Playing with Fire – Threats from Platform Companies
I love Foursquare.
It’s as simple as that honestly – I love it. I have been an active Foursquare user for quite a while. Certainly not an early adopter, but during the last many months, I have experienced quite a bit. From Boston to Washington DC, San Francisco to Tokyo and NYC to Beijing – I have been busy checking into places every chance I get and am amazed at the number of people and venues that Foursquare is tracking.
For instance, I’ve earned and lost Mayorships for several locations, but have had a great experience. As I travel quite a bit to Beijing for Yottaa, I’ve checked into numerous places in China. For some time I was Mayor of Mao LiveHouse in Beijing, which was a great night club that has since shut down. Even months after closing, I remained Mayor! Luckily that was one achievement for which I didn’t have to keep fighting.
Currently, I have 11 friends, received 11 badges, and am still Mayor of Yottaa HQ in Cambridge. The wonderful @forjared has either given up challenging me for the title or given up on Foursquare altogether.
To me, Foursquare is charting a new market opportunity: location based social media and social gaming. Although it is not entirely earth shattering, it is comparable to how MySpace and Facebook charted social networking and where Twitter was with microblogging a few years ago. Readers should check out Ben Horowitz’s excellent article on Foursquare “Why Andeerssen Horowitz Invested in Foursquare”. There is great potential for innovators like Foursquare to own the market around location based social media and gaming.
Then there was the announcement of Facebook Places?
Much like Foursquare, I wanted to give Facebook Places a trial run. I created a Yottaa check-in and checked myself into our Cambridge office. Although similar to the Foursquare model, the implementation for Facebook Places is not well done. The user experience is not as good and many features are missing. For instance after I created the Yottaa check-in, it was listed at the wrong address and yet there is no apparent means to change that. On the other hand, I already have more friends using it and am seeing more frequent check-ins from more people going to more places.
In case you haven’t experience either service yet, here are two interesting articles covering both sides of the argument:
- “Why Facebook Places Will Make Foursquare into a Footnote”
- “Facebook Places Dull Enough Not to Pose a Threat to Foursquare, Gowalla?”
This debate reminds me of the fear that software companies had towards Microsoft in the 1990s. During that period the announcement of Microsoft working on competing products was the beginning of the end for other software developers. A simple rumor alone could stop startups from getting funding, hiring key personnel or establishing a customer base. Everyone knew the first few iterations of a new Microsoft product would more than likely be broken – if it came out at all. That didn’t matter though because customers trusted Microsoft and they believe Microsoft will be the winner in the long term.
Platform giants like Microsoft during the 1990s had a huge competitive advantage. These behemoths possess so much influence and almost nothing can compete against them.
Successfully starting a company is a difficult art. On one end, you need to aim for a large and promising market opportunity. You have to prove to the world that this market exists and that this new market cares about your product or services. On the other side, once this new market opportunity is revealed other players start competing with you. Platform giants might come lumbering in, “copy” your model and then steal the market opportunity away by leveraging their unfair advantages – all before you have time to react.
Fortunately the Microsoft of 2010 is not such a company any more as software development has shifted away from desktops and onto the web. Unfortunately, new platform giants have emerged. Google is one example and although some won’t admit it, Google can also strike fear in the web community almost as much as Microsoft did in the PC era.
Facebook is another example of the new generation of platform giants.
Facebook has built an empire with 500 million users. This empire now possesses influence unmatched by any other company on the market today. Foursquare may have innovated and showed the promise of location-based social media/gaming, but the Facebook behemoth is starting to move into that space as well. Despite strong growth, better features and over 3 million users, Foursquare is going to be challenged to compete against a brand that commands 500 million users.
I still feel that Facebook Places has a long way to go to catch up to what Foursquare has already built and implemented. From a user experience stand point, Foursquare wins hands down. It is also entirely possible that Facebook Places never gets the system right and squanders the opportunity (Remember when they tried and failed to compete against Twitter?).
The question becomes – if Facebook gets its act right, then what happens to Foursquare? They still might become a highly successful startup in terms of an exit (For example, ?My bet is that Foursquare devolves over time to a location-based game, or set of games”, as pointed out by @payne92 at Repeat After Me: “Location” is a Feature, not a Product) :
It is a fascinating race to watch and many entrepreneurs like me are asking the big question:
“Does Facebook Places mean the beginning of the end for the big dreams of companies like Foursquare and Gowalla”?
Only time will tell, but I’ll leave you with this:
Fellow entrepreneurs, remember the past and the dangers of playing with fire.