

Fred Wilson's thoughts on Foursquare's $20M Series B - jmillerinc
http://www.avc.com/a_vc/2010/06/some-thoughts-on-foursquare.html

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davi
Most interesting bit to me:

"The conversations with potential acquirers [...] allowed the founders to
develop close working relationships with some of the most important Internet
companies who can not only be acquirers but also distribution partners and
monetization partners."

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aditya
This is an odd post by Fred, a lot of _The Company_ and _the service, the
users, the team, and the shareholders (in that order)_ quite unlike his usual
free-flowing writing style.

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jacksoncarter
tlwr; Four Square is a feature of a cell phone network and that is where it
will go. No cell phone company is going to pay whatever the investors now
expect if it can rebuild the feature for 10% of that and instantly have more
than 1.8M eyeballs.

The fact that I don't know anyone who would pay for FourSquare is irrelevant
when considering its greatest value is as an advertising mechanism for a cell
phone provider. If ATT can say, "We have foursquare" it'll do better for ATT
than I suspect FourSquare will ever generate in revenue on its own.

It would be big if Sprint can say, "We're hip, we have FourSquare and Verizon
doesn't." That will get Sprint business, but will Joe Company advertise on
FourSquare even with 1.8 million users? Will Joe FS User pay for Four Square?
Probably not. The vast majority won't -- ever -- Even with 10 M users. Four
Square doesn't provide _that_ kind of value. It provides the Facebook kind of
value, which is to advertisers -- not the consumer.

Foursquare is a value in that it helps people connect. But connecting with
people is like disposable income. If one option for spending disposable income
goes away, the disposable income goes somewhere else. Similarly, foursquare
users will go somewhere else to connect if there is another option or
foursquare costs too much or anything at all probably. I don't even know if
foursquare costs money I don't know anything about foursquare really.

What's the point? The point is, FourSquare is a feature. It's a feature of a
cell phone that lets people connect. How much does that feature cost for a
cell phone company to build? Does it cost $20M? Does it cost the valuation of
FourSquare with a $20M investment? Probably not? I easily believe that Sprint
or ATT or verizon could build FourSquare with $20M.

This is why investing $20M in companies like FourSquare is not a wise
investment. It's not a rational investment.

The second reason it is not rational is this: FourSquare's competition for a
buyout is not FourSquare clones, it is _any_ network with 1.8 Million
eyeballs. There are tons of those and many that are much more niche and easier
to target and understand.

This $20M investment has just raised FourSquare's valuation so unrealistically
high that it will be difficult for them to find someone they can convince to
waste enough money on it to get a return on their investment. Even with $20M,
the best FourSquare can do is get more eyeballs and they're going to have to
get enough more eyeballs to make themselves, as an advertising mechanism, more
valuable than all the other advertising mechanisms that have just as many
eyeballs, but without the unrealistic expectation on behalf of investors that
they need to get a certain return.

Many companies with many more eyeballs exist as advertising media with way
lower valuations and way more potential as a rational advertising expenditure
from a company that may consider acquiring FourSquare.

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pedalpete
As you say yourself 'I don't even know if foursquare costs money I don't know
anything about foursquare really'.

You sure write alot for somebody who doesn't know anything about the service.
I don't 'use' foursquare either, but I've tried it and know what it's about.

A single network wouldn't be successful in building a foursquare competitor,
as not all of your social contacts are on the same network.

Part of the value of FourSquare in the long term is to be introduced to new
places (likely around the world) where your social network has checked in and
found value. A great restaurant, coffee shop, attraction, etc.

In addition, there is the game element, which apparently people find fun, but
how much fun is a game you can only play with people on the same network? How
successful would skype have been if you could only speak to other people who
already had skype? That is basically what you are proposing.

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amirmc
_how successful would skype have been if you could only speak to other people
who already had skype?_

Isn't that how Skype got started?

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alexro
Have anybody had experience with using 4SQ from the advertising side? Does it
bring real value as a marketing vehicle?

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jw84
It's not very useful. Knew some people in SF that budgeted 4-digit campaigns
and had no discernible sales conversions. Maybe it takes time for the network
effect to make it useful? If so, few have the money or risk tolerance to try
it more than once. For store owners Yelp is a reliable bet.

The inherent problem is ad money spent by retail locations don't convert to
more foot traffic like a Google ad can send more eyeballs. And incentivizing
people already at your store with coupons or via an iPhone app is awkward.

FourSquare is the 21st equivalent of billboards, lots of voodoo math and
promises involved. And some people get a cheap thrill out of tagging up boards
but in the end it's still just a tagged up billboard out on a lonely highway.

But, hey, who would be dumb enough to turn down $20 million and a shot?

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evansolomon
A 4-digit campaign is really not that big, and billboards absolutely work for
some companies. Just like TV ads, Adwords, and pieces of paper on cars.

It is far too common to think that less measurable = always bad. It's just not
true.

I've never used Foursquare advertising and have no idea if it works, but there
are a lot of unfounded "conclusions" here. Think about a restaurant that makes
$20/customer, servers 200 customers/day and is open 30 days/month. That's
120k/month. Let's say the 4-digit campaign was $5k and had a 150% ROI, so it
generated $7.5k in business. That's 6.25% of the monthly revenue, an amount I
could certainly see being hard to parse out due to normal variations.

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code_duck
Making major decisions for "service, the user base, the team, and the
shareholders (pretty much in that order)" doesn't strike me as particularly
wise.

In my experience, user loyalty is worth very little. If it suits them, users
will happily go and use a competing service that copies everything you do.
Caring about the users is noble but a bit misguided since the users don't care
about you in the slightest. Of course, people often say "we're doing this for
the users!" whether that is the primary motivation or not.

I can see not feeling ready to sell out so soon, though. Foursquare has all
sorts of potential and they're well situated to go in a number of directions.
For instance, the local review (yelp) direction is natural, and look at the
massive valuation Google et. al have considered for Yelp.

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code_duck
So, people have downvoted this with no comment. My comment was not frivolous
or abusive: go ahead and tell me why I'm wrong.My assertion is that citing
concern about 'the service and the customers' being the major reason they
didn't sell out is either false, or a bad choice.

