Foursquare raises $50 million; can it find revenue?

Foursquare raises $50 million; can it find revenue?

Summary: Social geolocation startup Foursquare has raised $50 million in new venture capital, valuing the social networking company at $600 million. But can it monetize?

SHARE:

Social geolocation startup Foursquare has raised $50 million in new venture capital, valuing the social networking company at $600 million.

If you read the headline of this article first, you probably experienced a tinge of skepticism: Foursquare, the next Facebook? Six hundred million? Please. Drop the hype.

And you'd be right, because Foursquare is essentially a one-trick pony -- local check-ins fueled by gamification points and badges, most recently augmented by photos and comments and deals -- and Facebook is a platform whose core DNA is a directory of real people on the Internet, festooned with whatever's hot at the moment (photos and comments and deals, unsurprisingly).

But there's a big parallel here between the two brands: user base and monetization. Like Facebook and Twitter, Foursquare is on track to scale tremendously -- without proving that it can make enough money off its users to stand on its own. All of these services first demonstrated relevance and utility without necessarily demonstrating financial viability.

Schemes have been developed in fits and starts for each.

Just a year ago, my ink-stained counterparts pegged "Polls" as Facebook's trump card. But that's not its inherent value -- really, it's that Facebook has an enormous constantly updating directory of real people. At its scale, it can be valuable whatever the services layered onto it -- and so I have no doubt that that company will eventually rely on consumer leads for direct marketing purposes, albeit in new, exciting ways.

(For now, Facebook is leaning hard on advertising revenues -- an estimated $1.8 billion in 2010 -- but that's only something it can support because of its scale.)

Meanwhile, Twitter continues to investigate promoted tweets and other basic advertising within its service.

Sarah Lacy hints at Foursquare founder Dennis Crowley's plans:

Crowley emphasized that Foursquare has a very different value proposition from competitors and is focused on not only rewarding loyal patrons but tracking how their referrals snake through the social graph offering different kinds of rewards to new customers, repeat customers, referred customers and of course the mayors in a way that only Foursquare can. The company is still working on the merchant platform and will get aggressive on selling through direct sales and partnerships once they feel it’s perfect, Crowley said. “We know what it’s going to be, we just haven’t flipped the switch on it yet,” he said.

Hopefully that "referred customers" idea gains traction, because the service desperately needs to find new ways to keep existing users active. While Facebook has captivated its users with a barrage of social updates about virtually anything, Foursquare has thus far been limited to location -- and the fact of the matter is, we're all pretty boring: home, office, grocery store, home.

When I first signed up, the service's gamification elements worked wonders: it was a virtual arms race among friends for new badges. But you quickly hit a ceiling: soon, there are no mayorships worth fighting over. There are no badges to be won without considerable inconvenience. The check-in becomes another item on your checklist: a task without reward. (And no, a couple of digital points don't cut it. What is this, an episode of Whose Line is it Anyway?)

Now, the only reason to check-in anymore is to boast to your friends that you're at a hot restaurant or hotel for the first time, which isn't quite the level of engagement I imagine the company is looking for. (And with the badge carrot no longer dangling in front of you, there's no reason you can't accomplish this using Twitter or Facebook, anyway.)

The deals aspect -- discounts for local venues -- sweetens the basic proposition, but nothing I've seen has been sweet enough to get me to go out of my way or useful enough to use while I'm on my usual way. (Ditto, Facebook.) And while there are plenty of brands with a presence on the service, it's little more than another low-overhead place to market themselves. Simply: if I'm not compelled to use the service, there's no amount of monetization schemes that will work on me.

Can Foursquare prove its mettle? I hope it does, if only because I was an early fan. But it's time for all of these social services to put up (revenues) or shut up. Another 90 million users (or dollars) won't solve this existential problem.

Topics: Mobility, Banking, Hardware, Smartphones, Social Enterprise

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

3 comments
Log in or register to join the discussion
  • RE: Foursquare raises $50 million; can it find revenue?

    From your lips to God's ears Andrew. Great article. Foursquare's future adoption and hence monetization may likely to be plagued by the reality of its active user base, biased heavily apparently to young males. How will they make their experience engaging enough to attract a healthier (and ultimately much larger) slice of the overall population? The valuation looks bubbliscious to this observer...
    JP188
  • RE: Foursquare raises $50 million; can it find revenue?

    Great!!! thanks for sharing this information to us!
    <a href="http://www.yuregininsesi.com" title="seslichat">sesli chat</a> <a href="http://www.yuregininsesi.com" title="seslisohbet">sesli sohbet</a>
    talih
  • RE: Foursquare raises $50 million; can it find revenue?

    This company will be Groupon?s biggest competitor...
    http://www.freecouponbiz.com/o4/?u=45094
    amacainc