Why Foursquare will win and Groupon will lose

I read Wednesday morning that 75% of all Foursquare activity is performed by 5% of its members. So it’s safe to say that Foursquare has a long way to go to attain the type of regular usage it desires. Since its launch I have been a somewhat regular user of the check-in feature on Foursquare. I have remained interested in how people might use the platform.

What I have noticed recently is that Foursquare has enhanced the platform by offering specials (25 often) in the general area in which you are checking in. I think this is a potentially game changing asset and just may be the launching pad for a meteoric rise in use of the Foursquare platform. On Thursday Foursquare Labs Dennis Crowley announced a partnership http://nyti.ms/iHp6WX with American Express http://bit.ly/mDmbiW to further offer value to Foursquare users.

Up until this point Foursquare has not done much more than offer the ability to show friends within the network a person’s actual location, (or close to your actual location) when you check-in. If you check-in to a particular place multiple times each future check-in brings you closer and closer to being named ‘Mayor’ of that particular place. Being a ‘Mayor’ could possibly bring you some free drinks/gifts/offers so there is some possible intrinsic value. Overall the entire Foursquare platform was not very compelling.

The growth of nearby deal offers once you check in on Foursquare provides some of the missing ingredients for a more robust and compelling reason for people to take a new look at Foursquare. I wish I could say the same for the daily deal sites led by Groupon.com and Living Social.

A very interesting research paper written by Utpal M. Dholakia an associate professor of management at the Jones Graduate School of Business at Rice University focuses on a survey of 324 business that conducted a daily deal promotion between August 2009 and March 2011 http://bit.ly/jTsEj1. Nearly half of the business polled indicated that they would run another daily deal promotion which means more than half the businesses would not.

I’ve questioned (as have many) the effectiveness in driving positive transactional customer behavior through daily deal promotions. The unknown metric is the increase in consumer awareness (branding) via the use of daily deal promotions. As with any advertising campaign a certain amount of immeasurable faith has to be considered to be part of the equation (see broadcast television).

There are other reasons a business might continue to use daily deal promotions such as keeping its staff busy during slow periods rather than risk losing them to other establishments. Professor Dholakia further points out that 5 sites – Groupon, LivingSocial, OpenTable (which I would not have considered a daily deal type site), Travelzoo, and BuyWithMe (I was not familiar with this one), that have the largest market share show no real statistically significant differences in incidence of profitable and unprofitable daily deal promotions. While the sample is smaller than one would like to see the data appears to be pretty rock solid.

Groupon.com and other daily deal sites will end up merely being another advertising vehicle and there’s nothing wrong with that. But if you are like me you might want to question the legs of a prospective $15 billion valuation in its upcoming IPO. Meanwhile Foursquare is sort of under the radar a bit while it builds its platform on what I feel is a better value proposition.

Last month on Kara Swishers excellent AllthingsD blog http://www.AllthingsD.com Liz Gannes reported that Foursquare and Groupon were planning a distribution deal – http://bit.ly/kjuUIA – but no further word has been heard about it. The longer it takes for a deal to happen I think the less likely Foursquare would have interest.

What do you think? Is Groupon a darling or a dud-to-be? How about Foursquare?

About markkolier

Futurist, entrepreneur, left lane driver
This entry was posted in Advertising, Innovation, Marketing stuff, Mobile Communication, Social Media, Technology and tagged , , , , , , . Bookmark the permalink.

4 Responses to Why Foursquare will win and Groupon will lose

  1. Jim Fennell says:

    Great post Mark, I agree with questioning Groupon’s proposed $15 billion valuation since their business model is not proprietary. Being first to market is important but competition can, and will, enter and drive down margins for all players. Long-term, this company is probably not a good buy.

    Prof. Dholakia’s survey is interesting since it appears to indicate that half of the retailers that used social couponing are dissatisfied with the result. Perhaps this is due to a basic misunderstanding of these services. Groupon, Living Social, etc are new channels for coupon delivery with some improved metric tracking capabilities. However, the same old rules apply in virtual space so it’s critically important for marketers to properly balance a coupon promotion. Too little activity and your campaign is ineffective, too much and your margins get hammered and brand perception may be cheapened. I suspect that some of the dissatisfied retailers from Prof. Dholakia’s survey don’t understand how to structure a coupon promotion and ended up not doing as well as they could have.

    You may be right that it’ll pay to watch Foursquare… I have an account but haven’t used it much – will check it out again.

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    • markkolier says:

      Thanks Jim. It’s interesting that you point out the what might be inabilities on the part of retailers to properly structure – and measure – coupon promotions. I think that factor is an important one to consider as well.

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  2. Nader Ashway says:

    Excellent and insightful post here, Mark. Your suspicion of Groupon’s impending IPO is well-founded, and it’s a real head-scratcher for me, too. It’s starting to smell a lot like the late 1990’s these days with bloated IPOs precariously set atop blurry earnings potential, isn’t it?

    What I really like about your post is in the numbers. Groupon has soared in popularity, but with very little known about earnings or about the deals it’s forging with its partners. Essentially, Groupon is seeking daily deal prostitutes, and will take virtually anything from any business, as long as it’s half off and Groupon can take its requisite cut. Eventually, the partners won’t be so willing. How long will that take to run its course? A year, maybe two…sadly, there are a lot of small businesses out there willing to gamble long term value for short term increases.

    For a new-millennium online business, Foursquare, however, seems to be adhering to more classic and folksy business principles: take time to build audience, add features to serve them, form smart business partnerships and grow organically. They may yet become the “mayor” of the Internet business model.

    Twitter: @nashway
    Blog: http://www.marketingthingy.wordpress.com

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    • markkolier says:

      Appreciate that Nader. I have no rooting interest here just my observation on what I am seeing take place. I don’t think Andrew Mason is much worried about it. But he should be.

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