Start-up Foursquare Labs Inc. has a large user base and a $600 million valuation, but unlike social-media stars Zynga Inc. and LinkedIn Corp., it has a big hole on the revenue line.
Now, the service, which lets users announce their location to friends by "checking in" at bars, restaurants and other venues via cellphone, hopes to ease its revenue problem with a series of pacts to remarket daily coupon deals from
- Groupon Inc. - #1 in Group buying (daily deals)
- LivingSocial - # 2 in Group buying (daily deals)
- Gilt Groupe - Online designer merchandise flash sales
- Gilt City - Group buying (daily deals) and a Gilt Groupe subsidiary
- AT&T Inc. to its 10 million users.
- BuyWithMe - Group buying (daily deals)
- Zozi - Group buying (daily deals) on activities like golf lessons.
Foursquare will begin making the deals available Tuesday. Chief Executive Dennis Crowley said it will get revenue from the deals it sells for its partners, but declined to specify the breakdown.
The move is Foursquare's most significant attempt yet to build a revenue stream. If it works, it could reduce the skepticism toward the start-up's business model.
Despite its growing user base and brand, the three-year-old company hasn't come up with a way of making much money from its service. Foursquare thinks its location-tracking capability and data, such as where a subscriber's friends are checking in, will help it better target daily deals and produce a higher conversion rate for them in the increasingly crowded market.
Mr. Crowley said in an interview in Foursquare's New York office.
"We are trying to see if our targeting works and how users will react," "The deals haven't been heavily targeted with some of these providers."
Jake Maas, senior vice president of business development for LivingSocial, said the deal with Foursquare adds another distribution channel for his company, which already markets deals through websites and bloggers. He said.
"We'll see where it goes, but we are optimistic."
AT&T has started its own location-based deals service, but AT&T Interactive CEO David Krantz said partnerships in which companies share deals and users will become more common as the market gets more competitive.
Mr. Krantz said.
"Nobody reaches everyone. You will see a web of top players who have sales forces and brands working together."
In partnering with deal providers, Foursquare, which has a staff of just 75, avoids much of the expense of building the sales force needed to cut deals with local merchants. The downside is it gives up much of the revenue.
Foursquare's own deals program hasn't proven very lucrative so far. It has signed up 500,000 merchants, but doesn't yet receive a cut of the deals it sells.
The company faces growing competition from heavyweights like Google Inc. and Facebook Inc. and an army of start-ups. Its investors, however, are betting it will eventually be able to capitalize on its head start in location services.
Foursquare raised $50 million in late June, valuing it at $600 million, six times its valuation last year, when it raised $20 million in an investment round with participation by venture firm Andreessen Horowitz that valued the company at about $100 million.
Corrections & Amplifications: In an earlier version of this article Google Inc. was identified incorrectly as Google Corp.
COMMENTARY: I have been covering location-based social networks like foursquare, Gowalla and Facebook Places, and groupy buying or daily deals sites like Groupon and LivingSocial for a while, so I am very familiar with both. Group buying sites have been growing like crazy. The big problem is that there are just too damn many Groupon copycats and industry consolidation is eminent. foursquare can brag about its 10 milliion users all it wants, but has not been able to make any money, but now it thinks it can make money by serving as a channel partner with Groupon, LivingSiocial and other daily deal sites. This will generate some revenues, but their network social graph is very thin, split 50-50 between US and international users. Many users have been happy collecting badges, but will they buy anything. That's the question. I look forward to finding out.
Courtesy of an article dated July 12, 2011 appearing in The Wall Street Journal Technology
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