get macarronated with 4square!!!

   
"In my experience with hundreds of entrepreneurial startups, business-plans rank no higher than 2 - on  a scale from 1 to 10 - as a predictor of a new venture's success"
in How to Write a Great Business Plan by William A. Sahlman. Harvard Business Review July-August 1997


First of all I would like to apologize: I am a graduated economist. And as an economist I am particularly well qualified to grossly miss out all predictions (we call it forecasts...) about the future and then come up with brilliant ex-post explanations about why they were wrong.


This post is about the first part of my skills, applied to the exercise of understanding foursquare business model and predicting its future success.


Foursquare is one of the latest crazes in the virtual wonderworld. On the surface it looks like a basic version of (yet another...) social network site: you sign in, add friends and share with them where you are and what you are up to.


However, Foursquare has a few tricks that make it unique: the first one is that it actually tracks where you physically are when you login to it; the second one is that it comes with a "point system" that can can get you the wonderful honour of  becoming The Mayor of a specific location if you logon to the service in that location more than anybody else. So, for example, my Information System teacher Enrique and virtual wonderworld enthusiast, is The Major of IE because he logs on to his 4square account eeeeeeverytime he arrives at school; last (but not least), the user experience is so well conceived that it feels like a (highly addictive) game.


Simply put: Foursquare is the first crude attempt at getting a legal personal global positioning system whereby you can not only find out where Mr. Joe physically is in a given moment, but also access a database of where he has been to ever since he has decided to join the 4square community.


The current "service" provided by 4square has serious limitations the most important of which being (arguably) that it is really only practical for smartphone users that bother to install the appropriate application to use it. This reduces drastically the number of users that it attracts, but, nevertheless, it has not deterred the likes of Yahoo to present a lavish $100M offer for the startup.


Ok, so we know what it does and we know that Yahoo is willing to pay a fortune for it. But why? What is the business model behind it?


Follow me in answering three critical questions to solve this problem: 1) who will be willing to pay to know where we are and where we've been; 2) why would we publish this highly personal information and 3) how much would the customers be willing to pay for this. 

1) Who wants to pay for personal geo-positioning?


A few examples quickly come to mind:

• governments – this is the obvious one. Even setting aside controversial  big brother type applications such as “Mr. Anderson who has an outstanding parking ticket is just across the street from the Police Station. Agent Smith: go get him!”, personal geo-positioning can certainly be used to improve emergency services and crime investigations. 

• companies – the classical application that we have already seen in science fiction films like Minority Report is to advertise a custom made promotion when the person enters an area close to where the shop is. Additionally, marketing freaks are likely to reach a state of intellectual ecstasy from looking at an accurate report stating something like "on average there are 2,535 young males with income > €50,000 per year that pass through the number 25 of Calle Ortega y Gasset every day whereas only 527 that pass through the number 10 of Calle Serrano". Particularly, if they are responsible to decide the location of the next Rolex shop featuring the new collection specifically targeted for young men...

• individuals - even with mobile phones we are sometimes not clever enough to find a friend which is standing across the street: "where are you?"; "I'm here", "here where?", "in front of the Corte Ingles", "no, I'm in front of Corte Ingles!", "I don't see you. Wave good bye", "I'm waving", "!"#$%&$", "...aaa, in which entrance are you....?".

This last point holds the clue to the 2nd critical question…

2)     Why would I want to disclose my whereabouts to the world?

For as much as companies (and, in particular, marketing&advertising professionals) would like to believe that we would be ecstatic to be bombarded with custom made promotions about the shops in the street that we just walked in, or that web enthusiasts may like to think that the rest of the world may want to share their wherabouts online because "it's neat to be the Mayor", I would consider a fair assumption that most of the people would only do it if they were unambiguously better off in doing so. 

For example, if you were looking for a bank, a taxi, or a doctor in the area. Quid pro quo, I show where I am if you tell me where I can find what I'm looking for.

3)     How much would the customers be willing to pay?

It follows that the success of this business lies in its universality: what good is any of the services described if   only 1,000,000 in the world have signed in, even less businesses and no government authorities? The current limitations of foursquare, both technical and in terms of market penetration, explain why it is currently not making money: after all, Google would not be the giant it is today if it was used by 0,015% of the world population and could only search an even smaller percentage of available pages...


I will not dare putting a €€€ value on the venture, but at this stage I am confident enough to conclude that:

•  4square is (really) a personal global positioning system and database that sells real time information about the location of people and other entities (such as companies and government agencies). 

• The business model requires that the customers provide their information for free in exchange for the privilege of paying a fee to access the information of other customers.

• The key success factor of the business model is the capacity to, eventually, reach everything and everyone (universality).

What are the odds that this will work out? Well, Yahoo thinks they are good enough to give $100M for what is currently nothing more than an embrio of a business.

Unless, of course, my analysis is flawed or incomplete or plain wrong (or all of the previous!...) and there is some other ingenious way of making money out of it. Surely Dennis Crowley, named one of the "Top 35 Innovators Under 35" by MIT's Technology Review magazine (2005), CEO of 4square must have it all figured out!

This thought kept pounding in my head: "what am I missing?", "where did I go wrong?"... after all, as an economist I am used to making predictions (ehm, forecasts) that are grossly wrong but, as a former consultant, I am not trained to admit mistakes... So, being unable to come up with an original idea that could better explain the hype around 4square, I did what any sensible person in trouble would do: google it and hope the light would reveal itself.

I need not go far: the first link I opened had the key to the mystery. It was from a news channel in Brazil that informed that the Rio de Janeiro based fast food chain Spoleto was launching a new promotion that went something like "Use Foursquare and get macarronated" (as in, eat free macarroni).

It hit me! Foursquare's business model is much, much simpler than my previous description: take an existing successful idea (social networks), make a twist on it (call it "mobile social networks"), add charm and media attention ("like breakfast with opinion makers that video posts on youtube"), ride the "wave of the hype" for a while and wait for an industry giant to get "macarronated" with the stuff, in this case, for about $100M (or more....).

You don't believe this version? Check out Dennis' vision and where his previous venture dodgeball ended up...  (just focus on last 4 sentences of paragraph 2)