Is Foursquare's growth boxed in?

Press frenzy surrounds the start-up that could follow the path of Twitter. What nobody's saying is that Foursquare could also easily follow the path of Second Life.

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
5 min read
My arteries hate me. Foursquare

Late last week, I earned the coveted "Pizzaiolo" badge on Foursquare.

A true indicator of potential cholesterol problems down the road, the Pizzaiolo badge is awarded when a user of the mobile social-networking site has "checked in" to 20 different pizzerias. I don't publicly broadcast most of my Foursquare check-ins to Facebook or Twitter, but am more than happy to share when I've earned a badge. So the Pizzaiolo badge went straight into my Facebook news feed, where my younger brother promptly commented on the item to indicate that it made him suddenly want a slice of pizza.

Which made me consider something that goes beyond what he intended. I live in a major metropolitan area where you could easily get to 20 different pizzerias within a half hour using public transportation alone. My brother lives in a small town in central Pennsylvania where there might be three places to get pizza if you count the cafeteria at the nearby federal penitentiary. (No, the jail isn't why he lives there. He's a college student.) He doesn't use Foursquare.

Many of the activities key to the most obsessive, active, and engaged Foursquare experience--perpetual mobility, amassing a friends list that numbers in the dozens, and social habits that involve visiting tons of new places on a regular basis--simply aren't the habits of the average American. Foursquare is either going to have to build a business model that attempts to profit from a niche market, or it's going to have to change.

This occurred to me because the press blitz surrounding Foursquare, which I thought was going to be at an all-time high around the South by Southwest Interactive Festival, just keeps going up and up and up. Most recently, Foursquare is believed to be in the midst of an aggressive courtship on behalf of Yahoo, which may be willing to pay as much as $125 million for the year-old start-up. Loyalists are freaking out with the likes of, "No! Don't sell out! Not to them!" and pundits speculate that Foursquare is trying to push toward a valuation of $250 million, half a billion, a billion...

Is the ceiling lower than we think?

When you think about Foursquare's inherent appeal to young, social urbanites who require a Google Reader full of neighborhood blogs to keep tabs on the restaurant and bar openings and closings in their cities, Foursquare's potential limitations become clear. The game mechanics--badges, points, "mayorship" crowns--and ability to source tips and recommendations from the app give it a little bit of an edge above just finding your friends. But many of the badges themselves--10 different pizzerias, five different Starbucks coffee shops, a venue where at least 50 other Foursquare users are checked in--are best suited to dense urban areas, too.

My instinct is that attrition rates for new Foursquare users outside of major cities--particularly those who aren't avid travelers--are probably quite high. There just isn't much reason to stick around. Yet few of these concerns have arisen in the sunny, amped-up coverage of Foursquare these days.

I think about the press frenzy surrounding Twitter about a year ago, and how that just kept snowballing to a point that some critics thought it couldn't possibly end well. (Remember 1999?) But that didn't happen, and Ashton Kutcher's silly race with CNN to pull in a million followers proved that Twitter could be used for both news consumption and celebrity self-promotion in addition to strings of geeky thoughts. Twitter now has a billion-dollar valuation, 180 million visitors to its Web site alone, and a hatchling of a business model. It proved the naysayers wrong (OK, we do still have to see if "Promoted Tweets" work), but for a while there it looked like it might very well fall short of expectations.

I think about that, but I also think about Second Life. A couple of years ago the virtual world's executives were trumpeting its potential to be "something that everybody on earth is going to use" and "bigger than the Web." None of this happened. Yes, the company tried to get big, but Second Life's attempts to break into the mainstream involved courting brand marketers to establish a presence in the virtual world, and most of them failed to bring in lasting users.

Second Life is far from dead. In fact, it makes money. But it's a niche product, not the next Internet, and its name will forever be associated with embarrassing levels of hype both from the media and internally--sort of how I'm sure the Segway parent company pulls in a decent revenue stream from tour operators and mall security corporations, but the world still makes fun of the overhype.

The Second Life way of life--owning a virtual home, spending real money furnishing it, socializing in a 3D fantasy world bursting with oddball characters who've reinvented themselves into whole new species with purple skin or the ability to fly--didn't prove to be what the Web wanted. And I'm not sure they all want to be earning "Douchebag" badges and stealing the mayorships of their local Chinese take-out restaurants either. If this remains the basis of Foursquare and its business model, which looks to use the same mechanics with advertisers and sponsors, its ultimate reach could be limited.

There is nothing wrong with a niche product. They can grow, and they can thrive. Foursquare can likely make a healthy business out of encapsulating the social pulse of a city. The company's user base in U.S. metropolitan areas is likely approaching a point where activity data could be valuable to advertisers and local businesses, and they'd be willing to pay up. This is fine. But it's not the path I'd expect from a company that is likely to turn down a $125 million offer from Yahoo in the hopes that, even with the founders' equity diluted by more venture capital, it can keep growing exponentially.

So Foursquare could expand. College campuses offer an easy next step after cities: The start-up's business development team could reach out to more colleges and universities (it already has an official Harvard badge), or the students who attend them, to develop badges pertaining to lecture hall, library, and frat-house check-ins. The beta program in which Foursquare users can follow celebrities is a good move, too, provided they net some participants other than "Jersey Shore" star DJ Pauly D.

But beyond that, if Foursquare is going to be the next Facebook or Twitter, the basics of the service will have to change to meet the social-media desires of an audience that's dropping off kids at school rather than dropping into 2-for-1 happy hour, or hunting for tips to find the best place in town to get that 21st slice of pizza.

And by now it's clear that the world is watching every step--and misstep.