In 2012, Foursquare reported a 15% click-through rate for ads that are location-specific (i.e., folks who are near that particular location click on those ads to find out more about the company or its deals), and the company earned $2 million in ad revenue. The company raised $41 million in debt this year to keep its business model going and now, it is seeking strategic investments from tech companies.
Will the company be a good investment for the tech companies should any of them take up the deal with Foursquare? Well, when it comes to investments especially in a mobile app that connects people to places and obtains advertising dollars from it, it always pays to put yourself in the shoes of the app user.
Firstly, the app has built its brand name on the reputation of “checking-in” to accrue points and ranks, and even provides a competition system that allows friends to outdo each other. By checking in regularly, points can be accumulated and profiles of new places can be built. Let’s think for a moment, would people be engaged enough to want to continue checking in? The novelty effect wears off after some time and Foursquare has to continue thinking of new ideas to keep them engaged with that app other than just checking in. Perhaps the only folks who would happily want to continue doing so are wanderlust travelers who get to move around to different places, or rich socialites. For the other regular folks, the routine of life is enough to bore you to bits; and nobody wants to be seen checking-in at the same place ALL THE TIME.
Secondly, while marketers are interested in advertising on mobile apps, they do so strategically and constantly chart the effectiveness of their campaigns leading up to evaluating their ROIs. Matrices to help them gauge their continuity with advertising would include the following/fan base and “eye balls on screen”. As of April 2013, it has about 33 million users and this is likely to continue climbing at a rate of about one million a month. This figure may even eventually reach a billion users but even as everything may sound impressive on paper, the real question is how many of them remain engaged?
Thirdly, its application programming interface which is perhaps its most powerful asset, has other app giants like Instagram, Evernote, Path, Vine, etc. co-depending on it and contributing to its database and consumer insights. This has enhanced its recommendation effectiveness which help in its monetisation efforts. This asset would be worth a great sum of money as it remains a core part of the business in collaboration with other apps. Foursquare cannot afford to be a standalone. It must be seen as working in tandem with the giants like Facebook and Twitter. The symbiotic relationship will ensure that it spins off a revenue generating momentum for itself. The real question is – how can they ensure that this relationship can be monetised the way it is meant to be?
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