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12 Feb, 2010 – 3 comments

why foursquare must sell out

News broke this week that location-based start-up Foursquare has inked several new deals with major media brands – with this announcement, and past sponsorships, Foursquare seems to be grabbing cash from any brand it can… and it makes complete sense.

Before you grunt, “duh. money good,” let’s consider Twitter in contrast, for a moment. Twitter was created in 2006 and still hasn’t charged brands a dime for using its service. Sure, they’ve hinted at a fee model, but to-date, brands may enter the space and interact with users at no charge. As Jason Calcanis put it, Twitter is shooting to be the dial tone of the 21st century. And in the 21st century, being the dial tone requires you to create a massively adopted, high network effect, platform. The easiest way to gain that kind of adoption is to keep the service absolutely free and the barrier to sign-up, for all parties, extremely low – even if it means you lose some revenue in the early stages of development to third parties (the TweetDecks and the Izeas). Twitter is now able to generate revenue from their large user base and the content those people and brands are creating – revenue which was estimated at $4 million for 2009. Twitter’s revenue future is certainly not guaranteed, but their early decision to not monetize the platform through user registration or display advertising seems to be a well reasoned decision for the model they were pursuing. And it shouldn’t be overlooked that by not instituting monetization, Twitter has allowed itself some room to grow and change as a service before it became beholden to revenue streams and brands.

Now back to Foursquare, a start-up which isn’t even a year old …

A quick list of the brands/organizations Foursquare has worked with or will work with: Pepsi, Harvard UniversityTasti D-Lite, Metro News, Bravo TV, HBO, Warner Brothers, Zagat, The New York Times, the History Channel, Blackbook Magazine, and Lucky Magazine.

Did I miss anyone?

So why, besides the cash flow, is this the right strategy for Foursquare?

  • Timing is critical for the start-up. Location is the hot game in town and the start-up is facing imminent and fierce competition from Google Buzz or Google Latitude, Twitter, and Facebook – not to mention the other start-ups in the space, such as Gowalla or Loopt. Suddenly the barrier to entry is much lower, the territory seems much more valuable, and the competition has far more users in their systems. Foursquare finds itself ahead of the pack for a brief moment – a moment that might be their only opportunity to net any revenue.
  • Brands provide the competitive advantage. To be blunt, Foursquare isn’t sitting on any kind of technological leap forward. Others in the space could implement a similar system and will very soon. Yes, Foursquare was indeed clever by blending in elements of gameplay to the user process, the gameplay certainly set it apart from Loopt or Gowalla and gave it the head start, but will users choose novel gameplay over a network their friends are already using? Most likely not. Unless, of course, there’s an added value in using the system – a value that a familiar brand could offer. Brands can use the platform to serve discounts or coupons, reward loyalty, unlock content, allow physical access to a location (foursquare as a vip badge), and more – opportunities that truly will set Foursquare apart from its competitors. Twitter may allow you to complain directly to a brand, but there’s no ability for a brand to give you a coupon while you’re in the actual store. Not yet, anyway.

What Foursquare has managed to accomplish certainly shouldn’t be undervalued – in less than a single year they’ve amassed over 300k users, $1.35 million in VC investment, and built an incredibly attractive platform for advertisers. The five man team now finds themselves at a true crossroads – the brands that are willing to put some faith in their nascent community, while also earning some PR by partnering with such a buzzing platform, will inevitably make or break the future of the business itself. If Foursquare can convince enough brands to use the platform to deliver value to users (value beyond advertising), users will have a compelling reason to join, stick around, and recommend the service to friends.

A few things you should know before you mail an envelope stuffed with cash to Foursquare:

  • Brands will have to do the heavy lifting. Many of the examples above involve third party software to integrate a brand’s location or user data with the Foursquare system. Integration will, in almost all cases, not be facilitated by the small Foursquare team – and will require your digital agency to poke and prod around the newly public API.
  • Campaigns are all opt-in. Users have to friend the brand or connect their Foursquare account with third party apps to earn any kind of rewards, including badges.
  • Specials Nearby are free to populate for brands. You simply need to push the specials through Foursquare’s API, which is also free, but you’ll most likely need developer help with that task.
  • The metrics are fuzzy. With Foursquare, brands get less of the metrics they’re accustomed to – there’s no CPMs, and no true impressions to count. Overall engagement will be measured through check-ins tied to pre-validated user accounts, tip-unlocks, and badge unlocks. Brands will be wise to set measurable objectives and reasonable expectations before committing large budgets.

3 Comments

  1. Andrew
    Andrew February 12, 2010 at 9:49 am .

    another consideration in your twitter no fees for branding vs. Four Square fees models relates to ‘training’ the customers and users early in the companies lifecycle. The fact is they (users/customers/advertisers) get set in their ways and when (if?) twitter moves to a more business driven model – there will be a significant backlash from users etc who have become used to ‘Free’.

    Weening advertisers and users early that the valued service comes with a slight price for that value is the smart move for the ongoing evolution of their relationships.

    The cash will also allow them too develop that technology innovation and value (read: barriers to entry) that you so rightly say are not currently in place…

    Train your users and advertisers early that there’s no such thing as a free breakfast, dinner or (ahem) lunch… even with badges! (Sorry…couldn’t resist…)

    Do you agree?

    Andrew (Agency Nil)

  2. Bruce Wagner
    Bruce Wagner February 12, 2010 at 12:29 pm .

    Foursquare is over. I think it was a fad. It seems like a juvenile toy… after the first two weeks of playing with it.

  3. George Nimeh
    George Nimeh February 13, 2010 at 7:14 am .

    Good post, Bud. I agree with your points, and even if foursquare is fad as Bruce suggests, that’s all the more reason for them to grab the cash whilst they can. Perhaps foursquare (the brand) is a fad, but the idea of geo-located mobile-based social networking is certainly not.

Comments are closed.