Foursquare's Revenue Model Sharpens Into Focus

Foursquare Users

Photo: news reports and company releases

It was always obvious that Foursquare’s business model would revolve around some sort of loyalty/couponing offers business for local merchants and consumers, but the exact contours have been fuzzy–as it should be for a company so young with such a new service. Now, however, the company’s business model is coming into sharper focus. 

First, Foursquare announced that it would start charging a token $10 for its merchant dashboard. We were surprised by the move, but according to reporting by SAI’s Nicholas Carlson the rationale is that it allows Foursquare to keep as “verified” merchants only those who are really interested in using the platform. 

Now, in a widely-anticipated move, Foursquare co-founder Dennis Crowley said to the Wall Street Journal that it will tie check-ins to coupons, and sell these offers to advertisers. It is going after the opportunity of getting local merchants to get new people to visit their stores. It is a large one, but a tough one to crack.

In a previous interview we’d done with Foursquare’s head of business development, he outlined such a potential business model, for new business, yield management and loyalty. Now the offer is more specific. Meanwhile, Foursquare is signaling that it is focusing less on growth, as it materialises to less of the extent than is normally thought, and more on monetization and capitalising on its existing assets.

Foursquare has also clearly moved past the check-in by emphasising its “Explore” feature, which is an interactive city guide based on the user and its social network’s history.

What all of this adds up to is that Foursquare is implementing a version of the Yelp strategy, or the “bowling pin” strategy. To build a local advertising business, one has a chicken-and-egg problem: one needs lots of users and lots of merchants on the platform because it becomes valuable. Yelp pushed its way past this problem by focusing initially on one market, San Francisco, and then pushing in more markets individually: hence the bowling pin analogy. 

Foursquare is doing something similar, but instead of focusing on a particular geography, it is focusing on the contingent of users and merchants who are seriously engaged by its platform. The idea is that once it has that dense, engaged, revenue-generating core of users, it should keep growing again beyond that and become over the longer run a strong competitor to Yelp and Groupon. It’s anybody’s guess whether that strategy will work, but given the parameters Foursquare is in, it is probably the most promising one.

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