Skift Take

Yesterday's tech darling Foursquare is facing lots of skepticism about its future despite ample funding and a user base numbering in the millions.

According to prevailing wisdom at the time, the rapid take-up of smartphones meant we would all soon be sharing our location online and being targeted with offers from local businesses.

The leader of a wave of start-ups founded on this prediction was Foursquare, a New York-based app and social network that allows users to check in to locations and so alert friends nearby they are around for coffee, lunch and so on. Each check in would also earn the member points: gain the most points at a particular location and Foursquare would appoint you “Mayor” with a digital badge to proudly display online.

It was a huge hit with the neophiliac crowd at South by Southwest Interactive, an annual web industry conference in Austin, Texas. After providing a launch pad for Twitter in 2007, the excitement around Foursquare at 2009’s event meant it was tipped for great success.

Fast forward a couple of years and the signs are less encouraging for Foursquare, and location-based services in general.

Foursquare has received more than $70m in venture capital funding, some of it valuing the firm at $600m. In November it was reported to be offering investors more equity, at a valuation of up to $800m, despite annual revenues of just $2m.

Perhaps unsurprisingly, nobody bit. This week Foursquare said it had raised a further $41m, but most of it in the form of a multi-year loan and some in debt that could be converted to shares later.

Dennis Crowley, the 36-year-old founder and chief executive of the company, seemingly admits Foursquare has a credibility problem. “This allows us to get closer to being able to prove that there’s a real business here,” he said as the latest cash injection was announced.

He doesn’t sound particularly convinced, despite having proselytised location-based services for over a decade.

The plan is to change the perception of Foursquare from that of a kind of game, where the aim is to gain points and badges, to that of location-based reviews service. It is now pitched as an easy way to find recommendations for local restaurants, bars or shops. With that in mind, this week it released a redesigned version of its iPhone app that brings its search function to the fore, allowing users to more easily browse the reviews.

Foursquare aims to sell more targeted advertising against the glut of local searches it hopes the new app will generate.

It seems a relatively sensible idea, but there are major problems. First, whereas Foursquare-as-game was more or less unique, providing local reviews and recommendations is a crowded field. The market is dominated by big, profitable companies such as Yelp (in the United States), TripAdvisor (for tourists) and Google, which has made a series of acquisitions to bolster its database of reviews.

The second problem is a basic lack of scale. Despite a relatively high-profile four years online, Foursquare claims only 30 million members. How many are actually active on the service is another matter, of course, but as a social network compared to Twitter or Facebook, it has completely failed to capture mainstream attention. It will need its members to do a lot of searching to justify the $110m that has been ploughed into the business.

Mr Crowley insists slow growth is a deliberate, smart strategy. “We’ve looked at the way other companies have grown very, very aggressively with products that seem to be working but are not the ones that end up changing the landscape,” he said.

Facing apathy and more powerful rivals, some analysts have predicted Foursquare’s ultimate failure nevertheless. It already stands as a lesson that the tech crowd do not necessarily know what ordinary people want to do online. Even Facebook, with its hundreds of millions of active members to guide it, introduced a check in feature that owed a large debt to Foursquare in 2010. It was scrapped a year later due to lack of interest.


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Tags: foursquare, local

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