Microsoft Is Said to Be in Talks to Invest in Foursquare

Microsoft Is Said to Be in Talks to Invest in Foursquare

Microsoft Corp. (MSFT) is in discussions with Foursquare Labs Inc. about a potential investment in the social-media company, according to people with knowledge of the discussions. The talks are at an advanced stage, said two of the people, who asked not to be identified because the information isn’t public. Foursquare is also meeting with other companies about an investment, and the talks with Microsoft may not lead to a deal, said another person with knowledge of the matter.Foursquare, which lets users check in to show they’re visiting a place like a restaurant or shop, is also negotiating with venture capitalists who own convertible debt about turning their holdings into equity, said one of the people.

The discussions suggest that potential investors are more bullish on Foursquare’s prospects after it began reaping the benefits of a new advertising approach that lets brands target users when they’ve checked into a locale. Foursquare in April raised $41 million in debt, a move that let it keep tinkering with an unproven business model while delaying debate about the company’s true worth.

A stake in Foursquare would give Microsoft, the world’s largest software maker, a bigger role in social media and mobile, areas where it has lagged behind competitors such as Apple Inc. (AAPL) and Google Inc. Foursquare has helped Microsoft by making an application for its Windows 8 operating system, which has had trouble attracting developers because of the popularity of Google’s Android and Apple’s iOS software for smartphones and tablets.

Sales Goals

Foursquare, based in New York, had no comment on the talks with investors, said Jon Steinback, vice president of marketing. Peter Wootton, a spokesman for Redmond, Washington-based Microsoft, declined to comment on any talks with Foursquare.

Foursquare is on track to beat its sales goals for the year, Chief Revenue Officer Steven Rosenblatt said in an interview. Last month, the closely held company started letting companies send ads to users after they check into a location. Those advertisements are bringing in three times the revenue Foursquare had expected, Rosenblatt said.

“I think we’ve proven our business model,” Rosenblatt said. “Our business model is very clear and it’s working, doing what we thought it would do, if not more. It’s all well ahead of what we anticipated.”

Rosenblatt declined to comment on the company’s targets.

Encouraging Sign

Foursquare’s results are an encouraging sign to investors who valued the company at $600 million in 2011 and have waited for it to deliver on promises. The company, which pulled in just $2 million in sales last year, has introduced more advertising products in the past few months to make money off its applications. Users click on or save ads delivered after check-ins more than 15 percent of the time on average, Rosenblatt said — a rate that beats the less than 1 percent engagement on a typical mobile ad.

Earlier this year, when Foursquare needed money to continue operating, it made forecasts for investors about how successful its products were going to be. Because the targeting methods hadn’t been tested, investors didn’t come to an agreement with Foursquare on how much the company was worth.

Rather than raising equity and debating the $600 million valuation with venture capitalists, the company took on debt from two sources — a loan from a Silver Lake Management LLC debt fund and convertible notes, which can be changed into shares later, from investors that already owned pieces of Foursquare.

International Customers

The company has been putting the money to work. Foursquare hired about 20 more people for its engineering and sales teams, and has started opening up its advertising platforms to businesses that want to create their own promotions. The company’s first international customers are among the thousands using the service so far, Rosenblatt said.

“We’re ramping up as fast as we can,” he said, noting that the company has had some single advertising purchases of more than $1 million apiece. “I didn’t think we would see a dollar from anyone overseas this year.”

In the next three months, Foursquare will have 50 to 100 customers buying the post-check-in advertising product, he said. The self-serve advertisements will be open to the company’s entire base of merchants by the end of the year.

Check-In Rate

The company still sees about 6 million users checking into locations each day — a rate that hasn’t changed since April. To help boost the figure, the startup updated its mobile applications on iOS and Android operating systems, plus a new version for Windows 8. The updates included a feature that lets people check their friends into locations in addition to themselves.

The company said today it’s also unveiling a technology that will send users automatic recommendations when they visit a new restaurant or neighborhood, without having to open the application.

To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net; Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

AUGUST 29, 2013, 11:00 AM

With New App, Foursquare Strives to Be ‘Magic’ in Your Pocket

By VINDU GOEL

Updated, 1:46 p.m. | This post has been updated to clarify that check-ins are still part of Foursquare’s service.

Foursquare, the social network built on persuading users to “check in” to locations they’re visiting and share relevant tips with others, is preparing to serve up its recommendations automatically, no check-in required.

On Thursday, the New York company plans to announce the first public test of a new version of its service that will automatically detect what restaurant or neighborhood a user is in and make suggestions accordingly. The new app, which has no official name, will be given to about 2,000 Android users in the next few weeks and rolled out broadly later this year.

“What we’re launching here is this smarter version of Foursquare that can sense where you are and give you the best recommendations,” said Dennis Crowley, Foursquare’s co-founder and chief executive, in an interview. He said it would be as if you got all of the advice from all of your friends, shrunk down into a single voice that whispers the most relevant information, unbidden, as you walk by.

As an example, he said that when he visited Mo’z Cafe in San Francisco on Wednesday morning, the new app “told me the thing people talk about here are the breakfast burritos and this particular type of iced coffee.” No need to open the app, search for the cafe and check in to tell the service where he was.

“We’ve basically removed the friction from Foursquare,” Mr. Crowley said. “We’ve made a piece of magic that lives in your pocket.”

Foursquare didn’t make the new app available for reporters to try out, so it is hard to say if it is really magical. Foursquare tried something similar in 2011 with a feature it called Radar, only to see it fail, in part because the constant location tracking chewed up the phone’s battery life. Mr. Crowley said Foursquare has licked that problem, with the new app draining less than 1 percent of the battery per hour.

For Foursquare, jazzing up its service in a big way could lead to new interest among users and advertisers. Foursquare says that it has about 35 million users and 6 million check-ins a day, and that it is adding about 1.5 million new users a month as it expands in foreign markets like Russia, Brazil and Turkey. It has been slowly expanding its efforts to sell advertising to reach those users, including through a new self-service ad platform for local merchants.

Mr. Crowley envisions that eventually 100 million people or more will use Foursquare to help them find the best, most relevant location information.

While that might be its own bit of magical thinking, if the new app is as robust as Mr. Crowley claims, it would be a huge technical achievement. A phone that always knows where you are and automatically gives you timely, relevant information without being annoying is a holy grail in the mobile world.

Google, for example, is trying to predict what you will search for next with its Google Now feature for Android phones. But so far, the technology is clunky, basing its guesses on clues from your search history, Gmail and calendar entries.

Foursquare is taking a different approach. It mines your personal check-in history, as well as what your friends have recommended and the accumulated data from six billion check-ins by users since its founding in 2009, to make recommendations the company says are highly personalized.

Will automatic recommendations seem creepy, as if your phone were HAL 9000 and knows too much about you? Initially, Mr. Crowley said, the new version will make only a couple of unsolicited suggestions per week, with users getting the option of increasing the frequency as they get comfortable with the idea.

The new technology still needs additional refinement, he said, but he is enthusiastic.

“This is what we started the company for,” Mr. Crowley said. “Everything has been built leading up to this moment.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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