Why Foursquare needs another round of funding

April 22, 2011 8:16 PM
Tom Cheredar

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Foursquare is seeking a new round of funding estimated at $20 to $40 million, according to the Wall Street Journal.

Raising more money seems absolutely necessary for the location-based check-in service as it branches out to offer exclusive deals from local shops and restaurants — putting the company into more direct competition with group-offer sites like Groupon and LivingSocial.

While Foursquare has an active user base of eight million, the service has been unable to generate much revenue. The opposite is true for Groupon ($1.14 billion in funding) and LivingSocial ($632 million total funding), both of which have far more resources available.

By contrast, Groupon and LivingSocial rely entirely on the allure of deals from local businesses to generate revenue. Eventually, those companies will need to find additional hooks to keep customers coming back. Since Foursquare is a location-based social service, it doesn’t have that problem.

Foursquare is likely to use the additional funding to build out its new merchant platform, which allows local businesses to offer coupons and deals to consumers who check in when they visit. There are already over 250,000 merchants using the service, according to the company. But rather than focus on gaining users, the company would do well to figure out how to boost its revenue before the Groupons of the world turn into location-based social networks.

LD1979

4sq has always been very careful to release total registered users, not active users. Judging from most industry reports on how few people check in, it's safe to guess their active user base is limited to a subset of tech savvy, youthful and urban users. The reason their revenue isn't comparable to G or LS is that your average consumer doesn't use 4sq. In that sense, expanding their active user base is exactly why they need the $.
http://www.ashleypearson.net Ashley Pearson

Its strange, but I feel like Foursquare is a business that doesn't have much purpose or a way to make money, but when I see their unique ways of advertising businesses, I can see why, and it is actually a very clever idea!
kgro

Monetizing by providing some additional benefit to the consumer (beside Mayorships) should actually attract more users. That would be fun.
msaleem

It is an interesting approach that Foursquare is taking. Start with location and then back into Groupon-style deals. Groupon and LivingSocial seem to largely do this on a city-wide level (unlike Facebook Places which competes more directly with Foursquare's merchant platform). The few times I have come across deals based on checkins, I've actually taken advantage of them and chosen a different restaurant because of free appetizers or drinks (because, you know, it's just next door).
http://startupcentral.in/2011/04/news-views-chinese-social-network-renrens-upcoming-ipo/ Chinese Social Network Renren’s Upcoming IPO | STARTUPCENTRAL

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