After Years of False Starts, Foursquare Has Found its Purpose -- and Profits
In the spring of 2016, Foursquare CEO Jeff Glueck went on CNBC to make a bold prediction: Chipotle comparable sales would fall by 29 percent in its first quarter. The network’s anchor seemed skeptical. The fast-food chain was reacting to some health scares at the time, but no one was predicting nearly as steep a drop in revenue. “What is the technology here? What have you got that enables you to do this?” the anchor asked.
Glueck was basically fishing for this question. Foursquare had reinvented itself as a location intelligence company for business, but it was in the painstaking process of shaking off its image as a forgotten consumer app. Glueck had been making the rounds for less than a year, seeding the market with all kinds of predictions based on his company’s data -- how many new iPhones Apple would sell, or how well McDonald’s all-day breakfast launch was going. The Chipotle forecast was the boldest yet, and it held true. Two weeks after Glueck’s appearance on CNBC, the Mexican eatery reported sales had fallen 29.7 percent from a year earlier.
Boom. Foursquare for the win.
Glueck’s Nostradamus act was a long time in the making -- the result of a process that was set in motion four years earlier, in 2012, when Foursquare cofounder Dennis Crowley began looking for help in turning his company around. The startup had accumulated mountains of data about where people shopped and traveled but hadn’t figured out how to monetize it. Today, that puzzle seems to have been solved: Foursquare is on the path to $100 million in revenue, and profits are within sight for the first time. But a shift like this wasn’t easy -- because as Crowley and his new leadership team discovered, it takes more than just a good insight to jump-start a company’s growth. First, the entire company and its culture must be reshaped to fit a new vision.
Foursquare had launched in 2009 with enough hyperbole to buoy an aircraft carrier. It was essentially a digital layer atop the real world -- encouraging people to “check in” wherever they went, announcing their movements throughout the day. Someone is at Dunkin’ Donuts. Now the gym. Now their favorite brunch place. The reward for sharing? Stickers. Badges. Friendly competition to become the mayor of a favorite bar. And, critically, being part of a community of people sharing recommendations on the best of everything around them.
But despite its cultural domination, the app just couldn’t translate into a lasting business. Its tens of millions of users never became hundreds of millions. After a few years, engineers were leaving for other startups. Users became less active, and Foursquare began to feel like the mess left behind from a really great party. Employee morale was low. Nonetheless, investors stood by patiently, pouring money into the app again and again -- perhaps, as one wag put it, because everyone thought you’d have to be a moron to fumble the business.
In 2012, Crowley turned to Steven Rosenblatt, a startup warrior and advertising executive from Apple, to solve the puzzle. He’d run the tech giant’s advertising platform, iAd, and was looking forward to a long summer break with his wife and young kids. He figured he’d spend a few months as a part-time Foursquare adviser, and that would be that.
“Day one, I walk in and Dennis is like, ‘Why don’t you come hang out at the executive meeting?’” Rosenblatt was taken aback; at a secretive company like Apple, those kinds of invitations were never casually extended. Then Rosenblatt discovered that, also very much unlike Apple, he could peek under the hood of every part of the business. “Product road maps -- every product map -- across the company are an open book. You can go over to anyone: ‘What are you doing? What are you working on?’”
Rosenblatt was smitten. And thanks to all this access, he was able to help Crowley see the business opportunities that had eluded him until then. Crowley had been working on the assumption that Foursquare should follow the local business advertising route of Yelp, which had leapfrogged Foursquare in its revenue growth. “He initially thought this company would build a local Yellow Pages-type business,” Rosenblatt says. No. First and foremost, Rosenblatt decided, Foursquare is a technology company, not a run-of-the-mill sales-and-marketing operation. It needed to capitalize on what made it special.
Over the next few years, the company’s leadership roles evolved. Rosenblatt became chief revenue officer. Glueck joined in 2014 as chief operating officer; he’d been known as an experienced startup hand who had been a turnaround doctor at Travelocity. Then in January 2016, Crowley, who had been CEO, stepped aside to focus on big, futuristic ideas and handed the title to Glueck, while Rosenblatt became president. Then the two new leaders began diving further into all the valuable data Foursquare wasn’t putting to use. There was plenty. Asset number one: The more than 11 billion check-ins tracking people in real life since 2009. Asset number two: The four million monthly updates to its Places database -- changes in address, phone number, a Japanese restaurant that was now a spaghetti joint. And then there was the sleeper, asset number three: 100,000 developers tapping into the Foursquare API -- its location technology -- for free. Enormous companies like Yahoo and Twitter were using it a billion times a year; for example, when you tweet and tag the location you’re in, that’s using Foursquare’s data. But Foursquare had never asked these companies to pay.
Foursquare had always thought of itself as an app for consumers, but this treasure trove suggested something else to Glueck and Rosenblatt: The company needed to think of itself as a location data company. Based on GPS and other location signals, Foursquare could tell what business a user was visiting -- something no other company could do as reliably. That was a powerful tool, and it could be used to serve other businesses.
First, Foursquare decided to start treating its data like the valuable property it is. It asked those big companies to start paying for its API; the developers on the other end of the line basically laughed and said, “Yeah, we were wondering when you were going to start charging.” Crowley was amazed. “I had never had that experience in extracting dollars from big enterprise customers, but thankfully we had people here who knew how to do that,” he says. (Small companies and startups can still access the API free of charge.)
