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Summary:

The rise of check-in-based applications like Foursquare (and others like it) can essentially bring a cost-per-action business model to the real world, perhaps either supplanting or complementing traditional forms of advertising. What are the possible ways check-in apps can replace traditional local advertising?

A few weeks back, when I met Foursquare CEO and co-founder Dennis Crowley for a coffee in New York, our conversation turned to the future of Foursquare. While Dennis remained coy about the specifics, he was clear: Foursquare wants more folks to use its application-programming interface (API), and thus build an ecosystem around Foursquare’s data.

The more apps are built on its API, the easier it is for Foursquare to grow faster, which in turn would allow the company to start monetizing its efforts to bridge physical and digital worlds. Foursquare (and others like it) can essentially bring a cost-per-action business model to the real world, perhaps either supplanting or complementing traditional forms of advertising.

The Swarm Sales

Over the weekend, I read about a Swarm Party hosted by a UK-based tea salon, Metrodeco. Swarm is a badge that is unlocked if more than 50 people show up at a location. The store apparently doubled its daily earnings and also saw a sudden increase in social media buzz around the shop. It’s very similar to events hosted by certain establishments in the U.S., but there are ways to take this further.

That news item made me wonder if there is a possibility of retail outlets, such as J.Crew, using Foursquare as a beacon for flash sales. It would be a much more effective way for a clothing retailer to move inventory of the shelves at a specific location.  This would contrast sharply with millions of dollars spent by them on advertising in a newspaper, for example.

Loyalty 2.0

Topguest – a New York-based startup that has built a meta check-in application — has started to build a business around what is essentially the 21st century equivalent of loyalty rewards. The company rewards travelers who use Foursquare to check-in by giving them loyalty points from hotels, airlines and other such establishments.

The latest to join TopGuest’s growing number of partners is Viceroy Hotels, a luxury hotel-and-resorts chain, which will be offering a $20 credit for restaurants, bar or spa after someone checks-in five times. Adding a reward to checking-in turns the somewhat frivolous activity into something more valuable. Topguest, which is backed by the likes of Ron Conway, Jeff Clavier and The Founders Fund, is seeing its user base double every week, according to founder Geoff Lewis.

Check-in & Check Out Some Coupons

GroupTabs, another New York based startup, is experimenting with a new model that marries location to the idea of group deals, much like the hot social shopping service, Groupon. According to ReadWriteWeb, GroupTabs is working with local businesses and offers discounts if a certain number of people check-in at that business location. The idea behind the service that will go live on Wednesday: drive foot traffic to real locations and increase their business.

GroupTabs is part of a growing number of startups that are trying to reinvent what is essentially the coupons business. In the past, many startups have tried to build big businesses by sending you digital coupons via SMS. These days, the check-ins unlock special deals on certain locations. Foursquare clearly is focused on larger brands, while others are building different value propositions.

Behavior + Local

When I look at Foursquare and other such companies, I finally see a solution to the conundrum around local advertising. Everyone from Yahoo to Google has viewed local advertising (long the preserve of newspapers and yellow pages) with lustful eyes, with little or no success.

Over the past decade or so, I’ve watched numerous ill-fated attempts made to build media companies in order to cash-in on local advertising. Unless you’re in a big city like New York or Chicago or Houston, the local media market isn’t big enough to be a viable business proposition.

By marrying geo-location to behavior targeting and adding commerce on top, one can finally start to see some answers. I recently wrote about Whrrl’s positive experiment with the gas station chain Murphy USA that brought drivers to the pumps, who in turn got coupons for their loyalty.

Now imagine you had a platform big enough to encompass a lot of locations, married to an e-commerce platform and an army of local sales people: You can start to see the possibilities. The operative phrase here is “a platform that’s big enough,” which also explains why Crowley wants more people and more apps to develop on his platform.

Related content from GigaOM Pro (sub req’d):

  1. [...] Foursquare’s Future Slowly Takes Shape [...]

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  2. Morning Om,

    Here’s the flaw in your reasoning… “Now imagine you had a platform big enough to encompass a lot of locations, married to an e-commerce platform and an army of local sales people:”

    I can imagine it, I can also imagine the costs associated with it. The costs will far outweigh the revenue for years and years to come. The goal of any business is “measurable, sustainable, profitable revenue from volume”. Any article that does NOT include that is not telling the whole picture. Sure we can imagine anything, but confront reality as it is, not as you want it to be.

    Foursquare just walked away from a HUGE win by rejecting FB’s offer. OK, so now they get to build a real business. Minimum investment according to Fred Wilson in a Web 2.0 play is $25m – they’ve take $21.35m so now we have to “beware of the C round” which you absolutely know is coming.

    Foursquare’s real focus should be a sustainable profitable business – and for that it needs 10′s of millions of users to support a 1%-3% conversion rate to fare paying customers. My prediction is that they will take a C round at even more absurd valuation and hope and pray that someone comes along to buy them out.

