Foursquare’s Plan to Use Your Data to Make Money—Even if You Aren’t a User
You could be forgiven for wondering whether Foursquare even still existed. The once hyped social media company had already fallen off many people’s radars before its 2014 relaunch. That event failed to generate sustained buzz, and it’s been quiet ever since. Then this week the company announced a management shuffle and a new round of funding that, according to the New York Times, cut the company’s value in half, marking the second time it’s been devalued by investors.
Foursquare claims its apps, including its eponymous recommendation app and its location-based game Swarm, have over 50 million monthly active users between them, lagging well behind social networks like Twitter, Instagram, and Pinterest. For investors that expect exponential user growth, that’s just not good enough. But over the last 18 months, while most people have been looking at the company’s consumer-focused apps, Foursquare has quietly built an ad-targeting and location data business that new president Steven Rosenblatt is growing rapidly. What’s more, these services don’t depend on attracting new users to Foursquare’s apps, allowing the company to jump off the growth-for-the-sake-growth treadmill.
It’s a striking gambit: to succeed, Foursquare is staking out a plan where it doesn’t need most of us to use Foursquare at all.
The Data Behind the Apps
The fastest growing of these new services is Pinpoint, Foursquare’s ad-targeting business. Using location data to try to serve relevant ads is an obvious business model for Foursquare, but with Pinpoint the company isn’t just running ads within its own apps. Nor is it selling its users’ location data to ad networks. Intsead, it’s making sense of the massive amounts of location data that other companies collect. Lots of apps can access your GPS coordinates, but matching those coordinates to an actual place—such as a restaurant, a gym or a home—is more difficult.
Over the years, Foursquare users have helped the company compile a massive database of locations. When someone checks in to a place on Swarm, Foursquare’s newer app, the company records the user’s coordinates, helping it determine all the different coordinates associated with a single business or other place.
Foursquare says it can’t disclose who its partners are, or how many different smartphone users’ data it has acquired. But Rosenblatt says the company could, for example, create a list of “millions” of smartphone owners who frequently visit fast food restaurants by taking a pool of location data collected by its partners and comparing that to its database of fast food restaurant coordinates. Advertisers could then use that data to show those users ads for fast food chains, or perhaps healthier alternatives or gym memberships—all without those people ever having to install a Foursquare app.
To be sure, the consumer apps are still important. These apps, after all, are the main way that Foursquare is able to keep its location information up-to-date. But ad-targeting and other services allow the company to make money from a relatively small user base, at least compared to something like Facebook, which has well over a billion active users.
Foursquare has long sold access to its location database to third parties, and Rosenblatt says over 100,000 developers are now using this service to power their own applications. For example, whenever you tag a tweet with a location, ask Microsoft’s digital assistant Cortana about nearby restaurants, or add location information to a photo Pinterest, you’re using Foursquare. “You could imagine fitness tracker apps that recognize whether you’ve gone to the gym for the fifth time this week, or if you stopped at the donut store,” Rosenblatt says. But the company is also trying to find ways to use this database information, along with the third party data it collects, for more than just building apps.
For example, new CEO Jeff Glueck has published blog posts based on Foursquare data claiming that McDonalds has seen more foot traffic to its restaurants since it started serving breakfast all day, and a (surprisingly accurate) prediction that Apple would sell between 13 and 15 million iPhones the weekend the 6s came out.
Obviously McDonalds and Apple have their own analysts and data sources for making such predictions and evaluations. But competitors could, for example, turn to Foursquare to estimate their rivals sales. Rosenblatt also suggests investors and real estate developers could use the company’s data and tools to determine which neighborhoods have decent foot traffic before opening up new storefronts.
The Privacy Question
This all sounds great for Foursquare. But the big question for the rest of us is privacy. Foursquare says it differs from data brokerages that buy and sell user data in a few ways. First, it’s not actually selling user data to third parties; it’s just using the data it collects to target ads or answer questions. Second, all of its data is anonymized. “The grocery store tracks everything you buy,” Rosenblatt says. “When you donate to a non-profit, they sell your info to every other non-profit in the sector. We don’t even know your name.” He also points out that everyone who downloads a Foursquare app know that the value of the app comes from sharing their location information with the company.
The trouble is, users might not know how that data is being used. We’re fairly used to the idea of seeing ads in a free app. But the idea of our location information from one app being used to power ads in another app is less familiar, and less easy to see. Foursquare’s use of third party data makes the privacy situation even murkier, since users of the original apps may not understand how their data is being used, either.
That’s the reality that every company that offers a free app has to face. Foursquare may finally have found a way to turn their users’ activities into money. But keeping them around will mean convincing them they still have their best interests at heart.
Meanwhile, the company is paving a path for other niche social media companies by attempting to prove that attracting a billion users isn’t the only way to build a fast growing business. Apps with a small but loyal following might just be able to create value that other companies are willing to pay for. It might not be the sexiest business, but it might just make more sense than growth for its own sake.