As first reported in Businessweek last Thursday, the bulk of Foursquare’s recent $41 mil cash infusion came by way of a muti-year loan from private equity firm Silver Lake Partners. The rest, which came as convertible debt from the likes of Andreessen Horowitz, Union Square Ventures, O’Reilly AlphaTech Ventures and Spark Capital can eventually be swapped for shares (or paid back in cash), but was a small percentage of the total.
This financing structure, which doesn’t require Foursquare to increase the equity portion of it’s balance sheet prompting more valuation questions, gives the company more time to fully realize the potential of it’s widely popular location-based recommendation and check-in app. You see, as of now only a select group of the millions who have signed-up to advertise, can actually do so. And this advertising is only displayed on certain pages, and not the most popular ones either, which has limited the ability for the company to drive advertising dollars.
But starting this summer Foursquare will expand it’s ad sales staff from 10 to about 40, and also open up advertising to all the companies it works with. Also notable is the fact that these ads are primarily served on it’s search pages, of which Foursquare founder Dennis Crowley admits to Businessweek, “…was buried in previous designs.” But new upgrades recently rolled-out to it’s mobile app remedy this by focusing more on helping consumers discover new places go, and emphasizing it’s search features.
When the app premiered at SXSW back in 2009, it was a hit. But the full potential of the company, and it’s ability to make money in the growing mobile local advertising market, has yet to be realized. But early data shared with Businessweeks Sarah Frier, from Foursquares Chief Revenue Officer Steven Rosenblatt, show click-through rates above industry averages for mobile ad networks. So perhaps taking the time to build out the core service first, instead of employing thousands of salespeople to deliver what can be argued, are low quality prospects (ahh-Groupon-choo), is worth it.
Speaking to TheNextWeb’s Paul Sawers, Crowley noted, “We have to crunch your 3,500,000,000 check-ins, layer your social data over it, semantically analyze our tens of millions of tips, and take a look at real-time activity around you. We do all that in under a second, all to recommend two or three places that are perfect for you.”
This is a much different approach than the aggressive growth fueled by low-margin ’flash-sales’ advertisers pursued by Groupon, whose stock price happens to be down 69% since it’s IPO back in 2011. But only time will tell what becomes of Foursquares slow growth strategy. But now that it’s focused more than ever on monetization strategy, or so it seems by opening up more advertising channels, and driving users to those channels, we should an pretty good idea of the effectiveness and profitability.
As soon as the end of this year users will be targeted by advertisers based on their location as noted by Frier, “That means when a shopper goes to Best Buy, Samsung will be able to send them ad ad for it’s TVs.”
Article first published as Foursquare’s $41m Buys Time for Company to Locate Revenue on Technorati.