What makes a business model successful? The answer depends on four main groups: revenue sources, key expenses, investment size and critical success factor. Examples of this last element in, let’s say, blogging would be a good news research and comment moderation. So let’s try not to forget this point when going through our today’s post: What’s the business model behind Foursquare and its 300.000 users?
But before that, let’s settle our background first. Companies such as Google are working fast today to bring location services to the forefront of many of its products (such as maps and search). Why? What’s so important as to invest their resources in such a way? Well.. The answer is actually in the hands of startups such as Foursquare, which is based on a new software application for cell phones (iPhone, Android, Blackberry and Windows Mobile) which uses location as its critical success factor.
Foursquare allows the user to share with his contacts in the social networks his tips and suggestions on certain locations (restaurants, museums, pubs, theaters, etc) which are mapped in their phones through GPS location. The process also allows you to know where your friends are hanging around and give you access to special offers in some of those places. On top of that, “mayorships” (which you get when you check into a venue the most times compared to others in the city) give you the right to special deals, like free drinks or discounts.
Created by Dennis Crowley and Naveen Salvaduri in 2009, the company is located in NYC (no messing with California this time!) and it seems their idea is working very well because plenty of others (including Google) are working on similar ideas, and not only in the US. An example of this is Plyce (http://www.plyce.com/), a small Parisian startup founded by Martin Destagnol which has recently raised $400.000 from two French funds, Jaina Capital and Kima Ventures, with the goal of becoming the leading European mobile social network within 3 years.
So what’s behind it? How these people make their revenue? Before digging into it, I admit I didn’t see the business idea behind it when I discovered it (one week ago!), but now that I am beginning to see the light let me give you a few clues (that’s what lighthouse does anyway, doesn’t it?):
- Customer loyalty cards in your wallet? Not anymore!
- Online social networks make their way into the real world. What a better advice about a certain venue than a friend’s one?
- Location based advertising as a way of generating sales revenue for the advertisers.
So… Where are the revenue generation opportunities? Here you have some hints:
ü Companies could launched loyalty programs linked to Foursquare, so customers earn points for making purchases and for checking in toward free drink, discount or whatever.
ü For bigger brands, businesses could track who’s coming into their stores. Deals could be sold against web ads, clicks such as search ads, or a completely new model: cost per check-in.
ü Foursquare could charge businesses for the dashboard if gets big enough to do it. They could also charge for advertising and promotions later (local advertising is a $10 billion market and even Google has failed at grabbing it).
And now.. Time to make your own decision: is Foursquare just a game and there’s no business model or could the owners of the business in the dashboard get a ‘mayor’ a free coffee and run ads on Foursquare? Will this revenue model based on location marketing services survive? Only time will tell but much of it will depend on its ability to make the social support grow.
C U next week!
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