Question

–What revenue model does Foursquare use? What other revenue models might be appropriate? –Are privacy concerns the only shortcoming of location-based mobile services? –Should business firms be allowed to call cell phones with advertising messages based on location?

Answer 1

Q. What revenue model does Foursquare use?

Answer.

Foursquare is a location-based intelligence company. Its business is founded on two free mobile apps targeted at consumers, Foursquare and Swarm, which deliver local search and location-sharing functions while collecting user location data. Founded in 2009, the company has taken criticism in recent years for its inability to monetize its 50 million-strong user base and the mountain of location and consumer data that comes with it.

Foursquare has completed five funding rounds since its founding, taking $166 million in venture financing from Silver Lake Partners, Andreessen Horowitz, Microsoft and other heavy hitters in the technology and private equity sectors. The company completed its latest series of venture funding on Jan. 14, 2016, taking $45 million in a down round led by Union Square Ventures. According to reports, the down round more than halved Foursquare's valuation, which was pegged two years previously at $650 million immediately after its fourth round of funding.

The down round is a definitive setback for what was one of New York City's hottest tech startups. However, it also represents a vote of confidence in the company's latest efforts to monetize its data through licensing agreements and other data-based services targeted at developers and enterprises. Indeed, Foursquare's business model now revolves around selling access to its unique store of data.

Data Licensing

According to Jeff Glueck, Foursquare's chief executive officer (CEO), more than 40% of the company's revenue is derived specifically from data licensing deals with companies such as Twitter and Microsoft.

Microsoft uses the company's data to improve location-based search results in its Bing search engine and to inform location-based services in its Windows and Windows Phone platforms. Apple relies on the data to inform search results and provide business listings in its Apple Maps product. Twitter uses the data to provide accurate locations that users can embed into tweets.

Location-Based Digital Targeting

Another growing portion of Foursquare's revenue comes from its digital targeting service, Pinpoint. Pinpoint leverages Foursquare consumer location data to target and communicate with consumers based on where they go in the physical world.

Foursquare has accumulated information on 65 million locations around the world, derived from 7 billion consumer-initiated check-ins, as well as location-specific reviews and ratings. Using this data, the company can locate a user in relation to a particular business or venue with a high degree of confidence, providing opportunities to connect with potential customers. In 2015, revenue from location-based digital targeting services such as Pinpoint rose 170% compared to the previous year.

Foot Traffic Analytics

Foursquare's Place Insights product delivers time-sensitive foot-traffic data used to conduct location-based consumer research and market analysis, as well as to identify foot traffic trends. For example, a business might consider Place Insights data when choosing a new retail location or looking for sales leads. The service also reveals deep insights into consumer behavior.

In September 2015, Foursquare conducted a public demonstration of the potential power Place Insights has to identify previously hidden trends and make predictions. The company used its product to analyze historical foot traffic data near an Apple Store on the days preceding and following the launch of three different iPhone models. It then compared the historical data to real-time data in the days leading up to the launch of a new iPhone model. Foursquare accurately predicted initial weekend sales for the new iPhone the day before it went on sale, showing Place Insights' game-changing potential for retailers, investors and other enterprises.

Outlook

Although Foursquare took a hit in its latest round of funding, its renewed focus on data business looks promising. Foursquare intends to concentrate its spending on engineers and sales staff to bolster its data-licensing business and further develop related revenue streams.

Q. What other revenue models might be appropriate?

Answer.

Defining the most appropriate business model upon which to build a PPP is not an easy task. In general terms, it is a good practice not to impose one before consulting experts and/or potential private partners.
Most of the solutions are PPP/technology/case specific, but there are some issues that must be considered in any case:

• risk mitigation
• profit generating projects
• state aid rules
• self sustainability of the business model
• affordability pre-assessment
• risk allocation and management pre-assessment
• bankability
• business model pre-assessment
• value for money pre-assessment
• claw-back mechanism
• economies of scale and project grouping
• commercialization potential
• market potential
• capacity of assuming long-term commitments

Q. Are privacy concerns the only shortcoming of location-based mobile services?

Answer.

As the popularity of location-based services like Foursquare has grown, so too have concerns about privacy. The revelations by the Wall Street Journal in Spring 2011 that Apple and Google were surreptitiously and continuously collecting personal, private location data from iPhone and Android phones spurred privacy groups and Congress to launch investigations. In June 2011, the Federal Communications Commission, in cooperation with the Federal Trade Commission, sponsored a forum to discuss the social impact of location-based services, both positive and negative. Industry representatives from Facebook, Google, and Foursquare argued that existing apps as well as corporate policies were adequate to protect personal privacy because they rely on user permissions to share location (opt-in services).

Q. Should business firms be allowed to call cell phones with advertising messages based on location?

Answer.

The app tracks a user’s location even when the app is not open. Instead, by default, the app automatically provides Foursquare with the phone’s GPS coordinates any time the phone is turned on, unless the user specifically opts out of such tracking. Persistent location tracking of this sort could provide Foursquare with an even more valuable data stream that it can sell. Foursquare claims that the services it provides are a fair trade for the data it collects; privacy experts, on the other hand, fault Foursquare for requiring that users opt out of being tracked rather than opt in.