yelp has a sizable head start, but the shift toward mobile — and the implicit importance of data and identity on devices — signals trouble for Yelp and an opportunity for Foursquare. Here’s why:

Search and Discovery Require Two Different Datasets
Apple’s debacle with maps revealed something that we often take for granted: local data means different things for different services. As it turns out, scaling a local dataset with the penetration and accuracy necessary to make a mapping service work requires a massive operation. The queries are largely transactional (find x location using y keywords) and superfluous content — say, Yelp reviews — do little to add value. In search, coverage is king and Apple didn’t have it.

But when it comes to discovery, Google’s dataset — and the centralized structure it has built to maintain it — is not necessarily relevant. Objective information about a business (like its hours of operation) can only go so far in helping a user make a decision. What’s more important is increased transparency for the points of interest (reviews, product information, etc.) as well as understanding connections between those places. This is where the Google-Apple parallel comes in. With the latter point, the links in a network, Yelp, and a host of content-driven discovery services, could really struggle. This is where Foursquare is poised to succeed.

Yelp fails to take advantage of the deeply personal and omnipresent reality of the mobile device, missing opportunities to capture the most important review of all: habit.

User-Generated Content Falls Short of the Value of ‘Habit’
Foursquare bears tend to ridicule the check-in as a passing fad, but the check-in did two critical things for the company. It provided a mechanism through which the company could build and maintain its own dataset, and more importantly, it served as both an opaque piece of content (“Oh look, my friend checked-in here, it must be good.”) as well as an actionable, and manipulable, piece of data that (unlike content) gains value as inventory scales.

Last week, Foursquare rolled out a new ratings system that draws on this data and the patterns within it to score businesses on a 1 to 10 scale. The ratings ingest users’ habits, rather than opinions, to determine the quality of a business, and in doing so make “the crowd” far more democratic. One disgruntled voice becomes far less important, and the ratings only accrue more value as folks check in more and more.

This hits on one of Yelp’s critical weaknesses. Yelp’s product — the review — is a print product scaled on the back of a web-driven, user-generated content model. The structure of the service fails to take advantage of the deeply personal and omnipresent reality of the mobile device, missing opportunities to capture the most important review of all: habit.

Identity, Which Reveals ‘Habit,’ Can’t Be Tacked On
Foursquare’s biggest asset, and the reason Yelp is open to disruption, is identity (as revealed through check-ins). Its social origins have made identity a key component of the service rather than a value-added option for power users as it is with Yelp. Identity allows Foursquare to constantly improve the service for users over time, making changing services more costly.

It also gives Foursquare access to information about the links in a network, rather than just the nodes. While Yelp and others provide transparency about a point of interest, Foursquare has the ability to give insight into how those points of interested are related, thanks to the habits of its users. For marketers, the power of habit — and the value in the ability to understand and manipulate it — cannot be understated.

As discovery takes over where search leaves off, Foursquare, or something like it, is poised to take a lead. Perhaps that’s justification enough for its prospective investors.

Steven Jacobs is deputy editor of Street Fight