I’m bullish about location-based services in the long term, though I acknowledge they can be tough to monetize currently. Just days ago I was feeling bullish for location-based social network Loopt, but now I’m not so sure.
Mike Arrington is reporting on Techcrunch that Loopt has hired investment firm Allen & Co. to represent them in either a sale or new round of financing. I think it’s unlikely we’ll see a sale at the moment given our current economic situation, but I wouldn’t be surprised if Loopt added to the $13.3 million they’ve already raised from New Enterprise Associates and Sequoia Capital. What really surprises me though is the valuation numbers floating around the web. Techcrunch initially reported that Loopt was valued at $250 million (that number has since been crossed out) and Silicon Alley Insider is reporting a valuation closer to $500 million (though they acknowledge it could be misinformation).
Now this I’m having trouble with. While I am a fan of Loopt, I’m not entirely sure that their user base justifies such a valuation, and I find the timing of this to be funny. In fact, given the current economy I’m wondering if a sale or new round of financing is signifying some sort of impending doom for the company. Additionally, it should noted that Mike Arrington has a financial interest in the company, so the numbers could be nothing more than greed-fueled hype.
On most wireless carriers, Loopt charges $3 or $4 for application use. On the iPhone, where it currently sits as the 22nd most popular application, it’s free. I believe due to some sort of advertising support. And while it currently lies ahead of Facebook and MySpace in the iPhone rankings, much of its currrent success is the result of heavy Apple promotion in the form of a television commercial.
Is it more popular overall than Facebook and MySpace. Not at all, and neither of these mobile applications have implemented any location-aware features yet. When they do, I think companies like Loopt will be done. Only location-aware apps that provide very specific solutions to very specific needs will survive. Think companies like uLocate Communications, whose WHERE app uses widgets that specifically focus on one thing, like locating the nearest Starbucks. Dedicated friend-finders will at best be acquired and at worst, simply die off.
So can I see Loopt being purchased at such a high valuation? No. And while I’m putting myself out on a limb by saying this, I have a feeling that should Loopt fail to raise a decent amount of cash, they’ll be in the deadpool very soon.
While most people I’ve talked to that have used Loopt have liked it, sooner or later they’ve removed it from their phones. This is probably why Loopt introduced Mix a while back, enabling you to find new friends after the established ones ditched the application. In fact, I’d really like to know how sticky Loopt’s iPhone application is. Given that the application can’t run in the background, it has to be opened each and every time a user needs to update her location. This is a huge drawback, and a death wish for an application trying to survive in a convenience-driven society.
I’m not sure exactly what it is, but something doesn’t sit right with me about this deal. Despite positive words from co-founder Sam Walton regarding a partnership with SnapTrack just the other day. Cutting costs, then days later looking for cash. Is this just smart business strategy in a tough economic environment or is Loopt in trouble?
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