Business model

What Foursquare Needs to Do

By Mark Evans in Social Media 1 Comment Tags: , , , ,

Armed with more than $15-million of venture capital (after allocating $4.6-million to founders), Foursquare has the financial muscle to turn what has been an interesting service into a viable and vibrant business.

Even though Foursquare has about two million users, it’s really still more of a social media novelty. While I guess it’s cool to broadcast to the world the places you visit by checking-in, the novelty has to eventually wear off. Then, what?

If I had $15.4 million of cash in my pocket, here’s what I would do to Foursquare:

1. Establish more partnerships with content and data companies to enhance Foursquare’s usability and features. While tips by users about a particular place are interesting, Foursquare would be a lot more valuable if it offered in-depth information and reviews from well-respected sources.

2. Provide information about not only a particular place but other nearby places. If someone has checked into a movie, present them with information about cafes, restaurants and bars in the same neighbourhood.

3. Make it easy for retailers, attractions, venues, etc. to build out a strong presence. This should include premium features for retailers to add more information. As important, provide them with user-friendly tools to set up marketing and customer acquisition programs. For example, make it a breeze to create coupons and loyalty programs based on someone’s Foursquare activity.

4. Create an in-depth analytics service that retailers, et al can use to learn more about what Foursquare users are doing. Foursquare should also offer premium analytics services to access customized data and reports.

5. Establish a self-serve local and national advertising platform with a variety of business models – a flat rate for local, regional and national coverage, as well as pay-per-click.

6. Drive marketing partnerships with major brands looking to engage with consumers. A good example is a recent agreement with Mattel, which will use Foursquare to offer a scavenger hunt to promote the new Barbie Video Girl doll.

What do you think Foursquare should focus on?

Free Ain’t Going Anywhere

By Mark Evans in Social Media, Uncategorized 3 Comments Tags: , ,

In the wake of Ning abruptly eliminating its ad-supported free networking service (and slashing 40% of its employees), there’s some chatter about the much-ballyhooed “free” falling out of favour.

It’s an expected reaction given Ning’s high profile and how its success in attracting users was so celebrated – some of it may have to do with the fact Marc Andreesssen of Netscape fame is an investor.

But the fact is free ain’t going anywhere any time soon.

As much start-ups need a way to make money other than counting on gettings lots of users that will attract advertisers, the idea of offering a free service is too easy, too compelling and has too much potential to discard.

There’s an inherent belief that free is just the way it is these days – a theory celebrated by books such as “Free” – and that consumers won’t pay to use online services. At the same time, a lot of people believe free has the ability to attract a critical mass of users that, in turn, will drive a start-up’s value from zero to 60.

Every entrepreneur and every investor believes this model is so compelling that to walk away from it would be idiotic. Just look at the growing number VC deals announced in recent months of free services.

As long as free is seen a high-octane growth engine (at least from a user perspective), it will continue to stay alive and well – buoyed by optimistic entrepreneurs and bullish investors.

That said, the upside of Ning’s decision is maybe it incites more discussion of the need to have a business beyond beyond just free. It could mean that freemium (a free basic service and a premium option for more features) will get more love and attention. Or it could mean that some online services – heaven forbid! – simply cost money to use.

Free ain’t going away but more people are discovering that the ugly, downside of free means it doesn’t generate any revenue to keep the lights on.

For more thoughts on how start-ups need to have a real business model, check out another one of my recent blog posts – “We’ll Figure it Out Later is Not a Business Model”.

“We’ll Figure it Out Later” is Not a Business Model

By Mark Evans in Twitter, Venture Capital 6 Comments Tags: , , ,

I’m in the process of reading Chris Anderson’s “Free”, which celebrates how the idea of paying little or nothing for many digital products and services is inevitable. Anderson makes a compelling argument that includes the belief that free works because it encourages other economic activity. For example, free music allows musicians to attract more fans, who then cough up money for concert tickets, merchandise and sometimes CDs.

While I like and use plenty of free services (GMail, Evernote, Skype, Firefox, Twitter), I’m also a businessman who recognizes that companies need to generate revenue to pay employees, do marketing and keep the lights on. However companies plan to make money – advertising, premium services, consulting fees – they need a plan to drive revenue to make the business viable.

The problem, however, too many start-ups have little or no idea of how they’re going to make money. Instead, the have a “business model” based on the idea that if they attract lots of users, a way to generate revenue will magically appear. After all, this “model” worked for Google, which struggled to find a business model before “borrowing” its pay-per-click business model from Overture, so why shouldn’t it work for other start-ups.

This “we’ll figure it out later” business model is flawed because while offering free services is a great way to attract users, not having an idea about how to make money from some of them is not a viable build a business.

