January 22, 2013

Foursquare Has its Doubters-A Harbinger of Things to Come for Social Media?


As a New York City area homer, I keep tabs and root for the success of this part of the world’s tech community. I have done so since my own early days as one of the initial members of the gone, but not forgotten, New York New Media Association (NYNMA). Without getting too nostalgic, NYNMA was how and where I met Jerry Yang (Yahoo!), Mark Benioff (SaleForce.com), Jeff Bezos (Amazon) and a host of others way before they became household names. The organization’s early members also created the moniker “Silicon Alley” and sowed the seeds for turning “The Alley” into the second largest tech hub in this country, albeit not without some major hiccups along the way. 

I say this as prolog to some thoughts about an item on Crain’s New York Business concerning the fortunes, or actually lack thereof, of Foursquare Labs Inc. It got me thinking about whether this is just one company, one that has stood out as an alley hero, having unique growing pains, or is a harbinger that the social media avalanche may be reaching the bottom of the mountain and not picking up more momentum. Start-ups and investors beware, or just look elsewhere?  

The short answer is that it is hard to make say, probably too early, but certainly something to ponder.

Start-up growing pains or something else?

As the Crain’s piece points out, since its launch in 2009, Foursquare has not only been the face of the New York City tech industry, but the face of the location-based social-media business. I will admit that as soon as it came out I put the app on my smartphone. I can also say that I quickly stopped “checking in.” I did not see any marginal utility financially, socially or emotionally. To be honest, I did not wish to share my location info with anyone except those who knew how to contact me if they wanted to know where I was and what I was up to at the time.  

I was not alone in taking the Foursquare plunge. Crain’s says that despite little revenue, millions of users did check in when they were out and about, and this was like waving a red flag in front of a bull when it came to world-class investors who poured $50 million in a June 2011 funding round that valued the company at $600 million. However, the wheels seem to be coming off the cart.

As the article notes, “Attempts to raise money fizzled last year when investors balked at the asking price. And with a burn rate of $2 million a month, according to a person familiar with the matter, and 2012 revenue of just $2 million, Foursquare risks running out of cash.” This has led to speculation that Foursquare could be sold off in a fire sale with the fate of its 150 employees in limbo.

Backers are trying to put a good face on this. They say they are committed to coming up with a strategy for funding and monetization that will enable to the company to live long and prosper. That is a nice way of saying that they are waiting for their chance to cash out. However, to those of us who lived through the Internet bubble burst, that sounds like wishful thinking. 

At the end of the day, while the face to users of Foursquare is to keep track of where friends are, check out what’s hot, and gather “trusted” opinion, the bottom line is the bottom line is “monetization.” Like other social media companies, the sustainable value here is in getting making money, e.g., advertising support and being able to leverage the personal data associated with the behavior of the users into lots of dollars. 

What is emerging in the social world is coming down to an issue of how much information we are willing to part with, when, where and why. It is also about whom we trust with that information, and how many of these social media capabilities can we reasonably be expected to interact with. 

One need only look at the impact the Facebook search announcement had on Yelp to understand that the social media market may have reached a level of maturity where the winnowing out process is about to become nasty and brutish. As I have stated in several postings on the subject, this really is about ecosystem wars and creating “E”vironments that we do not have to leave.  

The dance of the ecosystem elephants, Facebook, Google, Apple, Microsoft and Amazon (we shall see what ultimately happens with Twitter, AOL and Yahoo! and a few others) is on designed to step on and totally crush those in their way in order to keep eliminating reasons to leave the elephant you came in with. This is also about not just opting in, but as the famous lyrics from the Eagle’s hit Hotel California say, “you can check out any time you want but you can never leave.”   The big reason is if you leave so does all of that valuable information that feeds the insatiable advertising appetite as it tries to unlock the optimal way to reach the “market of one.”  

Crain’s says that in the short term, Foursquare is betting that small businesses and large retailers will pay for "promoted updates"—ads that pop up when a user clicks on the app's "explore" tab in search of places to eat or shop.  Launched six months ago, and still in the pilot, Steven Rosenblatt, Foursquare's chief revenue officer since May is quoted as saying the pilot is, "proving we're serving the right ad to the right person at the right time…. In the campaigns that we've run, of those people that actually tap on that promoted update, over 52% of them actually then check into that business within 24 hours."

The full article is worth a read since it goes on to quote skeptical analysts and their reasoning for doubt and points to slowing user adoption, particularly in the face of growing usurpation of the location-based business by competitors. What struck me in the comments of those cited was how important context is in looking at various situations.

One person’s view of slow growth looks kind of strange when looking at other numbers. So what if they are not growing as fast a Pinterest or Instragram. Who is? Assuming management can get this monetization thing even a little right you have to like Foursquare’s defense of its prospects since it rightfully is still the largest location-based service, added 15 million new user accounts in 2012, and now had 30 million users, and more than three billion check-ins. 


Image via itunes.com

 

History says that MySpace looked real good until being defaced by Mr. Zuckerberg and friends. History also says that at the end of the day it is about monetization and Foursquare may be running out of time and funds to figure out how fast to mine all of that location-based data before the elephants get ready to tap dance or consumers decide enough already. 

2013 is going to be an interesting year because in the social media world not only will there likely be consolidation in high-profile areas, but also because the things that used to be free like analytics are going to start costing a pretty penny, and placement and position are going to cost as well. Who has the critical mass to push hard on advertisers to pay, and who is likely to be pushed out is why this coming year is going to extremely volatile. There is also the possibility of a user backlash. There are too many apps, too little time and increasingly too little differentiated value. 

Does this mean Foursquare is a doomed outlier or a portent of the maturation/oligopolization of vast swaths of the social landscape. As the saying goes; only time will tell. The challenge is in what I have called, “The Age of Acceleration,” time is/of the essence. 

One final thought. If you are planning on attending our ITEXPO Expo Miami event at the South Beach Convention Center January 30 – February 1, and would like to discuss this with me, by all means look me up and attend one of the sessions I will be participating in with much of this will be on the agenda. Hope to see you in soon.




Edited by Brooke Neuman



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