Why Foursquare is a must-buy for Yahoo

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.

One of the most remarkable things about the digital revolution of the last dozen years or so is the speed with which things happen. Start-ups can become, almost overnight, tech behemoths; conversely, once-mighty companies can collapse with alacrity. Look no further than Netscape or MySpace.

Another example of a speedy fall from grace is Foursquare. Most readers of this august journal will be aware of Foursquare, the geolocation/'discovery' app that was all the rage from about 2009 to 2011. You’d be forgiven for only recalling it vaguely, because Foursquare has been out of the news for some time – partly because it was trampled by Facebook’s geolocation service and flattened by Yelp, and perhaps because people moved on, as they so often do.

The decision last year to split the Foursquare offer into two – a local recommendation service (restaurants, clubs and the like), and a 'check-in' app (Swarm) doesn’t seem to have done the company much good. Swarm in particular seems to have attracted widespread apathy, and is, according to TechCrunch [April], the 146th most popular social media app.

But Foursquare has shot to the top of the news agenda in the past week, and that’s because it is – allegedly – being courted by Yahoo. A buying price of $900m (£605m) has been mooted.

So why would Yahoo – still unfashionable, and regarded as a 'legacy' company, despite the energetic efforts of CEO Marissa Meyer – spend almost a billion dollars on an even more unfashionable company?

I wondered that too – but having thought about it, a Yahoo buyout of Foursquare could make sense. Better sense, in fact, than the much-vaunted $1.1bn acquisition of Tumblr in 2013, which many Wall Street analysts have judged “inconsequential”. I slightly disagree with that assessment: it takes time for these things to work, and Tumblr is at least generating (comparatively modest) revenues for its acquirer; and it at least showed a willingness on the part of Yahoo! to create a coherent acquisition strategy.

Although it’s hardly top of mind these days, Foursquare does have 55 million registered users (most of them, significantly, mobile users) and, more importantly, it has data. Lots of it, and I suspect this is what interests Meyer and co. According to Foursquare, since it started in 2009, there have been 7bn check-ins, 70m tips, 55 million people, 65m places and 90m 'tastes' logged through its apps.

And if I understand Meyer’s thinking correctly, Foursquare ticks a lot of her boxes: mobile (she wants Yahoo to be a 'mobile-first' company), social, eCommerce, targeted ad data and so on. These are areas Yahoo needs a greater presence in, and Foursquare could help with that. Integrating the two Foursquare apps into Yahoo’s news, sports and messaging apps could provide the fillip the company needs.

Foursquare also has a new location-based advertising network called Pinpoint that can target users by device, location and other parameters, and which is already used by the likes of FedEx, Samsung and AT&T. And it has developed interesting partnerships with both Twitter and Microsoft.

It has been suggested in certain quarters that Yahoo would be better off buying Yelp, the San-Francisco-based reviews site and mobile app, which publishes user-generated reviews. Yelp has its attractions: unlike Foursquare, it’s a public company, and there is said to be shareholder dissatisfaction and the company is low on funds. Being cash-strapped and having shareholders looking to cash out makes it an attractive acquisition for a certain type of buyer. And last year Yahoo inked a deal with Yelp to provide local data on searches, so there’s an existing relationship to be built on.

But Yelp relies on users writing unsolicited reviews for strangers. Foursquare, on the other hand, is about sharing experiences with friends, which is something different, and in a social media-attuned world, a more compelling proposition.

There are other reasons why Foursquare would be tempting to Meyer.

Yahoo doesn’t have a great relationship with the developer community (as say, Apple and Facebook do). Foursquare’s location API is used by more than 85,000 app developers, and owning that would make Yahoo much more attractive.

Better still, there’s a real synergy with Yahoo’s analytics app Flurry (acquired last year for about $200m); and Foursquare and Swarm would provide Yahoo a boost in social alongside Tumblr – it would have more critical mass in an area that has become fertile ground for brands looking for ways of connecting with users beyond static banners and the legacy media from which Yahoo needs to move away. If you were a Tumblr user, such location-specific data could help organise your blog, or take it a step further and suggest additional places to stop while you’re on holiday, based on your current location. That’s potentially very lucrative.

But most of all, it’s about data. The experts I’ve spoken to over the past few days say that Foursquare’s database is impressive – perhaps better than Facebook’s, especially in the crucial areas of accuracy and detail. Such is the quality of this data that it can be used contextually, providing real insights that brands would be extremely interested in (and it could also be used to improve Yahoo’s search offer). Foursquare is very much more than the 'check-in' app we tend to think of it as.

Also, Yahoo would make an attractive buyer for Foursquare’s founders as it will play an important part in the acquirer's future. If, say, Google or Apple bought it, would Foursquare’s role be as significant? I suspect not.

So, at the time of writing, it’s very far from being a done deal, but if Meyer is serious about transforming her company, she should consider it very seriously.

Barry Dudley is a partner at Green Square, corporate finance advisors to the media and marketing sector

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