I never really cared for FourSquare as a company, even though I used to be a daily user of the product. I used to really like Groupon as a company until I realized that Square will eventually destroy Groupon. Now I like Square a lot more. I would invest in Square via SecondMarket if I was an accredited investor. If only the JOBS Act arrived 3 years sooner.
Although Square and Groupon are hardly competitors today, they are both converging towards the same end goal; they are just approaching that end goal from very different foundations. They both want to become the end-to-end software solution for small business owners: accounting, inventory control, marketing, payment processing, analytics, customer engagement, marketing. Notice that Groupon, FourSquare, and Square specialize in one of each of the above.
In 50 years, every small business owner should be able to know exactly which customers are purchasing what. They should be able to identify trends across their entire customer base, and identify trends specific to a particular customer to provide them better recommendations. They should be able to easily manage marketing campaigns, and track efficacy. They should be able to manage inventory levels, and easily accept electronic payments. And they should of course generate financial reports for both managerial and financial accounting purposes. Today, we're not even close to these end goals, but Square, Groupon, and FourSquare are working tirelessly to win that race.
Square has the major advantage: 100% of a merchant's payment data. Groupon's problem is that the data it's capturing is very limited relative to a merchant's overall transaction volume. Sure, Groupon can tell merchants how many people are buying Groupons, what % redeem and when they're redeemed. But Groupon completely fails to help merchants understand longterm retention rates after running firestorm Groupon sales because Groupon only has access to a subset of a merchant's total transactions. Square, on the other hand, is tracking sales data per credit card, they know exactly who is coming back, when they're coming back, and the kinds of things they're buying. Groupon doesn't track or manage any of that data. Because of access to data, Square is poised to provide much more value to merchants, and eventually keep integrating to provide other services beyond payment processing, such as analytics, customer engagement, inventory management, etc.
Additionally, Square provides more fundamental value to merchants than Groupon does. Many merchants quite literally run on Square because Square provides a key piece of infrastructure to run their business: accepting payments. Groupon's core value for merchants, fire sales, aren't crucial for most businesses to operate. Thus, more new businesses are likely to signup with Square and stay with Square. And because Square provides a more crucial service, Square is also stickier, so they will maintain their customers when merchants are forced to choose between Groupon, Square, or any other parties that vie for this race.
FourSquare is also competing to provide the end-to-end software backbone to merchants in the long-run, and they are approaching the problem from their own unique perspective. Like Groupon, FourSquare has a fundamental problem: they aren't tracking anywhere close to 100% of a merchants customers, only a small percentage. FourSquare is doomed.
Looking forward, expect to see Groupon try to backwards integrate to provide a Square-like hub for managing payment processing and analytics for the small businesses. Square probably won't encroach on Groupon's home turf for sometime (growing a Groupon-sized sales force is capital and labor intensive, so Square will continue to invest in its own unique opportunities instead), but these 2 giants will eventually collide. For now, expect Square to continue to grow its base and provide the strongest analytics suite possible for small business owners who would have otherwise never had a means of understanding their customers like large retailers do. Square will soon seem 100% indispensable for small business owners, and from there, Square can encroach on anyone else's territory: inventory, accounting, marketing, etc. They may not actively try to kill Groupon and FourSquare; they may instead offer APIs to allow 3rd parties to tap into Square's network so that Square doesn't have to dilute itself. Regardless, in the long run, expect Square to become the go-to solution for every small business owner in the country, and to kill off everyone else in this space in their wake.