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I just rescinded the mayorship of my gym. I didn’t lose it in a fierce competition with someone else, I simply unchecked my desire to be mayor of meathead city and that was that. The fact that I hadn’t checked in to the gym in 18 months (despite going 5 days a week) was a factor, but it was mostly that I seem to have grown beyond bragging about my propensity to hit the weights.

I’m not alone.

For 4 years, Foursquare has been a default app installed on every version of every phone I’ve carried until this latest one. I simply didn’t install it and, oddly, don’t miss it and this highlights the deep rooted challenge companies like Foursquare face. We’ve become more sophisticated users of mobile technology – at least I like to think we have – to the point where there needs to be a strong return for giving up a portion of the precious real estate that is our smartphone screen.

Foursquare has 25 million total users with 8 million active users per month (“active” means they have used it at least once during the month) and, since recently turning on the start of their revenue strategy, has earned around $2 million. They are too young in the revenue game to know if this is good or bad so commenting on the number doesn’t do any good, commenting on the WAY the number is earned is a better focus.

There are, however, two big hurdles facing Foursquare as it tries to grow revenue and build a sustainable business.

The open API conundrum

The fact that I don’t have Foursquare on my phone doesn’t preclude me from participating in Foursquare. Because of their proclivity to give access to data away, I use Foursquare through apps like Instagram, Path and Banjo. It isn’t truly “using” the service but I can contribute to Foursquare and see what is happening without even launching the app or visiting the site. Herein lies the lesson that Twitter faced as they too struggled to figure out their revenue strategy.

The great majority (I’ve seen numbers as hight as 85%) of activity on Twitter was through 3rd party applications that they had no control over and thus could not monetize. When the time came to start to turn revenue on, they began by purchasing some of the more popular tools in the market – essentially spending money to recapture the audience that already used their service.

At the same time they also started to clamp down on API access and usage for third party developers. This enraged the development community that had contributed so much to the reach and regency of Twitter and rightly so but from Twitter’s perspective, they needed to pull back in order to move ahead.

Foursquare faces this exact challenge. As they move to monetize, more and more restrictions need to be placed on the way their data is displayed and what types of data can be accessed by 3rd party developers. It only makes sense for them to look at what Twitter did to course correct and part of that is reclaiming the users back into the Foursquare app or forcing partners to display the deals that Foursquare is signing with retailers for example. Whatever they decide, the free API ride is about to be over – out of necessity. If they don’t do it, they are over.

As a side note – if you are a developer who’s business leverages the Foursquare data as core to your livelihood, I would start to think about lessoning your reliance on it and them. There are countless numbers of companies that were left for dead in the wake of Twitter’s clampdown – hard lessons for sure.

The Check-in vs buy-in gap

Discovery is a tough concept to sell effectively. It is hard to measure, hard to understand what outside influences contributed to it and even harder to show the “find-to-buy” relationship these days. Oh, and boy is it ever competitive – GPS companies, Google, Apple, Square, Yelp! and probably close to 100,000 other businesses have all entered the fray since Foursquare launched. Discovery isn’t enough anymore. It isn’t a differentiator. It isn’t something that can make the money that a company like Foursquare, with over $70M in VC funding, needs to be making.

There is a gap between discovery, checking in and buying product. This gap is the value that most businesses are looking to spend money on. No window shopping apps, they want a proven something that will help bring buyers and their business together. Arbitrary discover and coupons may work today but they are, well, arbitrary and coupons, not a strategy.

Foursquare needs to be in the business of closing that gap and being able to measure it. Focusing on the gaming aspect of discovery is too whimsical for most to invest in and there is a considerable difference between casual location data (what Foursquare is doing) versus true discovery with deep and pervasive location data (what Google and Facebook are doing). Then there is Apple and their recently awarded location patent that puts location on top of everything we do with our phone. How does Foursquare compete with this? It can’t so it needs to change. Quickly.

With 8 million active users every month, there is still opportunity for Foursquare to find its way. To do this it needs to begin leading again instead of following the herds down a road that they and they alone have cleared and paved.