Seeing opportunity as Foursquare struggles

Illustration: Ticked Checkbox Credit: Gary Mcinnes

According to financial research company PrivCo, Foursquare has serious money problems.  The Wall Street Journal estimates that Foursquare made a paltry $2 million dollars in 2012, and Business Insider reports that Foursquare has been unsuccessfully trying to raise additional funds for the last year (Foursquare has raised $70 million to date).

With due respect to location-specific Mayors and users who have put significant effort into badge acquisition, Foursquare is a great case study for businesses to understand the risks of developing communities on social networks. 

What are investors looking for in a social network?

In their report PrivCo writes:

“This shows that not only is Foursquare’s audience too small for a consumer-oriented Internet company to attract meaningful ad dollars, but its web traffic numbers are flat, with no reversal on the horizon; this is a likely death spiral for a consumer social network….”

This is the cold truth that businesses and social media users need to understand about the stability and viability of social networks.  Note what PrivCo writes: “too small,””traffic flat,” “no reversal.”  In order for social networks to secure investment (and scale their operations) they have to be big and be growing audience, or must have great potential to do either.  Some businesses may have found success with small, vibrant social communities, but investors understand that likelihood of advertising success grows with the size of the network.  It’s probably not coincidental that institutional investors started to invest in Facebook when FB abandoned their “social proof” advertising model and let advertisers show ads agnostic of social ties.

Foursquare just did a big overhaul and will probably continue to morph this year as their financial situation becomes less tenable.  Think about businesses that invested in Foursquare advertising, displaying “check-in here on Foursquare” stickers on their door.  Imagine if they would have channeled those reviews to Google or created an email list or devoted those resources to AdWords.  Facebook or Twitter probably would have offered more re-engagement opportunities than participating on Foursquare.  But Foursquare is a really hip, trendy platform and that probably kept people from making a more pragmatic assessment of the network.

Don’t budget for free lunches

One of the common frustrations of the last year has been the morphing of Facebook and Twitter to support their monetization efforts.  Developers were cut off from Twitter and Facebook users had their content filtered and “augmented” by LOTS of ads.  Lost in user discontent was the fact that these are the bellwether social networks.  They are the standard for every other social network out there.

Maybe businesses can be fooled once, but as the bellwether social networks restrict reach to try and generate revenue should businesses be surprised when others follow suit?   The people offering free stuff are always going to want to generate revenue from users or businesses further down the line.  So maybe from the get-go business should budget accordingly.  What is the valuable for devoting resource to a Facebook community if you’re not prepared to pay for it eventually?

My hope is that Foursquare’s struggles cause businesses to articulate what they want to accomplish, assess social platforms against other marketing vehicles and develop a way to measure effectiveness.  Of course none of that will actually happen.

Tell me what you think about Foursquare’s struggles and if you see this as a precedent for other social upstarts?

Photo Credit

 

Jim Dougherty

Jim Dougherty

Writer and chief of miscellany at leaderswest.com
I'm the guy that wrote the article you just read. Sorry for the typos.

Comments

  1. says

    Hmm interesting post, Jim. I actually like 4sq and I think a country with a big online population like mine (the Philippines) has a sizable 4sq community. While it’s not very social, the competitive nature of the platform is appealing, at least for me.

  2. jimdougherty says

    Thanks Jason – I actually loved Foursquare for awhile and I love what they’ve done to spruce it up. From a business perspective I’ve always had trouble with the fact that its effectiveness is predicated on a user “checking in.” Highlight would have been a much more effective way to do geo if it would have caught on. What I suspect you’ll see in the next year (if the money issues are true) is something similar to Facebook where they try to monetize further to attract buyers…. but who knows? You’re right to point out that the platform is very cool and has always been quite user friendly, it’s just not a great way to coax dollars from advertisers. Thanks for your comment and for reading!

  3. jimdougherty says

    Thanks Donnie! I outed myself as a former Foursquare user (though it just substantiated that I take my kids to the park a lot). In it’s intended way, it could be used as a social tool to connect friends, but I agree with you that it’s not being used on a widespread level like that. I think the lesson for geo apps in the future is that there has to be a push mechanism for businesses to solicit impulse purchases when users are nearby. I suspect that Google’s Project Glass will probably have that functionality built into its augmented reality software. Thanks again for your comment and for reading!

  4. says

    Foursquare never took off in Europe and never will. Who really wants to checkin everywhere they go! I think they’ll be gone soon unless they drastically change direction!

  5. says

    I had no idea it wasn’t very popular in Europe. A lot of my US friends use it a lot when in Europe, and I did the same last June when I was in London.

    The nugget is the discovery piece and getting tips from real people you trust. But I agree that they have to find their revenue model and that may have been a bit challenging to them.

  6. says

    It’s not about becoming mayors or badges. That’s just a gamification to make it a bit more fun. The discovery piece is critical, saving lists, sharing lists or itineraries, reading about tips, seeing real pics from yesterday, etc… You get a real feel for the place from Foursquare than you do reading a Zagat review that’s one year old.

  7. jimdougherty says

    I agree William, the gamification aspect of Foursquare is quite engrossing, and the UX is pretty impressive. I’m not sure that automated check-ins (like Highlight) could have salvaged Foursquare, but I think the opt-in nature of check-ins and the lost luster of gamification over time disadvantage Foursquare. You point that it is a great platform is absolutely true. I just think it was a bit optimistic in some of its assumptions about user behavior.

  8. dwaynekilbourne says

    As 1/2 of 4sqLoveStory, I certainly remain confident in the foursquare community and their team of employees and developers! With over 22,000 check-ins, I’ll stand by their side and promote their upside as they work through the challenges that every company faces! Cheers!

  9. says

    Thanks Dwayne! If Foursquare doesn’t crumble it wouldn’t be the first time that an analyst got it wrong. But the WSJ is a fairly credible source and fundraising at the level that 4SQ is doing probably isn’t so secretive. So I put some credence to those thoughts. You bring up a really great point and one that many people probably share: how do we respond when social tools that we love fail? Many developers felt that way with the Twitter shake-down and I’ve seen a lot of niche tools close up shop recently. It’s a failing of the social media lifecycle right now (build audience now make money later) which affects users. And it sucks. I’m glad you’re standing by Foursquare – I had opportunity to check out your site and you and Elaine seem like a wonderful pair. No wonder you like Foursquare so much! Cheers!

Leave a Comment

Your email address will not be published.

Current ye@r *