use creativity;

Thursday, April 8, 2010

FourSquare’s $100M gamble isn’t totally crazy.

In the High Tech sector, millionaires have historically become ordained by coming up with an idea, developing it, gaining notoriety and then selling off to some huge McMegaCorp. This has played out over and over and over again. Sometimes the moves make financial sense and other times they don’t but the prevailing wisdom amongst entrepreneurs appears to be “When a Big Boy is willing to write a Big Check, be willing to cash it”.

At least this is the impression that I get reading this article from Valleywag.
It describes Foursquare as “Arrogant” for turning down the money ($100M), while noting that other (at the time) fledgling companies like Twitter and Facebook balked at considerably more money than was on the table at this deal. $500M in the case of Twitter and $900M in the case of Facebook.

My initial reaction to this article was to agree with the author because Foursquare is really nothing more than annoying noise to me and I would gladly sell it for whatever someone would give me for it. On a personal level it holds no value for me. I don’t use it, and I don’t feel it enriches my life nor my society. I think there are major issues with constantly publishing everything you do.

That being said, all of those things that make me not value Foursquare actually add to Foursquare’s value. Money is made on this here internet thing by advertising. Advertising has become kind of a dirty word in our culture because we see so much of it and we care very little for most of it. The secret to successful advertising is to put your product into the minds of people who would be interested in your product if the knew it existed. This is where Foursquare really has potential to excel.

The idea behind Foursquare is that you use your GPS enabled device to “check in” at various locations. You can earn various awards (badges) for doing so. My understanding of the minutiae is rather sketchy of honestly, but that is the gist of it.

This is potentially more valuable than Twitter or Facebook because Foursquare’s clientele appear to be happy to shill for the places they go, for free. This crosses over into the realm of Twitter and Facebook and is in essence free second hand advertising. This could make Foursqaure an attractive place for local business to advertise.

Another thing about the Foursquare users is that they are happy to surrender their personal information to the world for the internet equivalent of $24 worth of trinkets and beads. Through usage they profile themselves, define and publish their buying habits, and express those habits to anyone who is willing to listen. These users are easy to target advertising to because you know what they already like and willing to spend money on. The key to good advertising is marketing yourself to people who defiantly want to buy your product.

Besides being ready and willing, it appears that Foursquarers are also able, as the cost of membership is GPS enabled smart-phone and the time and money to go out. For the most part if you are using the Foursquare service, you probably have the secret affluence badge.

I am not sure if that is worth $100,000,000, but it actually could be and that is more than I can say for most of these acquisitions especially given the trouble that Facebook has had monetizing their popularity due to their user base rebelling every time they make an adjustment to their privacy policy.

posted by Matthew at 9:44 am  

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