Foursquare Plunges into Debt to Compete with Yelp

Foursquare, the geo-location app that only brought in $2 million in revenue last year just received $41 million to produce a better product, according to Bloomberg Businessweek. The majority of the funding is a loan from private equity firm Silver Lake, but a large chunk is “convertible debt” which is debt that can be exchanged for company shares in the future. Investors are hoping for a Foursquare renaissance.

foursquare1Currently, Foursquare’s growth is stagnant. From Bloomberg to Business Insider, experts agree that checking-in somewhere isn’t really new or cool. In fact, it can be downright annoying. Foursquare is risking the debt because its only hope for future growth is to completely revamp its technology into a Yelp look-alike.

“…the company has begun to realize that use case isn’t going to scale much more. So lately, Foursquare has pivoted to also become an app that people can use to find where they would like to go.That’s smart. Yelp has become a nice business doing the same thing.” – Nicholas Carlson, Business Insider

Foursquare has been slowly following the lead of Yelp over the past year, tip-toeing behind its competitor and picking up ideas as it goes along. In November 2012 it launched the ability to rank places on a scale of 1-10. This way users could discover new places and read tips before they went. Sounds a little Yelp-y, doesn’t it?

Just yesterday the company updated its iOs app to make search a priority. No longer will users go to Foursquare to see where their friends are, they will go to see what’s good nearby. It’s no longer meant to be a social network.

imageSo how is Yelp taking the news? Are they valiantly clinging to each of their 18,000,000 monthly users, lest they turncoat and join Foursquare’s 6,700,000? Not so much.

Early last month, Yelp board member Keith Rabois infamously taunted Foursquare via twitter by saying its real users barely top 40,000 – the number of developers on its API – and it’s best bet for success would be a bail out. He taunted Foursquare founder Dennis Crowley and argued with anyone who disagreed with him.

It wasn’t the classiest move on the Internet, but it showcased how little Yelp’s board thinks of potential competition.

While Foursquare may not register on Yelp’s radar – or at least that’s what Yelp wants people believe – there is another competitor out there that wants to keep users off Yelp and on its own page: Facebook. The blue behemoth has long since established location tagging as a normal part of statuses and is trying to add the value of recommendations from friends through Graph Search. In an ideal Facebook world, users wouldn’t need Yelp or Foursquare because they could check-in and like places all on its site.

So where do you stand? Are you a die-hard Yelper or one of the Foursquare-loyal? Or is checking-in so 2009?

About the author

Amanda Dodge