Why Foursquare May Actually Be Worth $600 Million

But Only If It Starts Charging Brands for Access -- and Soon

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Location app Foursquare announced $50 million in additional funding today, valuing the 2-year-old company at a reported $600 million.

That's surely a huge number for a company that , despite quickly becoming a darling with national advertisers such as PepsiCo, Bravo, Microsoft and Dunkin' Donuts, has yet to realize much, if any, revenue from those deals. That's because Foursquare is still hammering out ad products that can scale, so rather than treating it as an ad sale, it's a test -and-learn opportunity for both the brands and the startup.

What will Foursquare ad deals and integrations ultimately look like? How will they be measured in terms of effectiveness? That's all still to be determined. Also: How much are marketers actually willing to pay for Foursquare programs?

Marketers have certainly been eager to experiment with the location-based service, which finds 10 million users -- that 's total, not active -- accessing the app to tag themselves at restaurants, bars and parks to share with friends, and get discounts and recommendations.

And after working with the likes of PepsiCo, Louis Vuitton and multiple media companies and studios since February 2010, Foursquare has some enviable experience working with brands. It has just launched its most comprehensive partnership with a brand yet, a deal with American Express announced this week. When Foursquare users link their credit-card accounts to the service, they can get discounts from H&M, Sports Authority and Union Square Hospitality Group in New York that are automatically deducted from AmEx transactions when they check in to those locations. Yet even this deal also isn't generating revenue for Foursquare.

But the reason Foursquare could be worth a mint is that traditional ad programs are just the beginning of the opportunity. "To monetize, Foursquare doesn't need advertising," said Rishad Tobaccowala, chief strategy and innovation officer for Publicis Groupe 's media company VivaKi. "This lack of brand advertising dollars doesn't make much of a difference because it's more of a retail- and promotion-based system. ... Self-serve platforms for small businesses will prove to be a better source of revenue."

Foursquare is already building dashboards for local businesses to see check-in traffic and other aggregate data. Merchants can also set their own specials based on how frequently a customer returns to the location. For brands, there are special pages. It's also worth noting that Facebook's own location service, "Places," does not appear to have slowed Foursquare down much.

More important, it has staked out a spot at the crossroads of intense interest to brands. "[Foursquare] is about as close to the epicenter of social local and mobile as anything I know," Mr. Tobaccowala added. "That bridge between the analog world and mobile, there's going to be a lot of money made. Foursquare has the potential to leverage that ."

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