Here's a screenshot of the prototype: http://i.imgur.com/BGAL4XI.jpg
What does Hacker News think - do you think this could be a cool app?
As for the app, and also as someone who loves tracking himself, I would like it. In fact, I did this manually in my google calendar at one point but only for a month or so because there was too much friction.
I am also interested in how it would detect being with someone. Seems strange. Another solution, which I am using in a personal tracking project, could be to simply send a local notification at the end of each day - asking "Who were you with today?". I've noticed that this works pretty well. I send one to myself once after 24 hours, and then twice (+24more) if the first one was not "answered".
As you describe it, I don't see why I as a user would want other users to know who i've been hanging out with. If you can find a way to do it that doesn't seem quite so neo-Orwellian then there might be some value to it, otherwise other apps are already doing it better and I think you'll have quite a lot of network effect to overcome.
Foursquare checkins support tagging who you're with, as do facebook posts, it's definitely a "single-feature" app that is already done by the bigger companies, but I think the ambient location aspect (detecting when you're with someone) and the focus on just 'Withs' might make it a viable app.
It's also a bit different from foursquare, since it's easier to share when you're 'With' someone at a private venue, which might happen more often to teenagers who aren't so often at a foursquare venue (bar, cafe, etc).
As to making money, I don't know - maybe using one of the existing in-app ad networks, with a $1/year upgrade to pro version with no ads?