Location Services: Let Battle Commence

What icon did Facebook choose in August for its long-awaited Places location product? A four inside a square, of course. The underlying message seemed clear: The Silicon Valley juggernaut was gunning for the darling of the New York tech scene, Foursquare.

The question now is whether scrappy Foursquare, with 40 employees and $20 million in venture capital backing, can hold off the Facebook behemoth. Foursquare is currently testing the biggest overhaul yet of the check-in service which is now used by 5 million people. The update, which should go live soon into the new year, will downplay game features like the leaderboard, mayors and badges and will emphasize the ultimate utility of the service: discovering new places.

Naveen Selvadurai, one of the co-founders of Foursquare, said the system aims to be like the collaborative filtering that’s a hallmark of Netflix and Amazon. Those services crunch behavior data—what movies you watch and books you read—to suggest new products. Foursquare wants to do the same, only with recommendations of real-world activities. It now plans to tweak the game mechanics to make them more personalized in challenging users to do new things that matter most to them.

“If it knows enough about me in one city, it should be able to give me a map of the five things I should go see,” said Selvadurai.

Many observers feel the update is long overdue. Foursquare last updated its service in September and now needs to work more on the “why” of the service, according to SapientNitro’s head of social marketing, Nathaniel Perez. The problem is Foursquare’s impressive user growth pales in comparison to the half-billion people using Facebook. If someone wants to check in to connect with friends, why not use Facebook, where their friends are? It’s a critical step as Foursquare co-founder Dennis Crowley admitted last week at a conference; the check-in itself is “not interesting.”

As it steps further into utility, Foursquare will find itself firmly on Facebook’s turf. Facebook has tabbed mobile as a top priority, and location is a key part of that. It recently recruited Foursquare’s No. 4 employee, head of operations Nathan Folkman, to come over to its mobile team. Poaching Folkman was such a high priority for Facebook that CEO Mark Zuckerberg himself wooed him. His defection came after Facebook brought on two other stars of the New York tech scene, Drop.io’s Sam Lessin and Hot Potato’s Justin Schaffer. It hired them by acquiring their small startups and shutting them down. The message: Facebook is serious.

“Location’s not an application in and of itself,” said Michael Sharon, product manager for mobile at Facebook who led the release of Facebook Places. “It’s a magic pixie dust you sprinkle on many services. There’s not going to be one thing that’s going to be the future of location.”

Unlike Foursquare, Facebook has toned down the gaming aspects of Places and focused squarely on usefulness. The lure is twofold: broadcasting your location to friends and finding discounts from businesses. The power of the latter was on display when Gap gave away 10,000 jeans for check-ins on a single day. It was the kind of volume Foursquare would struggle to get, Perez said.

“It shows the power of reach and scale versus functionality,” he said.

The battle between the companies is being fought on unusually personal terms. Many of the major players have been good friends for years and pioneered early location services. Selvadurai and Crowley met while working for different location startups that shared an office in Greenwich Village in 2007. Selvadurai worked for Socialight, a mobile service for users to leave “sticky notes” tied to real-world locations. The service was started by Sharon before he joined Facebook. Crowley worked at Area/Code, a startup focused on gaming in the real world. New York City in 2004-07 was a hotbed of early location efforts, centered around the Interactive Telecommunications Program at New York University, where both Crowley and Sharon graduated.