How Do Tech Companies Make Money?

The theme of the articles I compiled this week has a lot to do with the timely strategic problem of “how do tech companies make money?”  From private companies that can hide behind the secrecy of their revenue streams (or at least until they have to raise another round) to major public company/IPO whipping boy Facebook, I wanted to put together interesting trends and associated buzzwords for what I’ve noticed recently.

Foursquare: Can They Unlock New Revenue Sources?

Dennis Crowley (@dens), CEO of Foursquare, spoke at TechCrunch Disrupt in NYC last week, and the focus of his comments revolved around his views on how Foursquare is positioned to open up different revenue opportunities in the near future.  As mentioned in one of my previous posts, Foursquare has essentially enabled the most comprehensive and rich individual store location database that can be accessed via API. Foursquare has already shifted its own model to be more of a concierge/recommendation service with its Explore rollout, built on the 3.5 billion check-ins they have, and this discussion sheds even more light on how Foursquare can integrate with the broader advertising world outside of its core Explore/Check-in model, and actually make money.  Given its data, Foursquare should be able to take advantage of the move towards relevance and contextual advertising.  Two models Crowley touched on include:

• Retargeting opportunities—partner with advertisers to let them target customers who have checked in via Foursquareoffline and outside of the Foursquare app.  On schedule to roll out in May (Hey!  That’s now!), and they are charging $50,000 for a six week commitment (hmmm…)
• Post Check-in Ads—leverage the opportunity of an actual check-in to serve up a contextual advertising.  The example they use is to promote some non-Diddy vodka to someone who checks in at a bar.  (Bonus points for anyone who can spot the catty “bridge and tunnel” burn the author lays down in his write-up)

I think Foursquare’s data capabilities make it a highly intriguing player within contextual marketing and retargeting because of where a check-in occurs in relation to the purchase funnel of a customer.  A check-in happens at the consideration or preference step in the funnel, after the point of awareness, assuming that a person is aware of the place they are checking into.  Since the customer has already expressed interest in that store, Foursquare is able to take advantage of that either at a later, offline time via retargeting, or serve up a contextual ad that will push them into the “purchase” step of the funnel while the customer is at the point of sale.  Foursquare has options for what they can offer different advertisers in terms of marketing strategies, and there should be meaningful opportunities to merge check-in history, friends’ activity, and reviews into a powerful enhanced advertising abilities.

Bonus: Here’s a deck from Foursquare that outlines their retargeting and post check-in ads.

Facebook Q1 Earnings: Mobile Ads Lead the Way!

Facebook announced their earnings this week, and while in line with expectations, there are some intriguing trends that go into the $1.46 billion of revenue Facebook hit for Q1, especially with how Facebook appears to be delivering on their promise of unlocking the revenue potential in their very active mobile user base.  I think the two major takeaways that I have are:

• User base is still growing, but that growth is slowing. Facebook’s daily and monthly users continue to grow (665 million, 1.1 billion, respectively), but as they reach high levels of penetration in the developed world, they are beginning to see slower growth (which should be expected as a company matures).  However, Wall Street is more excited about how Facebook is focusing on increasing engagement of their massive customer base (largely through mobile, where a mobile app user is way more likely to log into their app every day than desktop users are to log into the site every day.

• Mobile Ad Revenue—Facebook has offered an advertising product that promotes apps within a mobile user’s newsfeed, directing them to “Install Now.”  The click in mobile takes the user directly to the app store (either iTunes or Play or I guess Blackberry and maybe even Windows, but who cares about either of them?).   The pay-for-placement model for these specific ads helped boost Facebook’s mobile ad revenue to 30% of total, a major increase from the 23% it made up last quarter.

My Awareness of Flywheel is through the roof after this

What’s cool about these ads is that it helps companies promote their own apps and allow for a natural, and easy to use app discovery placement in front of a lot of eyeballs.  The app stores right now continue to get more and more cluttered, and Facebook has begun to monetize an approach that helps to break through that clutter and lead to direct app installs.  Clever.

Currently trading at $28.45 as of today for a market cap of $67B and a P/E of…1,831!  At least Zuckerberg is upfront in recognizing the mistakes made in mobile in the past and pivoting in a way that appears like Facebook will make tons of money in mobile in the foreseeable future.

Lending Club’s Latest Investor: Google

Count me as one of the many people optimistic on the future of P2P and crowdsourced funding, so it’s cool to see the rapid growth of sites that offer these services in a neatly designed package.  Lending Club is one of the more well-known ones in this space, with a  val prop of bringing borrowers and lenders together in a P2P way (Yay!) that cuts out the middle-men of the banks (Booo! We’re a bank!).  Google (as in comma “The” and not just Ventures) just sank $125 million into Lending Club this week, off of a valuation of $1.6 billion.

Another reason to believe in Lending Club: its Board of Directors has some serious heavy hitters on it.  Mary Meeker of Kleiner Perkins, Morgan Stanley CEO John Mack, and former US Treasury Secretary Larry Summers, he of Winklevii-emasculating fame

Square Throws Its Hat Into the Recommendation Ring

On the heels of Foursquare Explore, Square appears intent on delivering a similar recommendation service based on the transaction data it gleans from Square Wallet users (i.e. ~1-2% of cardholders).  They’ve even hired someone with the title “Director of Discovery” to show how serious they are about this.

Theoretically, we are much better positioned than Square to do this given our wealth of transaction data compared to theirs, which is only a fraction of the available universe and limited to local merchants only (with a few Starbucks locations thrown in there).  Telling quote: “…no startup has yet turned smartphone location signals into a multibillion-dollar business.”  No kidding.  I think transaction data could add to the potential of leveraging that information, and continuing to see how Foursquare and Yelp perform on their check-in and review-based recommendation engines, respectively.

Square also hired a VP of Partnerships recently, as they are focusing more on business development

In other news:

Quotes from SaaS Marketers on Importance of Analytics

Dwolla Raises $16.5MM—here’s a link to the deck they used to land that kind of green

Amazon: Already Thinking About Everything, All The Time

Apps I’m Using:

Venmo–used a real-life case of this get people to pay me back for stuff I bought

Look at all my friends!