Three years before Facebook bought Instagram for $1 billion this week – one and a half years before Instagram was even created – there was foursquare, launched in Spring 2009.
Then as now, Foursquare was an app for people that wanted to "check-in" to locations and tell their friends where they were at the moment.
It was, back in 2009, the most exciting new social network since Facebook, and one of the first devoted entirely to the mobile platform.
At SXSW, the conference where Twitter famously gained the moment that ultimately propelled it into a $10 billion company, Foursquare dominated the conversation in both 2009 and 2010.
In the months and years that followed, CEO Dennis Crowley received acquisitions offers from the following:
- Facebook - In August 2010, an unnamed source told CNET that Facebook offered Foursquare $120 million; Foursquare asked for about 25 percent more than that and Facebook walked away from the negotiations.
- Yahoo - In April 2010, Yahoo made a $125 million offer to acquire foursquare, but the offer was rejected by CEO Dennis Crowley.
During the period of the above offers, Crowley accepted two rounds of funding from pristine venture capital firms USV and Andreessen Horowitz. Foursquare's last round, a $50 million raise in June 2011, valued the company at $600 million.
It's starting to look like all that hype was unwarranted.
Foursquare is no longer the only social network built for the mobile Internet user – now there is Instagram (see my blog post dated April 11, 2012) and Path (see my blog post dated December 1, 2011) and a few others – and it is definitely not the most exciting new social network since Facebook; that's Pinterest.
The biggest problem for Foursquare is that, compared with other mobile social networking products, not that many people seem to use it.
On its about page, Foursquare says it has 15 million registered users. By comparison, Instagram has 35 million users.
According to AppData, 570,000 people share Foursquare data into Facebook every day, 3 million every month. Pinterest, which only launched in 2010 has 1 million users sharing data with Facebook every day, and 10 million sharing every month. For Instagram, the numbers are 2 million and 11.5 million.
Apple's iTunes store doesn't expose how many times an app has been downloaded, but one rough measurement of an app's downloads and user engagement are the number of reviews users have written.
Here's a comparison of social apps using this metric:
Here's the same chart with scale-breaker Facebook removed. Foursquare still comes in behind younger apps Pinterest and Instagram, as well as Yelp, a Web-first rival. (Path seems to be another very over-hyped startup):
Simply put: not that many people are using Foursquare, certainly not compared to the amount of people using Instagram, Pinterest, or even Yelp.
The good news for Foursquare is that CEO Dennis Crowley wisely capitalized on the app's early hype to raise a boatload of cash last summer (with minor dilution). Foursquare only has about 100 employees right now, and with $50 million in the bank, it can probably afford to keep them employed for another three or four years.
The even better news for Foursquare is that investors and executives know the company needs to pivot in some way, and they are trying to figure out how.
One idea we've heard is being floated around is to turn Foursquare into more of a Web company and less of a mobile-only platform. It could be something like Yelp or MenuPages.com – with a search engine-friendly Web page full of user-reviews and tips for every restaurant on the planet. That's a good idea, especially since Foursquare tips are very useful.
That kind of pivot would also make Foursquare a more useful product to the majority of users out there who just want to consume data, not create it through a gimmick like "checking-in." (Likewise, most YouTube users don't upload videos; they just view them.)
The only downside is that Foursquare investors probably were hoping the company would turn into more than another Yelp. Yelp, now a publicly traded company, has a $1.5 billion market cap. Venture investors expect more than a 3X return. But then again, there are worse fates for startups with lots of early hype and little user-adoption three years in.
COMMENTARY: In a blog post dated August 26, 2011, I reported that Facebook had shutdown Facebook Places, its location-based check-in service, because of lack of interest. If Facebook is interested in resurrecting its location-based check-in service, it might make sense to acquire an LBSN, but LBSN's are having serious adoption issues. I wrote about this in a blog post dated April 13, 2011, when I said that LBSN's were headed for a train wreck, and that I thought there would be a shakeout be the end of 2011. It turned out that I was right (see below).
