Case Study Foursquare

Foursquare is the ubiquitous location-based social network that creatively incorporates gaming elements and marketing. It is the brainchild of Dennis Crowley and Naveen Selvadurai.

The Founders Crowley and Selvadurai met in New York City in 2007. They worked for different technology companies (AreaCode and Socialight, respectively), but in the same office space. Crowley is a graduate of Syracuse University. He has a degree in advertising and holds a master’s from New York University’s Interactive Telecommunications Program. Selvadurai, a software engineer, holds computer science degrees from King’s College (London) and Worcester Polytechnic Institute (Worcester, Massachusetts). Both founders had prior experience in the technology field. Crowley worked at Jupiter Communications directly out of college, and Vindego after that. He cofounded Dodgeball in 2003 and sold it to Google in 2005; he worked for Google after the acquisition. Then, he joined AreaCode as its director of product development. Selvadurai worked at Sun Microsystems, Lucent, RunTunes, and Sony Music. He later joined Socialight as its Vice President of Engineering. The companies where the founders worked were related to the business that Foursquare is today. Vindego created mobile applications, including city guides. Dodgeball was based on Crowley’s graduate thesis, which he partnered with Alex Rainert (currently head of product at Foursquare) in order to commercialize the concept. Dodgeball was a location-based social networking option for mobile devices that was available in a number of U.S. cities. Google acquired and operated Dodgeball until 2009, when Dodgeball was shut down and replaced with Google Latitude. AreaCode was a software start-up in the area of game play when Crowley worked there. RunTunes was a company, started by some friends of Selvadurai, that aimed to bring music to phones. It was bought by Sony Music. Finally, Socialight is a company that creates and promotes local content with social interaction and user-content contributions. According to Christopher Nomes, “Partnership between Naveen and Dennis was a perfect match. Both young and brilliant, both with already hefty working experience from working in cool and innovative companies, and both with ability to take everything they learned and forge it into something new and special that will overshadow everything they did before.”

Creating at the Kitchen Table About a year after they met, Crowley and Selvadurai began building the first version of Foursquare at Crowley’s kitchen table in the East Village. In March 2009, Foursquare launched at South by Southwest Interactive. Most recent numbers suggest that Foursquare has over 45 million users and is growing at a rate of 25,000 new users per day. Check-ins exceed 5 billion. The App Foursquare is widely popular and becomes an even more useful mobile app with its increasing numbers of users. As users check in on their mobile devices at various locations, such as restaurants, retail stores, and museums, they can add recommendations/reviews. This serves three purposes: (1) They can tell friends where they are. (2) They construct a set of places visited to serve as reminders. (3) The recommendations provide additional data for other Foursquare users and thus add value to the app. To increase usage and improve the user experience, Crowley and Selvadurai built incentives into the app. For example, users become the “mayor” of a particular location based on the number of visits. Users earn virtual badges for the number or variety of check-ins. They also can receive discounts and incentives from advertisers when they check in. A restaurant might provide a 10 percent discount or a free dessert. Foursquare was designed to generate frequent use. Selvadurai says, “Your app has to have a primary-use case. That brings people back. I think simplicity has a lot to do with it. Simplicity is probably high on that list.” In the case of Foursquare, the “check-in” is the primary use case. The app is designed to make the process quick and easy.

Financing A start-up like Foursquare required resources beyond what Crowley and Selvadurai could contribute. They sought venture capital in multiple offerings. The Series A round totaled $1.35 million, which they raised in 2009. The primary investors were Union Square Ventures with O’Reilly AlphaTech Ventures, and the funding was an equity investment. At the time of the investment, Foursquare was valued at $6 million. The Series B, or second round, totaled $20 million, with Foursquare valued at $95 million in 2010. The group of venture capitalists was led by Andreessen Horowitz with participation by Union Square Ventures and O’Reilly AlphaTech Ventures. The funds were needed to continue the expansion of the company, including the addition of critical team members and a new office space. The next round of financing was raised on June 24, 2011, at $50 million in equity from Andreessen Horowitz, with Union Square Ventures, O’Reilly AlphaTech Ventures, and Spark Capital. Interestingly, Sarah Lacy notes, “Some firms said they shied away from the deal, because they felt monetization was only more unclear now. With the local space on fire, Foursquare’s target advertisers are already beset with salespeople from Yelp, Living Social, Groupon, Google, and others calling on them. There’s going to be a level of retailer fatigue, and business-wise Foursquare is late to the party.” For this round, the company was valued at $600 million; again, the funds were needed for expansion. In the spring of 2013, Foursquare raised an additional $41 million in a loan and convertible debt, rather than equity. The lead on this round was Silver Lake, a private equity firm, which provided a multi-year loan. Both Andreessen Horowitz and Union Square Ventures participated in this round, but with convertible debt. According to Tomio Geron, “The mobile location app was a social media darling after championing the check-in and surviving as others in the space faded away. But it has been struggling to revamp itself as a local search and commerce tool as the check-in becomes more of a commodity available on other apps such as Facebook.”

In total, through these four rounds of financing, Foursquare raised $112.35 million in five years to fuel its start-up and growth. Cofounder Perspective During a presentation in October 2001, Selvadurai shared his seven formulas for creating and building a successful venture: Keep good company. Make something people want. Build around an “atomic action” (i.e., check-in). Seek mentors early. At first, hunch; then, data. Balance unknowns with knowns. Always be recruiting. Foursquare is a reflection of the opportunity its founders identified, the team they created, and the resources they garnered.

Case Study Analysis

1. Evaluate how Foursquare fits Schumpeter’s definition and the five basic ways entrepreneurs find opportunities to create new businesses.

2. Compare Selvadurai’s seven formulas with the seven rules for building a successful business in this text.

3. Apply Porter’s generic strategies to the industry in which Foursquare competes, using case information and your own knowledge. Synthesize your analysis. Based on this work, what did you find?

4. What prepared the founders to create Foursquare?

5. What gaps in the founders’ team and resources needed to be filled by outside sources? Name four specific resources they acquired.

6. Identify the features and benefits the founders included in the app to ensure its popularity. Why were these selected?

7. Is Foursquare the only app of its kind? If not, what other apps are similar?

8. What future do you predict for Foursquare?