Foursquare Reworks App to Sell More Ads as Check-Ins Fade

Aug 01, 2014 12:45 pm ET

(Updates with user recommendations in 15th paragraph.)

Aug. 1 (Bloomberg) -- Foursquare Labs Inc., whose once- novel check-in application faded in popularity in the past five years, has crafted a plan to make more money by tying advertising to a smartphone’s location. Now comes the hard part: finding people to use it.

A pared-down update of the Foursquare app is coming that focuses on helping users find restaurants and businesses around them, Chief Executive Officer Dennis Crowley said in an interview. Elevating that once-hidden search tool has two benefits: It gives users more reason to use the app, and advertisers a place to put ads customers will actually see.

To unclutter the repurposed app, Foursquare’s creators already carved out the trademark check-in feature -- the one that would make users the virtual “mayor” of a frequented pub or business -- into a new app called Swarm. Now, to boost revenue, executives need to that show customers want to use the new Foursquare app and merchants will pay to advertise on it.

“People who walk into different types of stores, they’re self-identifying through Foursquare,” Chief Operating Officer Jeff Glueck said in an interview at the company’s headquarters in New York. “That’s a really valuable connection between audience and commerce. Of course, the engine of all that is being useful to consumers.”

At stake for Foursquare, whose backers include private equity firm Silver Lake Management LLC and venture capital firm Union Square Ventures, is a piece of the market for digital advertising, where spending may reach $140 billion this year.

The company introduced a revamped logo last week and revealed images of the app’s new look. It hasn’t disclosed when it will release the app itself.

Search Focus

Focusing the new Foursquare app on search capabilities gives marketers a way to send relevant ads to people in an area. A pizza place, for example, could send a discount on a slice of pepperoni when a user is looking for nearby restaurants. Foursquare will be able to serve users better by gathering data on their favorite places, Crowley said.

When introduced in 2009, the Foursquare mobile application was basically a social-networking game, encouraging people to check in to restaurants and compete to earn “mayor” status. That novelty, which has faded even as pressure rises from investors who valued the company at more than $600 million just three years ago, will still live on through the revised Foursquare’s newly embedded Swarm button.

Raising Money

The company was slow to make money from mobile ads, bringing in just $2 million in revenue in 2012, a person familiar with the matter said last year. Since then, Foursquare opened up its in-app advertising tool on the old version to all businesses, from the local flower shop to national retailers such as Walgreen Co. and McDonald’s Corp., Chief Revenue Officer Steven Rosenblatt said.

Foursquare raised $35 million in December after getting a $41 million loan and convertible-debt infusion in April, which Crowley at the time said would allow the company to prove it’s a real business. Executives declined to disclose current revenue.

“You start out growing things for users,” Crowley said at Foursquare’s headquarters in Manhattan’s Soho district, in a ski lodge-inspired conference room adorned with snow sport paraphernalia. “Then as we start to build an audience, we start to build these tools that we think are amazing tools for brands and merchants.”

Technology companies like Facebook Inc. and Twitter Inc. are also vying for advertising tied to location, putting pressure on Foursquare to prove that its makeover is enough to revive its earlier buzz.

Crowded Space

The challenge now is to catch up to the momentum of Facebook, which was founded in 2004, went public in 2012 and is now used by about half the world’s Internet-using population. Twitter, created in 2006, went public last year and isn’t yet profitable. Unlike Facebook and Twitter, Foursquare doesn’t disclose its number of active users, saying only that it has more than 50 million registered accounts.

Local search is becoming an increasingly crowded space. To draw advertisers, Foursquare will also have to persuade smartphone users to turn to the new app to find restaurants and shopping destinations, instead of searching on Yelp Inc. or Google Inc.

Foursquare will encourage people to leave tips -- like where to shop or what dish to order -- in the new app by giving prolific recommendation-givers the badge of “expert,” the company said this week in a blog post.

“In local commerce, it’s a very large opportunity,” Tom White, a New York-based analyst with Macquarie Group Ltd., said. “It’s more about a change in perception of these brands. We are still early in seeing how this is going to evolve.”

Expanded Database

One advantage for Foursquare is its database of millions of places, built over five years with contributions from users, that will be updated with the check-ins on Swarm.

That information has proved valuable to other companies, too. Microsoft Corp. invested $15 million in Foursquare last year and uses its location data in a voice-activated assistant.

Foursquare is considering other potential data licensing deals, and 20 percent to 30 percent of revenue could eventually come from these partnerships, Glueck said.

“We’ve always had these things locked up in the existing Foursquare app,” Crowley said last week. “Now we’re just making it very obvious that the new Foursquare app is really about local search and discovery -- specifically personalized local search.”