The next steps were a bit trickier, as both Glueck and Rosenblatt began driving the company to develop new ways to sell its data. Foursquare’s culture wasn’t set up for that. When Rosenblatt joined in 2012, there were only two or three business-development people on a staff of roughly 110, and 100 percent of the engineering team was dedicated to consumer apps. At first, some of the team balked at diverting resources away from the app and toward enterprise products.
“This wasn’t a company that was saying, ‘We don’t want to make money,’” Rosenblatt says. “Dennis knew at the time, and the board obviously knew, we were ready to grow up and build and turn this into a real business.” But still, Foursquare’s people had taken their jobs to work on a fun consumer app. They believed in it and vigorously debated the coming changes.
Glueck sought inspiration for how to evolve the company’s culture, and referred to Good to Great, a book by Jim Collins about how 11 companies shook off mediocrity to become market leaders. Here, Glueck learned about the flywheel concept, a visual metaphor for business. When first pushed, a flywheel moves slowly and with great effort. With every successive revolution, the pace quickens. To the outsider, it appears the momentum is sudden, but, in fact, it’s the product of a steady grind. This was what Foursquare would do, Glueck decided: It would move slowly and deliberately, until every part of it eventually churned.
From 2014 to 2016, Foursquare began rolling out changes. In mid 2014, it split its consumer apps in two -- Swarm became the check-in app, and Foursquare City Guide recommended activities based on user interests. Critics scoffed, but the team continued with its plan. They launched Place Insights, a product that analyzes foot traffic trends from 93 million locations globally -- information that can help a retailer decide where to set up a new store, say, or help a marketer know who is likely to use its brand. In April 2015, Foursquare added Pinpoint, a digital advertising system that helps brands target consumers based on where people go in real life. (So, for example, Pinpoint could help an athletic-wear maker show ads to anyone who goes to the gym three times a week.) And in February 2016, it created Attribution, which helps advertisers answer their most pressing question: After someone sees a digital message, do they take action in the real world?
After two years of pushing on the flywheel, Foursquare has new momentum and a new identity. Its executives push back against that last part; they say Foursquare’s core as a data company was always there, just waiting for the right technology to make it possible. Whether that’s true or just semantics doesn’t really matter. The numbers prove it’s working. Enterprise products power virtually all the revenue growth at Foursquare -- up 74 percent in 2016 from a year earlier. That’s tens of millions of dollars.
Back in 2009, when Crowley was first shopping around his idea for Foursquare, investors told him it would take eight to 10 years to make the business work. Now here we are, coming up on that time. They seem to have been right. But Crowley did not anticipate his own path -- giving up the job of CEO and, in some way, his vision for what the core of Foursquare was. “Hard isn’t the right word,” he says of the change. “There is no second-guessing that now. It was very clearly the right thing for the company, and I am still here every single day. I get to work on the things I want to, and I can let them execute.”
Today, Foursquare’s growth potential is huge, says Glueck. Ninety-two percent of commerce takes place in real life, not online. That means Google can tell you about only 8 percent of what everyone is doing with their spending habits. Foursquare aims to tell you about the other 92 percent. According to Asif Khan, founder of the Location Based Marketing Association, there are 5,000 businesses angling to profit from location intelligence; by 2019, total technology spend will reach $43 billion and advertisers will shell out $21 billion on location-based strategies. Looming large in this sector are Facebook and Google, each with its own armies of engineers working to compete. Glueck shrugs off these threats: The market is plenty big.
The flywheel is spinning with increasing speed. Foursquare has signed deals with Snapchat to improve its geo-filtering. Through a partnership with Nielsen, one million users agreed to leave location sharing on all the time so Foursquare can track and analyze their movements. Now when he goes on CNBC, nobody questions Glueck’s technology. Rather, he gets to say, “Three of the top five hedge funds are using Foursquare data to give them an investing edge.”
And inside Foursquare, Glueck has effectively redefined how to measure its own success. The company managed to raise $45 million in 2016, reportedly at half the $650 million valuation it commanded in 2013. Glueck won’t comment on that. He simply says the company was misunderstood, and now investors recognize that it’s a location intelligence company -- something that should be measured the same way as a services-as-a-software or programmatic advertising firm, which command a fraction of the multiples of sexy social media companies. With the new funding round, Glueck crafted a fresh “cap table,” which means the distribution of ownership was reconstituted. (That’s often the case when a company raises money in a “down round.”) Glueck says the details of the deal were completely transparent to employees, who got new shares and on better terms. Preferred shareholders even gave up some of their advantages in this latest round, he says. But now they are in a position to likely triple or quadruple their investment, he says. Will it be through an IPO or a buyout? The team waves off the question. They are focused on growth. The exit will come when it comes.
Foursquare is on the path to $100 million in revenue, a goal Glueck set last year. Profits are within sight, he says. Talent was once fleeing Foursquare, but now it’s pounding on the door. Most recently, the former CEO of the Advertising Research Foundation asked to join. The company created a new position for her.
Glueck is even telling investors that Foursquare is destined to become a billion-dollar company -- a unicorn. That might excite some people. Others might see it as hype. The valuation isn’t a concern for Albert Wenger, managing partner at Union Square Ventures, one of the first investors in Foursquare. Wenger invested again in 2016, even though the valuation had dropped. What’s really central to any venture capitalist is growth. “If real sustainable value is being created,” he says, “we will continue to support it.”
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March 28, 2017 at 04:09AM