Apple hit’s “RESET” on the LBS market

Posted on April 11, 2010. Filed under: startups, venture capital | Tags: , , , |

By now you have probably read Dave Mcclure’s post positing that Foursquare will lose to Facebook in the Location Based Services race.  He argues that applications like Foursquare and Gowalla are not capable of scaling fast and cost effectively enough to beat out larger platforms like Facebook and Google, and delivers a sobering message to some of the more hyped early stage companies in the venture/startup community.  I agree with Dave’s assertion that Foursquare is going to have a hard time winning here, but for a completely different reason than any he suggests.

I’ll start with the assertion that the location space will not be won or lost at the consumer application level.  I was talking with my partners at Lerer Ventures a few weeks ago about whether or not I’d invest in Foursquare at the meteoric valuations being thrown around in the press, and my answer was yes…but not because I thought it was such an amazing consumer experience that it would grow to 400 million users and become the next Facebook.  My thesis was that the first company in the “check in” space to build a critical mass of users and check ins would expose it’s API to 3rd party developers and become the default platform on which all future applications wishing to leverage the all-valuable location data point would build.  Location is such a clean and highly monetizable dataset that I believe many applications will wish to use it as input in their services, and I thought Foursquare stood a decent chance of being the provider of this data, very similar to how Facebook has become the default API on which every developer wishing to leverage the “social graph” will build.  Fred Wilson recently wrote a post which in my opinion correctly stated that in order for a platform to truly dominate, it must be successful in attracting 3rd party application developers to build out the surrounding ecosystem.  Foursquare had the potential to do this.

I use the past tense in light of a recent announcement made by Apple, which I believe was largely overlooked by Mcclure, and to be honest I haven’t really seen anyone talking about what I perceive to be an overnight and massive disruption to the entire “check in” market.  Foursquare and other “check-in” based applications were working toward the most interesting location dataset I know of, but even it is still quite incomplete.  In the absence of “persistent tracking”, which would be a continuous line of a given users movement through the physical world, “check in” companies began to collect multiple location data points per user.  If you mapped those data points, it would look more like a constellation than a smooth and continuous line. Apple just announced that with their new operating system, applications will be able to engage in “persistent location tracking.”  Basically, they opened the door for any application that successfully acquires a database of “smooth lines” to supplant Foursquare as the default API on which other application developers will build.  If I am a 3rd party developer, I would much rather build atop the “smooth line” database than a few spotty check-ins per user, and the “check in” is not a mechanism that was designed to capture “smooth line” data.  If the LBS market were a game of Contra, Apple basically just hit the “RESET” button when Foursquare was on Level 7, and now Foursquare, like Facebook and every other platform chasing this attractive dataset, is back to “up up, down down, left, right, left, right, B, A, B, A, Select, Start.”  Game On.

P.S. If I have misunderstood the implications of Apple’s announcement, please feel free to bombard me with insults.

P.P.S. Now that I think about it, if I’m Foursquare, this development would be an awfully good reason to take the early exit offer from Microsoft…

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    I’m a NYC based investor and entrepreneur. I've started a few companies and a venture capital firm. You can email me at (p.s. i don’t use spell check…deal with it)


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