    I’d be happy to proven wrong but even as the GigaOM Network has learned you have to show value before you can extract value (hence the subscription part of your service). FS hasn’t gotten close to that yet – sure we can imagine it, but then we can imagine anything. Profitable income turns imagination into reality.

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    1. Peter

      Morning and thanks for your comment.

      I think what you are saying is very valid. It will need a lot of money for a platform to get big, get attention and get revenues and eventually get the profits. This isn’t happening overnight and it might take a couple of years.

      I think it is the same old story — Google, Facebook and Twitter all grappled with lack of business model for a lot longer than FSQ et. al did. That said, if they can get a lot users (the operative word is if) then they will get the revenues and the profits.

      I am not going to speak to absurd valuations – all valuations are absurd because no one knows how to value ideas – but I do know, that whatever startup you take: they take time to become profitable businesses.

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  3. Great post Om. You are spot on when you posit that this might be the future of local advertising. But, what about fake checkins?

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    1. I think there is technology already available that can constraint it to real check-ins. I am sure all app companies are working on trying to reduce the fake check-in risks in their offerings.

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      1. Great article and interesting view of the potential of Foursquare (or its spawn). But my concern isn’t about fake check-ins, but real ones. Ours is a world where we can search out and find the best deals, best prices, wherever we are. Stop making me Work to get the best price. Give me the best price!

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  4. Great insights about the LBS space. One of the key premises is that the LBS channel will be more effective and lucrative than traditional web-based advertising as well as traditional location-based advertising. Many of the case studies to date on mobile in general have shown early evidence that this is the case. So the conversion rates could be many magnitudes greater.

    Our platform will integrate both Foursquare and Whrrl as a solution for agencies and marketers to efficiently leverage LBS as a whole. Our whitepaper describes the many challenges and opportunities for marketers and LBS companies alike: http://www.momentfeed.com/whitepaper.

    Facebook is the 800-pound gorilla, though, and Google has made location a primary focus for growth. When it comes to critical mass at the local level, though, everyone has the same challenge. The rules of the world wide web don’t apply here. The local wide web is a new frontier, and while several companies have an advantage, it’s a bit like the advantage Barnes & Noble had over Amazon in 1994.

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    1. Rob

      It goes without saying that Facebook and Google are the x-factor in this game, but Foursquare and their brethren will have to outwit them and find ways to grow their user base — or eventually go home. Perhaps that is why great “game mechanics” are a key differentiator in this game as it evolves.

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      1. Om: I totally agree. Part of it will be outwitting them. Equally important is the “local mechanics” of the “digital-physical” world. Just as the centralized web and long tail were advantages for Amazon over Barnes & Noble, the localized web and smartphone platforms are advantages for LBS startups over Google, Facebook, and even Twitter. This dynamic also bodes well for highly localized LBS startups over Foursquare. He who has scale at the local level will win in local markets. We’re back to the dynamics of local and regional publishing…assuming these apps can be monetized accordingly.

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  5. [...] Malik offers a nice perspective on Foursquare’s future as a mobile loyalty platform. He also discusses a range of other [...]

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  6. Several years ago we began testing an SMS service that enabled hotels to create customized search for their guests. It turns out that “activating” guests was a broad challenge, one that Foursquare neatly addresses. Foursquare is following in the same footsteps as OAuth and Microsoft Passport – providing secure authentication to data, but to physical locations, not websites.

    All of the “social media” or “geo-location” jargon obscures what is happening. This is about addressability; i.e., being able to target one or many things via a cheap, ubiquitous interface. The web gave us document addressability, Napster gave us music addressability during its Celestial Jukebox phase, Facebook and Twitter give us people addressability, Foursquare and its ilk give us geo addressability, and I’m sure X-10 or one of its logical descendants will give us device addressability.

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  7. I have little doubt that companies like Foursquare and Gowalla will come up with a way to make a buck. Their database and function provide a tremendously valuable piece of the puzzle that small businesses require in order to conduct effective social marketing and bizdev tactics.

    When I can integrate one of these into a client’s strategy, the positive impact is always worth the investment.

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  8. FourSquare continues to be an underestimated company.

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  9. [...] interface, the company’s co-founder and CEO Dennis Crowley recently told GigaOm. That will allow it to build an ecosystem around Foursquare’s data. Furthermore, “The [...]

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  10. [...] FourSquare is working with GroupTabs to create products that reward people checking in on a regular basis by giving group discounts based on the number of people currently checked in to a location. While FourSquare has never interested me, getting a discount because I checked in to a location might,   This is a kind of hybrid of the "SafeWay Select Card" and the K-Mart "Blue Light Special".  Encouraging me to try and get people to come to the store to trigger an event.  I can see me standing in the Target looking at a product and finding out that if I can get 3 more people to come to the store that I'd get 10% off and frantically calling people to make it happen.  Ok, that's a lie, but I can see Diz doing it. [...]

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