Amazon, Foursquare, and the Flywheel Effect

The best technology-powered businesses have different forms of value, but this value architecture should reinforce itself. If done well, over time, the result is the Flywheel Effect.

Amazon

For a buyer, Amazon is great because it offers a wide variety of affordable products and fast, reliable shipping. For a seller, Amazon is great for another reason: it provides a vast selling and shipping infrastructure that can help grow your business.

As it delivers more value to buyers (affordable products, reliable shipping) and sellers (large customer base, sophisticated infrastructure), Amazon becomes a stronger business. Amazon has strengthened its Flywheel over twenty years.

Foursquare

For most users, Foursquare is a fun app that lets you “check-in” to locations you visit. You can share your check-in status with friends and, over time, the system rewards your usage via badges. For most of us, this location-based function is Foursquare’s primary value.

However, behind those check-ins is a sophisticated data architecture. This data architecture — reinforced continuously by user check-ins — allows Foursquare to develop real-time, quantifiable, local insight. This insight is valuable to a different group of stakeholders, primarily third-party applications.

For Foursquare, Location Is About Way More Than GPS

“If you ask a person, ‘Hey, does your phone know where you are?,’ they’ll say yes,” Kamen said. However, knowing someone’s GPS coordinates is only a starting point on understanding location and creating app experiences built around it, a fact that a slide in his presentation to festival attendees summed up as “Congrats, you’re at 40.724210, -73.996937.”

The results are amazing.

With billions of data points from user check-ins, Foursquare can now accurately forecast steep declines in quarterly sales based on foot traffic. The chart below is an example. You can imagine how valuable this insight would be for businesses and investors.

When you think about building your product, remember this lesson: you want it to have different forms of value, and you want that value architecture to reinforce itself.

This strategy is not easy, and it takes time, but if you get it right, you will begin to capture the benefits of the Flywheel Effect.