Monetizing Foursquare

 

Foursquare has 10m registered users, an estimated 2-3m monthly uniques and partnerships withAmerican Express and a host of daily deals sites including Living Social, Gilt City, zozi, BuyWithMe and AT&T. What it doesn’t have is significant revenue. Whilst it is apparently taking a cut on the daily deals partnerships, that’s not the case for the Amex deal.

Having just raised another $50m in June, the pressure will be on to start pulling in some serious revenue soon, and despite the recent deals, how and when Foursquare will do this remains far from clear for some critics.

There are a few different ways to look at how Foursquare might monetize its service, but I thought that I would start by examining Foursquare as a loyalty company, as they’ve been talking about “socialising loyalty” for quite a while.

Loyalty basics

Loyalty companies are sophisticated marketing devices for savvy brands, and generate value in five ways:

  • Customer acquisition
  • Purchase frequency
  • Transaction size
  • Customer retention
  • Customer behaviour

They do this by offering customers a variety of rewards in return for changing their purchasing behaviour. So, if Foursquare can start demonstrating its ability to influence its users in any of the ways listed above, then it can start charging brand partners for the value it is creating.

Customer acquisition

Can Foursquare increase the number of customers that a brand has?

I would have thought that this was one of the main areas that Foursquare could create value. Already their merchant platform allows retailers to offer special deals to entice new (and existing) customers in. These seem to be passively served in a one-size-fits-all manner however, relying on users searching for them. Allowing retailers to construct more targeted offers and then actively pushing these out would I believe significantly increase the value to retailers.

For example, imagine if Starbucks could send a deal to every user that checked in to a café within 100m of a Starbucks outlet. Foursquare already has a huge amount of data on their users, so this kind of sophisticated targeting is at least theoretically possible. Starbucks might even decide to exclude users that had recently checked into one of their own stores (perhaps offering them a different sort of deal) and thereby solely target new customers.

Furthermore, as Foursquare is already a social service, it could facilitate the viral discovery of brand partners amongst users and their friends. What if checking in to a location allowed you to offer your friends a deal there? Users would be able to forward on these offers to the friends that they felt would value it most, thereby introducing potential customers with a higher than average lifetime value. (NB offering rewards this way round, rather than to the user that sends out the promotion keeps the recommendation honest, and valued by users. No one likes getting spammed by their friends).

Purchase frequency

Can Foursquare increase the frequency with which users visit and spend with brands?

Here Foursquare has already got some great features in place that could target this lever, and the basic points and badge system encourages users to check in to different places as frequently as possible. For potential Foursquare partners however, there is currently limited value to these features – at the moment Foursquare encourages you to check into as many different places as possible, not to be a loyal customer. Instead of this, and in addition to current merchant incentives (e.g. free coffee with your third check in), Foursquare could be taking money off merchants, and potentially offering them a much more economic marketing tool, if they let merchants buy points and distribute these as bonuses to users.

For example, businesses might buy Foursquare points at $0.01 a go, and give +5 to users every timethey checked in – much in the same way that users currently get awarded +3 when they visit new venues. For users trying to climb the leaderboards against their friends, this could provide a significant incentive for them to visit partner brands that little bit more often than they already did. Even if the effect was relatively small, with large numbers of users the absolute effect could be large, and due to its targeting would likely be very cost effective. Of course even at $0.01 a point Foursquare still makes money, because the virtual points don’t cost them anything, and are expunged on a rolling weekly basis.

Transaction size

Can Foursquare increase the average value of an individual transaction a user makes?

This is more difficult. Traditional loyalty schemes typically achieve this is by giving customers coupons along the lines of: “Spend $20 or more and get $5 off”. The coupons are always structured so that the threshold amount is slightly higher than the historical transaction size for that particular customer. Foursquare tracks physical location across a multitude of different categories and is not restricted to a single individual partner per category; it does not however link actual transaction figures to check ins. The Amex deal should go some way to solving this, but this will obviously be restricted to the users that both have Amex cards and decide to synch them. Even this isn’t the greatest solution, as it requires users to pay with their Amex card as well as check in, and this feels like too many steps for all but die hard points chasers.

Perhaps Foursquare could do more research into average transaction size of its customers en masse? This might work for larger retailers that are willing to put in the time and investment to the analytics required. However, working off averages leaves the reward system (i.e. money off coupons) open to abuse and inaccuracy, and such inefficiencies are precisely what loyalty schemes are designed to remove from traditional marketing.

This might be an area for Foursquare to leave for at least the moment. Further developments with Amex might make this more exciting, as could NFC payments eventually becoming a reality. It certainly doesn’t feel like an area where Foursquare has a natural advantage, and as it’s got so many other things going in its favour, I would suggest it sticks to levers where it has a unique proposition.

Customer retention

Can Foursquare reduce the churn rate of customers, and encourage customers that have moved from a client brand to a competitor to come back?

Similar to the targeting of new customers, I think this is an area where Foursquare could do some really exciting stuff. Foursquare already knows how often users visit different locations, and the typical times that they visit those locations, so all it needs to do is allow brands to analyse this data, and send out targeted offers to users that look like they have churned, or are about to churn.

Whilst card based loyalty schemes can tell if you haven’t been back to a particular store as much as you usually do on a month-by-month basis, Foursquare could theoretically target users who visited a different lunch spot on a day-by-day basis, or even hadn’t had their morning coffee on time. With sufficient analysis it should also be possible to determine when to send loyal customers an offer that makes them feel special and valued, and push their loyalty up a notch, before they even consider heading off to a competitor.

Customer behaviour

Can Foursquare help businesses increase their margins by encouraging customers to change their behaviour to ways that are logistically easier and cheaper to serve?

This final source of loyalty value is not always relevant to brands, but an example might be if the cost to a brand of a customer paying by credit card or cash was different. By offering an incentive for consumers to pay by the preferred method the brand could increase its margin overall. Often such behavioural value is related to billing methods, and for the same reasons as transaction size, this is not an area that Foursquare is naturally strong in.

However, there are almost certainly cases where Foursquare can unlock value here. Perhaps helping food outlets spread out their lunchtime rush by offering users who vary their mealtimes significantly, or who had a late breakfast, to buy lunch outside of the usual 12:30-14:00 peak. Again, the granularity of data that Foursquare has over traditional loyalty offerings is a real advantage, because they can track customer behaviour across the entire universe of retail locations, and push offers to users on a real time basis.

Wrap up

Successfully unlocking value from a loyalty scheme requires significant analytics to generate meaningful insight. This suggests that major brands with the resources to invest, and the volume of customers to analyse, are the natural partners for the sorts of services mentioned here. Whilst Foursquare does not capture transaction value accurately, and this precludes it from unlocking all the sources of value to brands that traditional loyalty schemes cover, the additional data that it can gather on location and competitors, and its ability to push out real time deals to users means it has a significant edge over incumbent loyalty schemes. Developing products that unlock value to brands by facilitating customer acquisition, increasing purchase frequency and improving customer retention would give Foursquare a highly valuable service that it could sell, and let them start monetizing their service.

Image is screenshot from my cell 7.21.11 at 08:04

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