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News broke this week that location-based start-up Foursquare has inked several new deals with major media brands – with this announcement, and past sponsorships, Foursquare seems to be grabbing cash from any brand it can… and it makes complete sense.

So why, besides the cash flow, is this the right strategy for Foursquare?

  1. Timing is critical for the start-up. Location is the hot game in town and the start-up is facing imminent and fierce competition from Google Buzz or Google Latitude, Twitter, and Facebook – not to mention the other start-ups in the space, such as Gowalla or Loopt. Suddenly the barrier to entry is much lower, the territory seems much more valuable, and the competition has far more users in their systems. Foursquare finds itself ahead of the pack for a brief moment – a moment that might be their only opportunity to net any revenue.
  2. Brands provide the competitive advantage. To be blunt, Foursquare isn’t sitting on any kind of technological leap forward. Others in the space could implement a similar system and will very soon. Yes, Foursquare was indeed clever by blending in elements of gameplay to the user process, the gameplay certainly set it apart from Loopt or Gowalla and gave it the head start, but will users choose novel gameplay over a network their friends are already using? Most likely not. Unless, of course, there’s an added value in using the system – a value that a familiar brand could offer. Brands can use the platform to serve discounts or coupons, reward loyalty, unlock content, allow physical access to a location (foursquare as a vip badge), and more – opportunities that truly will set Foursquare apart from its competitors. Twitter may allow you to complain directly to a brand, but there’s no ability for a brand to give you a coupon while you’re in the actual store. Not yet, anyway.

What Foursquare has managed to accomplish certainly shouldn’t be undervalued – in less than a single year they’ve amassed over 300k users, $1.35 million in VC investment, and built an incredibly attractive platform for advertisers. The five man team now finds themselves at a true crossroads – the brands that are willing to put some faith in their nascent community, while also earning some PR by partnering with such a buzzing platform, will inevitably make or break the future of the business itself. If Foursquare can convince enough brands to use the platform to deliver value to users (value beyond advertising), users will have a compelling reason to join, stick around, and recommend the service to friends.

Sujeito irritantemente lúcido este Bud Caddell.

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