Foursquare - Twelve Months to Live?

Business Insider is out with an interesting story on geo-location startup Foursquare. Apparently, an Analyst from PrivCo, a research firm that covers private companies, believes that Foursquare will fail in 2013.

Wow. Frankly, I've always found Foursquare to be sort of silly. Perfect for the "look at me, look how great I am" crowd, but not of any serious use. But, given the nature of social media companies and the possibilities for monetization when one has a massive network built up, I always sort of assumed that Foursquare would end up going public or getting gobbled up by a company like Apple, Google, or another titan with interest in breaking into the social scene.

I certainly didn't think they were at any real risk of failing. Let's take a look at some of the risk factors the company has that could lead to its downfall in the next twelve months.

PrivCo focuses on the following risk factors in its report:

• Foursquare has missed its revenue and profitability projections for several quarters straight. Both its own forecasts and the projections it presents to its VC investors
• The company has been trying to raise a new round of equity for over a year with no success
• Existing investors have apparently made it clear to CEO Dennis Crowley that they will not be investing in any future rounds
• While 25 million people are registered to use the app, only 8 million use it on a monthly basis
• Though the company is in its fourth year of existence, it is apparently only pulling in $2 million of revenue

I think the last point bears repeating. Foursquare is only generating $2 million in revenue. This is a company that, in 2011, raised $50 million at a $600 million valuation! What were the VCs smoking? This is a company that generates virtually no revenue, is certainly unprofitable, has a small active user base, and is growing sluggishly.

PrivCo is banking on the company selling before year-end for less than the $71.3 million that's been invested in the company to date.

Personally, I'm a light Foursquare user. I say light because I keep all of my check-ins private and only check-in to a place if there is a real incentive to do so. For instance, there is a great seafood restaurant in the city called Mermaid Inn, if you check-in you get a free appetizer. I actually find myself occasionally going back to places with offers like this in part because it's such a great deal, though it's far from the deciding factor when I'm choosing a place to eat.

Outside of that, I dont do any checking-in whatsoever. I know a couple people who can't sit down to eat or have a beer without doing it, and it just strikes me as dumb. It also strikes me as something that would be generally difficult to monetize given its nature as a mobile-first social network whose primary function is creating a list of places you've been to. And, clearly my intuition in this regard was right on the money. But, I'd never have imagined that they made so little in the way of revenue. I honestly found myself stunned to read the $4 million number.

I think the deeper problem that Foursquare is facing is that it isn't solving an actual problem. Now, let me be clear, a new company doesn't have to solve a problem to be successful, it can offer a great product or service that people want to buy. But, a free service like Foursquare would never work as a pay-to-play app. And it's finding that people don't necessarily need to tell their friends where they are at all times. Life worked just fine before Foursquare and it would work just fine should it ever disappear from the face of the Earth.

If you're going to offer a 100% free product and hope to turn it into a business, you'd better either be solving a real problem, making an incredibly addictive application with amazing long-term replay value, or creating a network that people come back to time and again.

To add - free apps can absolutely work. Take Shazam, for instance. It solves a massive problem by enabling anyone to know the name of a song and the artist who creates it just by letting your phone hear the track. I've bought at least a dozen songs through iTunes after scanning them with Shazam. An absolute killer app. Checking-in to bars and restaurants? Not so much.

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What do you guys think? Will Foursquare go on to be a strong revenue generator? Will someone scoop it up this year? Are there any free apps that you use on a regular basis that you recommend? Leave your thoughts in the comments.