An app a day ... Anika Magee uses the social networking application foursquare while at a cafe with friends in Darlinghurst. Photo: Ben Rushton

Businesses can see the potential as a 'check-in' culture catches on, writes Nick Miller.

At a time when so many of the internet's shining stars are threatening to kill local businesses, Naveen Selvadurai is promising to help them.

The Indian-born, Manhattan-based computer whiz is co-founder of the social network foursquare, which began the mobile ''check-in'' culture and has so far fought off copycat competition from leviathans such as Facebook and a hundred smaller clones.

The co-founder and chief executive of the hugely popular email coupon company Groupon, Andrew Mason, recently promised to ''reshape local commerce''. Mr Selvadurai is making similar claims.

''We don't really know what's possible yet,'' he said. ''There's something very new to be able to reach a customer as they're coming in the front door, or while they're in the neighbourhood, and ping something in their pockets.''

Foursquare is the classic dotcom dream: planned over a kitchen table, launched two years ago at the South by Southwest festival, drooled over by the technorati, and closing in on 10 million users worldwide (from 1 million last year), now adding almost a million a month.

A location-aware social network becomes more than just another way to let your friends know what you've had for breakfast.

It can suggest where to go for breakfast and entice you to become a regular customer with tips and special offers.

Intrinsic in its mobility is something that could transform the way customers find businesses and vice versa, Mr Selvadurai said.

Foursquare was planned as a mobile app for the iPhone with the mission statement: ''How do we make cities easier to use?''

Users check in at bars, restaurants or entertainment venues and see who else is around. The app can suggest local places based on preferences and users can add tips, such as recommending a dish, which friends can access later.

The designers have added simple game mechanics to entice users to return. Virtual badges and points are awarded for visiting a place regularly.

But the reason more than 400,000 businesses have registered with foursquare is the ''specials'' feature. When a foursquare user checks into a venue, they sometimes trigger a special offer, usually designed to encourage repeat business e.g. a free drink on the 10th visit in a week or $20 off the bill if you bring along three friends.

So far, it has been a recipe for success. The app registers about 3 million check-ins a day globally, of which about half are in the US. It is used about 50-50 by men and women. The opportunity for business is obvious.

Mr Selvadurai said businesses were using this as a new and interesting advertising platform where they could try new things and see what worked, what didn't and what people were responding to.

It applied to single 'mom and pop' stores or big national chains such as Starbucks and McDonald's, he said. Last year, the History Channel used foursquare to promote a new series by adding historical notes to check-in locations across the US (it is now doing the same thing in London).

Sporting goods chain Sports Authority offered $500 vouchers to users in its post-Thanksgiving sales. A gym in New York gave a free drink and energy bar after the third workout of the week. A fast-food restaurant in Minneapolis found itself overrun when it promised a big discount for large groups of foursquare users, and it now runs regular special offers.

''I think we're still in the experimental phase for most of it,'' Mr Selvadurai said. ''There are so many things you can do with this platform, this idea. What we try to focus on is the rewards for loyalty.

''We don't know what's possible. We want [businesses] to come in and try all sorts of great things.''

At present, the company is concentrating on growing its social graph - its best chance to survive the Darwinian jungle of online social media. It offers its services free but, despite this, foursquare has already managed to raise $20 million in venture capital in two rounds and is rumoured to be planning a third, this time at a valuation just shy of $1 billion (Twitter is said to be valued between $4 billion and $10 billion, LivingSocial at $3 billion and Groupon possibly more than $25 billion).

Of course, foursquare is not the only company to be lured by the potential in mobile social media. The big online retail stories of the moment are Groupon and its competitor, LivingSocial.

In a recent letter to Groupon shareholders, Mr Mason said his company (now in the final lead-in to an IPO) was ''better positioned than any company in history to reshape local commerce. The speed of our growth reflects the enormous opportunity before us to create a more efficient local marketplace.''

Analysts believe much of that growth will be driven on the mobile side. ''As consumers increasingly trade up to smartphones, their ability to bring social dialogue and data into more of their daily activities continues to grow,'' said a report from comScore, Shop.org and Social Shopping Labs.

In April, Facebook also unveiled a daily deals feature, launching in five cities across the US.

With the internet giants paying attention, there is speculation that some companies will have to merge to survive.

Groupon has been on a buying spree and last month there were rumours it would team up with foursquare, allowing Groupon to reach beyond the borders of its email list and giving foursquare a handy revenue stream.

However, there has already been some scepticism about this trend. As early as March last year, cynics were already identifying ''foursquare apathy'' as the inevitable end of the experience.

The Fast Company blogger, Dan Macsai, said users of the site began curious and were briefly addicted but ''just as suddenly as your foursquare obsession began, it grinds to a halt. What initially excited you … was getting rewards for living your everyday life. Once you have to start working for them … you realise they're not actually worth it.''

The coupon sites have also suffered a reality check.

Last week, Rice University released the results of its research into the use of Groupon, LivingSocial and others, revealing that less than a fifth of deal users return for full-price purchases later on.

''The major take-away from the study is that not enough businesses are coming back to daily deals to make the industry sustainable in the long run,'' Utpal Dholakia, associate professor of management at Rice's Jones Graduate School of Business, said. ''And our results from three studies and close to 500 businesses surveyed show that the deals are nowhere close to the rates of financial success for participating businesses that some companies claim to be having.''

A little more than a third of deal users spent more than the voucher value when visiting a merchant and more than half the businesses reported making a profit on their promotions with only a quarter losing money.

This outcome was enough to encourage almost half the businesses to go back for another daily deal promotion.

The researchers found that daily deals seemed to work better for some industries more than others: 70 per cent of marketers in special events, health and services made money from them but only 43 per cent of restaurants did.

Mr Selvadurai said there were signs Groupon users tended to be more loyal to Groupon than to the business they happened to be promoting that week.

But foursquare's social graph was the secret sauce that brought customer loyalty into the mix, he said. ''It's the huge thing that separates us.''

He also sees an inevitability in the mobile phone becoming central to customer behaviour.

In the medium term it's just going to be that extra avenue to get marketing messages across to customers. But, in the longer term, more people have phones compared with computers, TVs or maybe radios, he said.

''In the next couple of years maybe it's just going to be another avenue but two or three years … this thing in your pocket replaces everything else in your pocket … and, more importantly, everyone is going to have it. I think that's the most powerful thing about it.''