Foursquare Valuation of 125 Million Dollars Part 2

Posted: April 19th, 2010 | Author: Julio Hernandez-Miyares | Filed under: Mobile, New York City Startup |

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What does Foursquare have going for it

• Engagement! The apparent leader in the Location based checkin realm. Being the leader here is still about relatively small numbers. I heard they may be around 1 million registered users but equally if not more important is how many of them are actually truly engaged on a regular basis checking in their whereabouts.
  Notwithstanding the normal privacy concerns that surround things of this nature that are new, as the capabilities to do more accurate location targeting and the spreading of smartphones that can take advantage of that capability and the utility becomes real, people will adopt it. To stretch an analogy , using E-Z Pass for automated toll collection provides a government entity with your presumed location assuming you are driving your own car for the benefit of passing through a toll without the normal wait at the manned toll booths. Not quite apples to apples comparison but there was a hesitancy at it’s outset related to the Big Brother aspect.
• Tendency for more limited network. Though there is nothing that stops one from having a Foursquare network as vast as the typical Facebook Friends network, the tendency of users to limit the number of friends that know where they may be at a moment in time acts as a braking factor on the size of an individual network of friends. You can assume that could make a individual’s Foursquare social network a more valuable artifact.
• Budding commercial relationships With the likes of Starbucks, NYTimes and others. I can imagine the behavioral targeting if the location specific data could/would be merged with business establishments, Can imagine Gevalia increasing their upsell to me seeing I am the mayor of various Starbucks and Dunkin Donuts. Of course I would not agree to a syndication of my distinct detailed personalized whereabouts but perhaps there is a way to make utility of the aggregated view including Badges and Mayorships.
• Simple Web Service APIs. A must for 3rd parties using the platform to integrate with Foursquare. The more 3rd parties integrate and provide twists and functionality to the inherent proposition of Foursquare, the greater the likelihood of Foursquare becoming the de-facto standard for a a location specific Social Network.
  Of course we can see a replay of the situation with Twitter and 3rd parties where after 3rd party developers move the ubiquity along for Twitter as a platform, the business needs of Twitter itself force the cannibalization of much of what the 3rd parties developed.

What’s Going against Foursquare

• Low Barriers to entry. Location services are baked into the smartphone devices themselves with well defined interfaces. The Venue data can be and is licensed from aggregators. Search indexes that provide proximity searches are relatively simple to setup using Open Source packages like Local Solr based on Lucene.
• Utility for the user. Yes, the Gaming aspect is fun especially if your network of friends gets vicarious thrill of winning mayorships and badges. Medium-term for an individual the fun wears out without a commensurate return of some value. This is where the budding relationship with businesses may accrue benefits for the users as inducements and true rewards for loyalty to an establishment become the norm. Perhaps Foursquare can become the de-facto standard for loyalty programs especially for the large number of small and mid sized establishments that currently do not have the capability to have one of their own. Of course there is still a lot to do technically to prevent gaming of location and visits.
• Stability of the Application. By this I mean the predilection to crash especially on the iPhone where I most commonly use it. Typical of the fast moving Web space is that applications/sites are mutating so fast that a proper testing regime is not followed and buggy code is pushed out. So far it has been a minor inconvenience for me mostly because I am biased understanding the price you pay for rapid iterative development where your users are the ultimate testing ground. Most users outside of Technology won’t have such a forgiving nature.

What do I think of the valuations floating around upwards of $125 Million? I feel that at the moment, the scale of that number is obscene. Now if I knew the future with absolute clarity and could see that 1 or 2 years from now Foursquare would be the standard platform for location based services and have a user footprint in the space approaching Twitter’s 50 million users , the current floated valuation would pale in comparison. Michael Arrington has a good post in Techcrunch arguing against their selling out at the moment. Nevertheless having that sum of money dangled in front of you for what amounts to about 1 year’s worth of work of a small team with a relatively small investment of $1 .5 million, the discipline to stair it down and roll the dice on your own would be prodigious.