When I speak to people about what I do most people usually ask me about Groupon and Foursquare. Both have been in the tech news lately with Groupons’ amazing $1 Billion valuation and Foursquare’s reported $95 Million valuation. So here are my views on both and why I prefer the Foursquare model:
Groupon:
Groupon bands thousands of users together to get bulk discount deals from local businesses in various cities. They have managed the most successful execution of this strategy to date and have become profitable by taking a cut from each business that offers goods or services on the site. The ability for Groupon is to tap into the concept of ‘collective buying power’ is very valuable and makes Groupon a great company.
While Groupon are very good at using social media tools to build their database, they are not a social network and their growth is limited by a number of factors. Firstly, there are reportedly over 150 competitors to Groupon and copying the model is as easy as putting on sales people in a city and developing the software (I have heard of developers quoting under $5000). Secondly, because there is only one deal per day per city, the deal is based more on what offer the advertiser of the day has and this doesn’t necessarily apply to ‘me’. Finally, as a web business their network growth is tied to theiractivity and the principle of Metcalfe’s law does not apply. So in my opinion their long term value is limited by these factors of ease of competition, relevance and limited exponential growth opportunity.
Fourqsuare:
Foursquare is a location-based game and social networking website for mobile devices. Users “check-in” at venues on their mobile handset and they are then awarded points and sometimes “badges” for their activity. The company has received much attention because marketing campaigns with popular brands like Starbucks that allow for special offers and coupons to be promoted to users. In addition to benefits like checkin validation, in-store redemption, businesses can view stats on visitors and get detailed breakdown of their activity.
When compared with Groupon I believe that as a social network, Foursquare have a much brighter future. Their value is in the database of “check-in” activity and the ability potential advertisers will have to target promotions based on this activity. Like Facebook they do face issues around privacy and the use of this information, but the ability to promote time sensitive special deals liked to location is highly valuable provided deals are relevant to the user. When assessing long-term business value, (1) it’s difficult to copy Foursquare as their value is in the network and the “check-in” activity, (2) because of the volumes of data being collected, the promotions in Foursquare will have greater user relevance and (3) as a social network there is much greater opportunity for exponential growth of their network.
One limitation of Foursquare is the low average age of its’ users. As a consumer in my 30s i can think of many of my peers who “check-in” and use their service but with over a million checkins each day I’m sure that they are happy with their niche in the market.