Photo: Flickr / Brian Wilkins
A week ago, Foursquare announced that it would begin charging local merchants $10 for a product called “instant verification.”This seemed strange to us, because while it may seems like it is always a good idea for a business to bring in new revenues, that is not actually the case.
If all 750,000 Foursquare merchants signed up for instant verification (and there is basically zero chance of that happening), that would be an additional $7.5 million in one-time revenues for the startup.
$7.5 million is not a lot of money for a startup valued at $600 million. And believe it or not, incremental revenues might actually hurt Foursquare’s future fundraising efforts.
Lot18 President Phillip James put it best during a panel at our Startup 2012 conference last week: “If you are raising money and you have no revenue you are raising against a dream. The moment you have revenues, you are going to be valued against that.”
The other problem we had with Foursquare charging merchants $10 was that it felt like the company was nickel and diming merchants at a time when it should want as little friction in the sign-up process for them as possible.
So why did Foursquare decided to start charging for this service?
Actually there is an interesting reason.
A source close to the company explained (the emphasis on the most interesting point is ours):
This is a pretty minor change for [Foursquare] and [they] don’t expect it to be a substantial source of revenue. The change is designed to make it easier and faster for international venues to claim and to keep the overall quality of specials high (our thought is that people paying to maintain their page, even if only $10, will be more invested in curating their presence on foursquare).