The biggest culprit of this business model is Twitter, which still doesn’t seem to know how it’s going to make money. Sure, there’s been talk about advertising, premium business services or analytics but nothing has emerged yet. Still, it has raised $150-million in venture capital based on the fact it has become a wildly popular communications vehicle with more than 50 million users around the world.

While Twitter may eventually find a way to make revenue, it’s an exception to the “we’ll figure it out later” strategy. The vast majority (99.999%) of companies never attract enough users to figure it out. When the seed capital or venture capital is exhausted, they’re left with a modest number of users but no way to make money. Pretty soon, the pink slips are handed out, the lights turned out and the doors are closed.

So why is that so many start-ups get launched without a clue of how to make money beyond the notion that getting enough users might let them attract some advertising revenue? Why do many start-ups attract investors without even having a rough idea about how make revenue?

Make no mistake, free is wonderful for consumers, and there are clearly ways that free can be used as a powerful marketing tool to drive sales of other products and services. But for many companies, free is un-viable business model. Without an idea of how to make money, they never evolve from being interesting projects to businesses.

Instead, most up of them end up as fodder for the “free economy”, never to be heard from again as they disappear into the digital ether.

An Open Letter to Biz Stone

By Mark Evans in Social Media 1 Comment Tags: , , ,

Dear Biz,

I’m sure you appreciate the intense, burning interest that people have in how Twitter is going to make money. After all, you’ve got more than 50 million users, which has caused the monetization buzz to get more increasingly feverish the more popular that Twitter becomes.

But can you do me a favour: please stop talking about how Twitter is going to be announcing a business model soon. It’s an act that, frankly, has grown tired because it keeps repeating itself.

Yes, I understand that you’ve got to answer the “money” question every time you do an interview but the thing is you keep giving interviews so they keep asking the money question. It’s a vicious circle that’s become more vicious.

That said, it seems that you have a hard time not playing the game so when you appeared on TV yesterday, you declared Twitter will unveil a business model in the next month.

Is this a tease or do you really mean it? The problem is no one is sure whether Twitter will actually announce a business model because we’ve been led down this path before only to be disappointed.

I’m hoping this time you mean it but time will time.


What If Everyone Makes Money Except Twitter?

By Mark Evans in Social Media 3 Comments Tags: , , ,

TechCrunch (Michael Arrington) has a post looking at Twitter’s “Revenue Dilemma”, looking at how Twitter is still having a hard time trying to figure out how much money it can make offering services such as advertising and analytics.

It’s an issue that continues to attraction attention as the number of people using Twitter has surpassed 50 million, which, in theory, means there’s a large audience that the company can start to monetize.

While the spotlight is on how Twitter is going to make money, there’s an interesting story starting emerge: a growing number of companies using Twitter’s API that are creating businesses that are generating revenue.

This begs the question is what happens if an “economic ecosystem” is established around Twitter but doesn’t include Twitter itself. In other words, what happens if hundreds of businesses are created using Twitter’s API but the entity supporting them – Twitter – can’t make revenue or, at least, enough revenue to be viable.

A good example of Twitter’s emerging economic ecosystem is StockTwits, which has emerged as a popular place for investors to talk about investment ideas. StockTwits recently made an intriguing move by launching a desktop application that looks and feels a lot like TweetDeck but has a lot of investor-friendly features. (TechCrunch has an extensive review.)

StockTwits offers a free version and sells a premium version that goes for $50/month or $400 to $500 a year. The company has raised $1.6-million, suggesting investors also think StockTwits can become a viable business and/or investment opportunity.

Another example is Tweetdeck, the most popular tool to use Twitter other than Twitter.com. While Tweetdeck has yet to come up with a business model, it is attracting enough users to a compelling service that should give it a solid foundation to generate revenue.

As well, a growing number number of businesses are being created that are focused on areas such as search (Twazzup, Scoopler), data analytics, e-commerce (Tweetbucks) and marketing. Some are making money from subscription-based services, while some are simply using AdSense.

Meanwhile, Twitter talks the talk about making revenue has yet to walk the walk. There are lots of ideas bouncing around but nothing has emerged that suggest Twitter has solved its revenue riddle.

For the companies building viable business around Twitter, the fact Twitter isn’t making money has to be somewhat of a concern. After all, you can’t have healthy branches if the tree is sick.

StockTwits co-founder Howard Lindzon said it Twitter should be able to make money and “it is past the point of funny that they have not”.

“Twitter witter is a great lead engine, what I always thought it wwas great at,” he said. “As just a lead engine, Twitter SHOULD make hundreds of millions but who knows.”


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