Foursquare finally comes up with a monetization strategy that makes sense
Foursquare is planning to monetize its greatest asset -- its database of precise locations for restaurants, shopping malls, and anywhere else someone might want to visit -- by asking some of its partners to start paying for that cartographical treasure trove. The change will affect less than 1 percent of the 63,000 companies using the location database, Foursquare COO Jeffrey Glueck told the Wall Street Journal, and will mostly affect companies like Twitter or Pinterest.
It's about time Foursquare made some money off the location database it's been building for the last five years. The company focused on check-ins even as it wished to create something much more interesting than a badge application. It offered the information to tens of thousands of companies for free so the database could grow. The last five years of Foursquare have been about gathering this information, and now it's about to finally pay off.
Foursquare isn't about to become a glorified data broker. It would be foolish to suggest that a company that has raised hundreds of millions of dollars is going to suspend all of its efforts so it can help Uber drivers navigate their cities. But it is about to monetize the one part of its business that no one has ever questioned, unlike its check-in service and its dream of building a location-based commerce network, and it would be equally foolish to dismiss this off-hand.
As the Journal writes in its report:
The data fees could also help Foursquare create a new revenue stream to support its free mobile apps. Though the service has gained popularity with a community of more than 50 million registered users, Foursquare has struggled for years to build a sustainable business model around local advertising. Foursquare's valuation sagged in its last round of funding in December, people familiar with the deal said then, suggesting that its venture-capital backers, who have collectively pumped $162 million into the company, are growing impatient.Trying to convince people to pay for information they're accustomed to receiving for free isn't going to be an easy feat. Some companies might elect to switch to a different location database, while others might attempt to wheedle Foursquare into giving them free access even though its data is an important part of their own services. But if the reaction to Instagram switching from the Foursquare database it used since its launch to Facebook's is any indication, companies might want to think twice about making that change.
As Local Measure CEO Jonathan Barouch wrote for the Next Web after Instagram started to experiment with Facebook Places instead of the traditional "powered by Foursquare" data,
Facebook has come a really long way with their Places data, and it will be interesting to see where they go with their location focus, but the company still has more work to do before they unleash it on 200 million additional users.
So if Instagram is thinking of breaking up with Foursquare, they should sit down with their scrapbook of memories and remember the good times, because the relationship with Foursquare is good for the experience and good for their users. Even though we live in a digital world where maps are redrawn and reimagined all the time, most people still expect an application to have a consistent view of the world. Switching from one database to another is going to screw with people's assumptions about the application they are using. Unless two databases offer point-for-point similarities, there are going to be some problems with switching between them, no matter what a company tries to do.
So monetizing its location database might allow Foursquare to take its nearly captive partners and use them to make its investors happy while it struggles to show the world that it can be more than just a check-in service. It's raised money on that principle. It's split its application into two parts to make that idea clear to consumers, brand perception be damned. It needs more time to get the world up to speed on its intentions, and this announcement might just provide the capital it needs to buy that time (or at least hush everyone for a few more months).