True ads have arrived on Foursquare — but, as you'd expect, there's a twist. The social network focused on check-ins and recommendations is now rolling out full-page ads in its mobile apps, according to AdAge. There are limitations, however, so don't expect obtrusive banner ads. Instead, the new ads pop up immediately after a user checks in at a particular location, and they'll either offer a relevant suggestion or coupon. For instance, Captain Morgan is one of the early partners on board and its ads will recommend you order a Captain and cola, for instance, when you check-in to a bar. Another ad detailed today offers a coupon at Toys 'R' Us when users check in to related locations, like a playground.
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Foursquare has been very careful about how it monetizes. The company has amassed a sizable user base of 35 million, but skeptics have long questioned how Foursquare could effectively monetize its service. Last year the company introduced promoted updates, which operated much like Google AdWords. The sponsored posts would show up when users searched for a place to go, and advertisers would pay Foursquare if users clicked through. Foursquare also works with businesses to offer coupons and other promotions. All of the different types of ads, including the ones introduced today, focus on relevancy. To-date that has helped the company make sure ads don't scare away users, but as the Foursquare dives in to full-page units we'll have to see if it can pull off the same feat.
COMMENTARY: In a blog post dated January 29, 2011, I had a lot of fun poking fun at Andreesen Horowitz, the giant Silicon Valley venture capital firm for their investment in foursquare, and was especially critical of foursquare CEO and founder Dennis Crowley for being so slow in developing a sustainable business model and monetizing its users.
In a blog post dated April 29, 2011, I was very critical of the entire location-based social network industry for its failure to generate significant revenues, lacking sustainable business models and increasing the potential for stalking because other users would know where we were and what we are doing through our mobile phones. In a blog post dated March 15, 2011, I reported that USA Today estimated that the entire LBSN industry had generated only about $43 million in revenues. Since April 2011, Facebook Places has been essentially shutdown, Gowalla was acquired by Facebook and the site shutdown, Loopt was acquired by Red Dot for its mobile patents then promptly shutdown, and other smaller LBSN's are having problems raising venture capital, forcing several to shutdown. In short, I said that the LBSN industry was headed for a "train wreck." Well, it now appears that my predictions are coming through. The only survivor, if you can call it that, is foursquare, with its reported 35 million worldwide users.
In April 11, 2013, after weeks of speculation about doom and gloom for the cash poor location-based social network, Bloomberg BusinessWeek reported that foursquare had raised $41 million through a loan from Silver Lake. No valuation was given because no stock was acquired. The capital will be used to beef up its sales force from 10 to 40 begin ad monetizaton through the aforementioned popup ads as users check-in.
foursquare better use this latest round of funding wisely and generate substantial revenues. Andreesen Horowitz is already on the hook for $50 million in VC funding, and probably wondering when they will see a return on their investment. I estimated foursquare's basic operating expenses at about $20 million, so this financing gives the company about two years to develop a sustainable business model.
As foursquare enters its fourth year in business, it continues to receive a lot of flak. Some claim the company’s userbase had stagnated; others claim that the company lacks a sustainable business model.
After denying the negative user base claims in an interview with TechCrunch on April 29, 2013, Foursquare CEO Dennis Crowley went on clarify that they do have a business model in place — in fact, March was their biggest revenue month to date.
"I think there are a lot of people that think we don’t know how to generate revenue, that we aren’t generating revenue. This is wrong… We’ve been building merchant tools all along. We’ve seen revenue growth every month, and March was our biggest revenue month so far."
As for how that revenue is coming in:
"We’re signing six-figure deals with national merchants. We’ve already got a million merchants claiming their business page — we can just say ‘Would you like to spend $50, $100 dollars to drive X number people into your store?” These aren’t just ad impressions they’re paying for. We only count when we actually bring people into your store."
Alas, Dennis declined to comment on just how much total revenue Foursquare expects to see in 2013.
He said.
“We’re a private company, so we don’t have to disclose our master plans to you, but we’ve set ambitious goals for the year, and we’re very much on target to hit them.”
Then he added.
“The numbers aren’t huge yet, but they’re starting to come together. The smartest people we talk to… they can understand what we’re doing. There’s a reason that all four of our original investors are back in.”
But what’s Foursquare’s long-term goal here? Will they eventually go public? Will they sell?
"We never really comment on exit strategy. The way we think about it: we spent 4 years building an amazing company. While we’re still working out exactly what this product can do, we’re in this sweet spot where people are finally building this hardware that you wear on your wrist, that you wear on your face. [That's perfect for us.] We can continue to operate as an independent company."
Of course, talk of increasing revenue won’t really change the public perception of Foursquare, which has seemingly soured in the past few months. Crowley attributed the recent flack they’ve taken to the idea that Foursquare is going through a “hazing stage” — the same hazing, he says, that companies like Facebook and Twitter had to go through — with the most vocal hazers basing their views on out-of-date perceptions:
"I think there’s a lot of people that still think of us as the 2009 Foursquare, with points and badges. We still have those things, but the biggest haters are the same people who haven’t opened the app in 6 months. The stuff we’re doing now — [the social algorithms, the predictive functionality] — it’s rocket science."
In March 12, 2013, Anil Dash (Co-Founder of Activate) interviewed foursquare CEO and founder Dennis Crowley before a live audience at SXSW 2013 on how location-based services have evolved, and what the decade ahead looks like.
Courtesy of an article dated July 16, 2013 appearing in The Verge and an article dated April 29, 2013 appearing in TechCrunch
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