There’s a widely held belief that as part of putting her stamp on Yahoo, new CEO Marissa Mayer will make a significant acquisition very soon. The speculation has begun about who or what that acquisition will be. One very likely candidate is Foursquare.
Foursquare could give a big boost to Yahoo in “SoLoMo”: social, local and mobile. While Yahoo has mobile apps, it badly lags Google’s efforts — especially in local. At one time Yahoo had the leading local property online and squandered that lead through literally years of neglect.
Mayer Was in Charge of Local at Google
Ironically Marissa Mayer helped build up Google’s local assets over the past couple of years to make it into the local-mobile juggernaut it is today. The question many people (including me) asked when Yahoo announced Mayer as the new CEO is whether and how she might try to revive local at Yahoo.
Buying Foursquare would kill a couple of birds with a single projectile. It would give Yahoo a leading SoLoMo app with 20 million users and a cutting edge brand that would help make the company “hip” and relevant in ways that it isn’t today.
Can Yahoo Afford Foursquare?
The first question that comes up is: Can Yahoo afford Foursquare? The company was valued at $600 million as of its last funding round. That suggests that Yahoo would have to pay at least $500 million to $1 billion for the company. Unless other bidders were actively involved I would be surprised if Foursquare were able to negotiate much more than $1 billion as a purchase price.
Relative to its major competitors, Yahoo didn’t have that much cash on hand until it sold half its stake in Alibaba, bringing the company $7.1 billion. That gives Mayer some flexibility and the ability to place a billion-dollar bet if desired.
Crowley Wouldn’t Want to Go Back to Google
It’s also a safe bet that Foursquare CEO Dennis Crowley wouldn’t want to go back to Google. The company bought his Dodgeball in 2005. Dodgeball was conceptually similar to Foursquare but relied upon SMS in the pre-iPhone era. Crowley left Google frustrated by the company’s neglect of the product.
It’s also unlikely that Crowley would want to go to Microsoft. That really leaves Facebook as the most likely competitor for Foursquare. However, Facebook just plunked down $1 billion for Instagram. That transaction has not closed and shareholders wouldn’t look too kindly on another $1 billion-plus transaction for a company that has little or no real revenue. By the same token Facebook could try “sell” it to the market as helping solve its mobile monetization problem.
Foursquare’s Not Going Public Anytime Soon
Foursquare is very unlikely to go public any time soon, nor do the executives at Foursquare want to contend with the hassles and pressure of being a public company. They’ve seen the pain suffered by Facebook, Groupon, Zynga and other recent internet IPOs. If Foursquare were to consider a public offering it would have to develop a much more solid revenue model than exists today. And it’s probably at least two or three years away from any meaningful revenue for IPO purposes — if that soon.
Therefore a substantial offer from Yahoo (or another suitable suitor) would merit serious consideration. I spoke to a fairly reliable source this week who suggested to me that discussions were underway between Yahoo and Foursquare. Even if so, nothing is done until it’s done.
But the deal makes a lot of sense for all involved. Mayer would get a big prize and a lot of buzz. She could install Crowley in a high-profile role at Yahoo and the positive PR would boost Yahoo’s stock in the near term. Crowley and company would get a big exit without having to worry about building revenue toward an IPO. The logic of the acquisition is there.
PR: No Comment on Rumors
After talking with my source I asked Yahoo and Foursquare PR about the potential transaction. As one might expect both gave me a nearly identical statement, “We don’t comment on rumors and speculation.”
I think the speculation has some merit however. We’ll see.
Postscript: Another source came forward and emailed me this afternoon. This person disputed what I was saying above and told me this Yahoo-Foursquare courtship had happened two years ago and (obviously) gone nowhere. This individual was skeptical about the outlook for any transaction now as well.
The difference now, however, is Marissa Mayer and the product focus she’s bringing to Yahoo. She’ll have much more success recruiting and retaining developers and product-focused personnel than Carol Bartz would have or did. That philosophy and atmosphere would likely be more appealing to Dennis Crowley than the “old Yahoo” would have been.
Postscript II: I’ve been getting emails privately commenting on this post and the potential acquisition. One I received this morning disputes Foursquare’s valuation and argues that active unique users are far less than the 20 million publicly reported. The individual also argued that Foursquare is not growing enough to justify anything like a $600 million valuation.
This person sees Foursquare primarily as a “talent acquisition.” I would dispute that myself. However if Foursquare and its suitors had wildly different appraisals of the company (literally) it would prevent the acquisition.