In a blog post dated December 5, 2011, Facebook announced that it had acquired Gowalla, a troubled LBSN, that had an estimated 5 to 6 million registered users, but no revenue, and ranked No 2 behind foursquare. In an article dated March 12, 2012 appearing in AllThingsDigital, Facebook annouced that it had decided to shutdown Gowalla permanently and that the acquisition was made strictly for Gowalla's experienced engineering talent.
According to an an article dated April 10, 2012 appearing in Reuters Blog, Irish betting house Paddy Power, in a fairly transparent PR stunt, has sent out the odds it’s offering punters who want to bet who would be next on Facebook’s list. In a sure sign that the list of names was rustled up overnight right after the news (a bit like today’s blog actually) the list starts off with more than a modicum of respectability with solid names like location-based check-in app company Foursquare at odds of 4 to 1 and note-taking service Evernote at 9 to 2. It follows with some other interesting names like Dropbox, Spotify and Pinterest all in single digit odds.
The odds on Facebook’s next acquisition according to PaddyPower.
- 4/1 Foursquare
- 9/2 Evernote
- 5/1 Dropbox
- 7/1 Spotify
- 8/1 Pinterest
- 16/1 Rara
- 16/1 Audiboo
- 25/1 Tumblr
- 25/1 Flickr
- 40/1 YouTube
- 40/1 MySpace
- 40/1 Friends Reunited
One June 20, 2011, foursquare announced that it had reached 10 million users, but it had hardly any revenues.
In June 2010, Andreessen Horowitz, a lead a group of investors that planked down $20 million on foursquae. In a blog post dated January 29, 2011, I poked fun at Andreessen Horowitz for saying they thought foursquare was worth $250 million. This was about the time that I had given up on location-based social networks, calling them a fad.
In a blog post dated June 26, 2011, I told you what I thought about the $50 million investment Andreessen Horowitz made in foursquare at a valuation of $600 million. Andreessen Horowitz plus its other smaller investors are now into foursquare for about $71 million.
In a blog post dated July 12, 2011, foursquare announced that it was partnering with daily deal leaders Groupon and LivingSocial to offer real-time daily deals. Dennis Crowley would not elaborate on the revenue split on those daily deals. The move was described as "foursquare's most significant attempt yet to build a revenue stream." To date, foursquare has been silent on how much revenue it has generated from its daily deal partnerships.
On February 29, 2012, TechCrunch interviewed foursquare CEO Dennis Crowley at the Mobile World Congress in Barcelona, Spain. Crowley said foursquare had reached 15 million registered users, and that about 50% of its users were outside of the U.S. Shame on TechCrunch for not asking the tough questions.
Facebook desperately needed to get into the mobile market, and this was the main reason why it acquired Gowalla's engineering team. However, it quickly proceeded to shutdown Gowalla, so this tells me that it might be more interested in developing a native location-based social service of its own inhouse rather than acquiring one. Another possibility, is that Facebook will be launching a social smartphone of its own later in 2012 that will have social features. Could this be the reason why Facebook acquired the Gowalla team?
Facebook acquired Instagram, with 30 million regsistered users, at a valuation of $1 billion only one month after it had been valued at $500 million, in spite of the fact that it has zero revenues. However, the Instagram acquisition was a great way for Facebook to gain valuable data about mobile users, and it also add greater value to Facebook by greatly enhancing the Facebook user experience when they share photos and increasing the sites stickiness.
foursquare is now three years old, and I still see no hard evidence of a sustainable business model and clear path to profitability. When a startup is this old, and it still lacks a clearly defined business model, its not a real business, but a hobby, or even worse a fad. Maybe my prediction that LBSN's are headed for a train wreck is not too farfetched. If foursquare cannot get its act in order by the end of 2012, I think it will be toast.
Courtesy of an article dated April 14, 2012 appearing in Business Insider and an article dated April 10, 2012 appearing in Reuters Blog and an article dated March 2, 2012 appearing in TechCrunch
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