You have two options. One will leave you bankrupt within a year or two with probability 1.0 and one will leave you bankrupt within year or two with probability 0.8. Which would you chose?
Except if they had monetised in a way that isn't changing their entire app then they would have been more likely to stay successful.
This change was poorly thought out and probably wasn't going to be successful, same as if Twitter spun their micro-blogging to another app, it wouldn't end well.
What's your evidence for that? I could entirely believe they thought it through very carefully, knew that this was a likely outcome, and did it anyhow because it was the best chance they saw for success.
Remember, this is the third checkin app in this series. It started life as a student project. The first commercial version was Dodgeball [1], which was created, grown, and purchased by Google before the iPhone even existed. Google wasted the opportunity, so Crowley started Foursquare and did it again.
Personally, I suspect they discovered that the whole check-in dynamic was fading. E.g., it's something people did for a while out of novelty and they expected its true long-term audience to be small.
Once you take VC money, it's "go big or go home". A small, modestly profitable company is not something your investors are interested in; they would rather you gamble and lose. And Foursquare took $162 million [2] so they had to go very big indeed. The "success" period of the article's graph looks like VC-failure to me.
Winning back your penny at the penny slots isn't the result you're playing for, but it's a better result than losing the penny.
I don't know the details of the FourSquare pivot, and hindsight is 20/20, but if I had even a small chance at medium-to-long term profitability (good brand, loyal followers, but flat growth), and a minuscule chance at riches by burning down the building, I wouldn't light the match.
Which person are you projecting yourself onto here?
The CEO doesn't have that choice. He'll get replaced by the investors.
The VC investors don't have that choice. It's not their money they're working with. They've promised their investors, the limited partners, that they'll go after high risk, high reward scenarios. If they don't make those gambles, they won't get the capital needed to run.
The limited partners also don't generally have that choice with this money. They are people who manage large pools of cash, and part of what they need is long-term, high-reward investments, which are necessarily high risk. [1] They have other money in safe, low-return investments. This money is for go-big-or-go-home bets.
This is the devil's bargain people make when they take VC money. There are other ways to build businesses, but they aren't the kind that will let you spend $100m-2b before you get to break-even, which is apparently what it takes to build a social network.
IMHO - Dens is a romantic dude. He has just as many conceptual aspirations as he does commercial ones. Power users of 4sq. turn their worlds into farmville - mindlessly checking in everywhere they go (i.e. "home", "gym", "home" etc.). He wanted to disassociate the brand from that activity, and emphasize the utility of check ins (i.e. who else is here, how popular is that etc.).
Could he have done this in a more elegant way? Maybe. But either way, the data he has compiled to entice advertisers is already quite substantial. If he successfully rebrands 4sq. as a resource and swarm as a tool, he's done exactly what he wanted to do.. as opposed to something close/safer.
If you settle for barely breaking even, your investors will replace you with somebody who believes they can take your company and have a chance of making ridiculous money. They will do that even if it is a 20% of wild success and an 80% chance that you will drive away the millions of users.
Why? Because merely covering core operational costs doesn't do anything to pay back the investors who put in $160 million.
I'm having trouble understanding what you want to know here. Is this whole VC funding thing new to you?
Assuming so, the short answer is that the venture capital ecosystem is about investing in businesses before we know what kind of businesses they'll turn out to be. This was especially true for free-to-use social apps like Facebook, Twitter, and Foursquare. Those only make sufficient money if their scale is very large. It's also hard to know what their true monetization opportunities are until they reach scale, which is why Twitter and Facebook didn't really bother with pursuing revenue until they were huge.
This worked out pretty well for the winners. But it has a known failure mode for the losers: things that might have been good small businesses end up getting totally destroyed in the rush for glory and riches.
mentions "stream[ing] hundreds of millions of daily application logs each day." These logs must be at least 0.5K w/ metadata (probably more), so we're talking about...what, 100GB/day of application logs? Alone?? You're not persisting those using cron + MySQL--they likely use Kafka/Kinesis, many threads/instances subscribing to topics, and a large, horizontally-scalable db or Redshift to manage them.
Note that I haven't even addressed querying those logs (I believe 4sq uses Hive, the case study mentions Tableau). That all costs money.
We also haven't mentioned reviews for their millions of locations, user auth, check-ins, app development (web/iOS/Android). Each of those is a problem for a company with a MM-level user base.
Do you have some kind of intimate knowledge of their monthly engineering costs?
EDIT: 4sq website says 2M legit businesses, 65M total places.
Ha. Hahaha. How many apps at that scale have you run? Foursquare is on AWS[0] and serves 40 million users. Their monthly spend there is probably at least in the 10-20k range. And this is before even considering that they had 135 employees at the time[1] and swank offices in a hip neighborhood in NY. Making all that back with "ads", especially when your platform is almost completely on mobile, is not a cakewalk.
they had 135 employees at the time[1] and swank offices in a hip neighborhood in NY. Making all that back with "ads", especially when your platform is almost completely on mobile, is not a cakewalk.
How about firing 120 employees and moving to a smaller office, just until you've figured out how to make money?
Or why the need to grow to 135 employees with a checkin app for two mobile platforms? What do they all do and how is that aligned with the product at hand?
When the parent comment is asking "how much does it REALLY cost to run the site", I don't see how them having to pay for swanky offices is much of a rebuttal.
Not really, because for a lot of NY tech companies the office is a significant selling point for potential employees, and they do community events there that raise the brand's clout. Nobody wants to go work in a basement in Harlem when they can do the same work for Facebook and have a skylight and yoga balls.
Given their location data and technology stack, I wouldn't be surprised if you've underestimated their spend by an order of magnitude (eg. $100-200k/month, ~$1.2-2.4M/year).
Yes, I think you're probably right. I noticed after the fact that they mentioned "hundreds of machines" and I was estimating more towards "dozens of machines".
More armchair quarterbacking. You don't just pick up and move to save a buck when you have a whole company running on AWS' specialized architecture. There's a lot of process and a lot of overhead that factor into that consideration. A lifelong Mac user, for example, couldn't seamlessly jump into Windows just because "it's cheaper".
Even if you ran on bare metal on colocation, I doubt you save more than 50%. That's time wasted that could be more fruitfully spent iterating on profitable ideas. Plus that's exactly why you took investment capital in the first place, so you didn't have to do all that fiddly stuff. It's always better to maximize revenue than to minimize costs. On that note, the cost of paying all those salaries is probably 10-50x the Amazon bill, but you can't really cheap out there either.
What? If you don't make money, you will go bankrupt. You can be a verb all you want, if it doesn't make money, it doesn't matter.