In Foursquare’s ‘Unbundling,’ Does the Tail Wag the Dog?

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foursquare_logo1Foursquare announced plans Thursday to spin off the company’s trademark social networking service into a separate app and focus its branded application entirely on local search and discovery. The move — what the company has called “the unbundling” — represents a pivotal adjustment by Foursquare yto the sensitivities of a mainstream consumer in an increasingly connected real-world experience, and the limitations which these concerns impose on the company’s ability to keep up with quickly improving mobile technologies.

The end of the Model-T
The new app, called Swarm, will ostensibly offer a chance for the company to present an alternate vision for the product. The service will include many of the features which gained the company notoriety early on, such as the ability to check-in and share locations with friends. What’s new, and what the company likely could not have built without separating the two services, is a passive-location-sharing feature, which publishes your general proximity — say, the city or neighborhood, which you’re in — to friends.

From the perspective of consumer technology brand, the decision to split a product in order to better serve separate audiences is commonplace. Consider what happened to the auto industry in the 1920’s. For a decade and a half, Ford dominated the auto market with a single product, the Model T. However, as the industry matured and buyers wanted more selection, the company was forced to build a number of different models in order to serve various ends of the market.

That’s not to draw parallels between Ford and Foursquare’s in cosmic importance — only to highlight that new technologies (in this case the mobile device) offer a plethora of potential applications in a given market. And in order to fulfill each potential application, segmentation is paramount. Today, the smartphone is quickly approaching a turning point as a data collection tool in which the ability for applications to measure users’ location passively, without draining the device’s battery, is becoming a reality.

The tail wagging the dog
Dennis Crowley, Foursquare’s founder and CEO, often frames the company as being deeply misunderstood in the market. But part of what drives that confusion is a tendency among some analysts to think of web search and local search within the same framework, when the two sectors face wholly different problems.

The problem which Google solved so eloquently on the web was one of abundance: the amount of information which was being created on the Internet in the early 2000’s was growing at an exponential rate. That meant that a search tool would have to be able to grow with it. Enter Google, which developed a distributed computing model that allowed the company to grow its index in a scalable, and exponential, manner.

In local search however, the problem isn’t abundance, it’s scarcity. The defining challenge facing the sector is measurement and data collection rather data processing and storage. Consider two of the most successful local search startups (outside of Google) — Yelp and Waze. Both companies exploded because they developed unique mechanisms through which they could aggregate information about physical places. Foursquare is no different.

Early on, Foursquare built its database of places by aggregating and analyzing where users checked-in. By cataloging where they went, millions of users were effectively conducting “ground truthing” (in mapping and machine learning lingo) on the company’s behalf.

In 2010 and 2011, the company started to use those basic points of interest (e.g. where a business is located) to create the foundation for the its search product. But the long-term value of the dataset — and what differentiates it from more traditional forms of data collection — has always lied in the metadata: the who, what, when, and why of the data point. Imagine if you could see not only where a business was located but who has visited the business, when they went, what they bought, and why they would go back. That’s valuable.

But in unbundling the social and search elements of the service, it’s possible that the rate of social activity and passive data sharing among users may decline. Plenty of apps rely on power users, but certain aspects of a the product’s value proposition require more ubiquitous participation. It’s still unclear whether Foursquare is closer to a service like Twitter, which can survive with a large gap between users who create content and those who simply consume it, or Facebook, which relies on (more) equal parts participation and consumption.

Steven Jacobs is Street Fight’s deputy editor.