Why Foursquare Must Worry: Yelp Adopts Check-In Badge Awards

Foursquare being used on Apple iPhone, Research in Motion Blackberry, and Google Android smartphones.
Foursquare being used on Apple iPhone, Research in Motion Blackberry, and Google Android smartphones.

Yelp is only the latest big player to take on mobile social networking leader Foursquare. Last week restaurant review site Yelp rolled out a Foursquare-like system of badge awards for location-based check-ins by reviewers. Others have taken a similar route, but Yelp may provide the stiffest competition to date. Here's why.

As the dominant online review site, Yelp already has an enormous audience of users who are interested in where other people are eating, drinking or playing -- and what they think about those places.

To buttress this position, Yelp has aggressively moved into mobile applications with new apps for Google's (GOOG) Android-powered smartphones and Apple (AAPL) iPhones that allow users to post reviews, add pictures and even upload videos on location from the actual establishment being reviewed. In comparison, Foursquare has an extremely sparse, information-poor offering generally populated by extremely brief tips on where to go and what to do.

Connecting Via Text Message

Foursquare does allow its user to directly connect via text messages, a nifty feature Yelp hasn't rolled out to date. But Yelp, which already has messaging built into its core site architecture, is likely to flip the switch on some form of texting within the next few months. What's probably most important, as pointed out by tech blogger Robert Scoble, Foursquare isn't even a year old, and it's already seeing big companies try to attack its core features and offerings. This isn't good, since it forces Foursquare into competition with numerous other companies that have wide user bases before CEO Dennis Crowley's New York City startup can hit the same type of critical mass required to truly realize network effects.

Yelp's new
Yelp's new

Check-ins can also solve one of Yelp's thorniest public-relations problems by finally giving the company a fairly robust way to verify that reviewers have actually visited the establishments they are commenting on. I'd envision Yelp building in a feature where, if a user doesn't have a check-in logged for a place of business, then that user won't be allowed to post a review.

Personally, I'd welcome this development, as I have friends who own businesses who have been Yelped by critics that clearly had never set foot in the store.

Funding and Acquisition Rumors

For its part, Foursquare, which is clearly growing like mad and rumored to be closing in on another funding round, hardly has a weak hand to play.

Scuttlebutt holds that Crowley has already entertained tender offers from Yahoo! (YHOO), Microsoft (MSFT) and Facebook, among others. But Foursquare to date has seen little real revenue and has yet to produce a scalable way to monetize all the check-in frenzy.

Nothing like getting Yelped to clarify the mind and crystallize either an acquisition partnership or a real path to building a scalable revenue model.