Foursquare Introduces Swarm, a Dedicated App for Check-Ins

Foursquare recently announced that it will spin its classic check-in features into a new app called Swarm, while stripping its main app of check-ins to focus on local recommendations instead. Foursquare hopes that the split will keep it relevant in a location-based market increasingly dominated by Facebook (META -0.52%), Google (GOOG 0.74%), and Yelp (YELP 0.60%).

Foursquare claims that Swarm, which will be released for Apple iOS and Google Android within a few weeks, will be faster and easier to use than its main Foursquare app. Swarm will allow users to locate their friends in real-time via a social heatmap.

The idea is similar to Facebook's recent introduction of Nearby Friends -- an opt-in feature that lets users share their locations in real time. Meanwhile, Foursquare's main app will follow in Yelp's footsteps by focusing on local business reviews.

Foursquare for iOS. Source: iTunes.

One David, Two Goliaths
In my opinion, splitting its service in two could be a big misstep for Foursquare. When Foursquare was introduced in 2009, it sparked a revolution in check-ins and location-sharing over social networks. Facebook quickly noticed and rolled out its own check-in features the following year. In 2011, Google jumped in as well with Latitude check-ins.

Since then, Facebook has enhanced its check-in services with peer reviews of businesses that are often linked to their Facebook business pages. In a similar manner, Google upgraded its check-ins with reviews from Zagat and other Google users, then integrated that data into Google Maps.

It's easy to see why Foursquare is becoming less relevant every year -- it's hard to match Facebook's 1.3 billion registered users or the 250 million people who use Google Maps.

Steady user growth, soaring revenues
Foursquare has over 50 million users, but the company does not disclose how many of those users are inactive, daily, or monthly users. Foursquare's growth over the past four years has been steady, but it has a long way to go before it should be mentioned in the same breath as Facebook, Google, or Yelp.

Foursquare total users. Source: Industry websites.

In addition, total downloads of the Foursquare app are lackluster -- according to App Annie (May 5), its app ranks 54th in the social networking category in the U.S., while Facebook is ranked first.

Although Foursquare's growth is merely adequate, the company has been surprisingly adept at generating revenue. Based on CEO Dennis Crowley's recent claim that Foursquare's revenue grew 600% year-over-year in 2013 and 500% in the first quarter of 2014, Foursquare likely generated $14 million in revenue in 2013, and $21 million in the first quarter of 2014.

Foursquare generates revenue from advertising and by offering location-targeted tools to companies like Samsung and American Express. Additionally, apps like Uber, Path, and Instagram also rely on Foursquare for geolocation data. In February, Foursquare also signed a $15 million deal with Microsoft to integrate its location-based services into the Bing platform on Windows 8 and Windows Phone.

United we stand, divided we fall
Although Foursquare hasn't started declining yet, splitting its main service into two could be the start of its downfall.

Facebook recently removed its messaging app from its main service, forcing users to test out its Messaging app, which the company claims is "20% faster" for receiving messages. However, Facebook has the luxury of splitting its services into different apps for the same reason as Google -- it has a massive user base.

It's foolish for Foursquare to split its user base of 50 million in two simply to create a new service, when it could have just improved the features in its main app. The split could easily alienate and confuse users, sending them straight to Facebook, Google, or Yelp instead.

Will Foursquare become a 'Yelp killer'?
By focusing on business reviews in its main app, Foursquare is clearly pulling away from Facebook and Google -- possibly to avoid being slowly marginalized -- and targeting Yelp instead.

But why is Foursquare so interested in emulating Yelp's business model? The answer is simple -- double-digit growth across the board. Last quarter, Yelp's revenue soared 66% year-over-year to $76.4 million, cumulative reviews rose 46% to 57 million, and average monthly unique visitors climbed 30% to 132 million. Yelp's stock has rallied more than 90% over the past 12 months.

However, Yelp has been constantly plagued by accusations of fake reviews and sweeping negative reviews under the rug for a price. A Harvard Business School report from last September claimed that 20% of Yelp reviews are currently fake, up from 5% in 2006. Yelp confirmed that report, stating that up to 25% of its reviews are indeed "suspicious."

Therefore, even though Yelp's revenue has been growing at an impressive rate, that growth could top out soon if it doesn't clean up its act -- which wouldn't make it an ideal example for Foursquare to follow.

The bottom line
In conclusion, Foursquare's split -- which is aimed at tapping into rising trends in real-time location tracking and detailed business reviews separately -- doesn't make much sense.

Foursquare simply works better as a single service rather than two, especially when it has a much smaller user base than its major rivals. A company as big as Facebook and Google can afford to divide and conquer its rivals from multiple fronts. When it's as tiny as Foursquare, dividing a successful service into two could result in both pieces quickly fading away.