30 Comments

Summary:

What should Apple do with its $110 billion pile of cash? Buy Foursquare and Square, says Mor Naaman. Apple would immediately become a giant payments company, and it could completely take over the local point-of-sale market. In this article, Naaman makes his case for the deal.

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I was down in Soho last week, visiting (of course) the new Manhattan REI store. After the shopping spree, I pulled out my iPhone and found a dinner recommendation on Explore: five of my friends had eaten at La Esquina, several of them more than once. Bingo. I go and get some (delicious and a tad pricy) tacos, and pay the check by giving my full name to the waiter, checking into Foursquare in the process, without ever pulling out my iPhone.

At least part of that story is real, and Apple can make the second part real very soon if they use their $110 billion pile of cash to acquire the two companies that will help them get control of the local point-of-sale market, everywhere. Yes, I am suggesting that Apple acquire both Foursquare (let’s say, at a $1 billion to $2 billion valuation) and Square (currently evaluated at $4 billion, more or less). Paying a premium on both, Apple could keep it at $10 billion between them.

And what does Apple get?

A complete take over — and a true overhaul — of the local point-of-sale market. How much is it worth? Nobody can tell for sure. To give some examples, according to IBISWorld the grocery store market alone is worth an estimated $491 billion annually and convenience stores are a $51 billion market (a subscription is needed to view these reports). As Jason Calacanis wrote recently, if iPhones accounted for one percent of restaurant sales, that would be $6 billion of the $604 billion spent in 2011.

Apple-Foursquare-Square could jumpstart Apple on its way to take over a major part of the transactions in these (and many other) industries. Let’s look at what all three companies get out of this:

Apple gets:

* An immediate presence in the POS market, including merchant relationships. And it will get a platform for local payments that connects to the 200 million strong credit card database the company already has.

* The holy grail of advertising: conversion information. Apple will gain the ability to track customers from search and (even better) iAds to a point-of-sale purchase. We can only imagine how much that’s worth (read: a good chunk of Google’s business).

* Superior local search. Foursquare Explore continues to get better, and it is inherently social — ages ahead of any local search that exists today. Explore has been consistently improving, even outside of such major markets as New York City. If your friends are on (and if they have an iPhone, they will be if after this move), no other service can give you better personalized information about local businesses.

* A development team that is social to the core. Apple has long been accused of lacking “social DNA.” The Foursquare folks could be the seed of social at Apple — even beyond the location sharing — just like Flickr was the seed of social at Yahoo (well, maybe not).

Foursquare gets:

* More checkins and better information. Checkins should be implicit for every single purchase made, creating an immediate personal history. And if you haven’t checked in yet, then there should be an option to “explicitly” check in (i.e. broadcast to friends) when you make a purchase. More data means better recommendations, and it also makes additional services possible, not to mention better user modeling for marketing purposes.

* Easier integration for loyalty, business deals and coupons. Benefits could be factored right into the payment.

* Hundreds of millions of additional users from pre-installed iPhone clients. Additionally, other applications will be able to work with logins and data using device-level integration (similar to Twitter’s integration into iOS).

Square gets:

* 200 million pre-installed devices with credit card details already attached through customers’ Apple Store accounts, i.e. zero client acquisition cost.

* Hundreds of millions of devices equals a great motivation for merchants to sign up.

To summarize: after the deal, Apple will immediately become a giant payments company, with an installation base that is expected to encompass half of all mobile devices sold. The company will have the best local search abilities, far exceeding any existing recommendation engine. And due to its enormous reach, it will possess a payment system that merchants will line up to support. Who’s betting against this holy trinity? Not me.

Mor Naaman (@informor) is an assistant professor at Rutgers University where he directs the Social Media Information Lab. He is the co-founder and chief technology officer of Mahaya.  

Image courtesy of Flickr user miamism.

  1. Bad idea. Foursquare is mainly used by single techie hipsters with way too much time on their hands and a constant craving for interaction and sharing of personal minutiae with everyone they know. I’ll withhold judgement on whether there’s anything wrong with that, but it’s a small fraction of the population. It’s not worth billions of dollars, and it would be even more of a niche product than Apple TV.

    I think Square is a great idea, and a good company, but they add little value to Apple. It’s more of a benefit for merchants than consumers, and Apple could easily replicate the service for far less than $4 billion. They could even build that technology into their ipads if they want, and give them away to 10 million merchants, and still spend less than $4 billion. Square isn’t worth anywhere near $4B, as Apple just isn’t as gullible as the VCs who are willing to invest at that price hoping for two or three orders of magnitude of growth.

    You left out one thing in each “what xSquare gets”: a ridiculously over-priced exit.

    1. I think you’re missing the real point. The problem isn’t the service itself, but the engineers that designed it (plus the time it takes to recreate those services). You can see how with all the money in the world Apple has, they still fail horribly at cloud services. One only needs to look at MobileMe in 2008 and iCloud in 2011 to see evidence of that.

      Money does not fix problems, talented engineers do, and there are not plenty to go around.

      1. IF Apple wanted to buy a company for their engineers, they could find plenty for a lot less than $4 billion. The engineers at those two companies haven’t demonstrated any above-average skills that Apple couldn’t find elsewhere.

      2. Actually, you’ve missed the point.

        Apple has some of the most talented engineers in the world – from software, to firmware, to hardware, and the very thought that they couldn’t spare enough to dedicate to such a project, is laughably naive.

        Sidenote – iCloud is a huge success – far from the fledgling foray into proto-cloud services that MobileMe was. It is now one of the most popular cloud services by user number and customer reviews – even with it being restricted to the growing number of Apple device owners.

        The issue is not that Apple couldn’t build their own version of Foursquare. They could probably do so in under six-months from concept to launch with full integration across their entire ecosystem.

        The primary question when deciding whether to buy or build is whether it is possible to beat the incumbents first-to-market lead and brand/mind-share. Foursquare and Square have this and are greatly in the lead versus any possible new entrants to market.

        In this respect Apple would be wise to consider buying one or both of them rather than offering their own equivalents.

        But we’ve seen Apple beat incumbents before by doing what Apple does best – rethink the paradigm and bring something better to market. I’m not sure whether they should in this instance, but Mor has got us thinking.

    2. You got both right. 4square is a big NO (I mean c’mon “check-ins”!). Square is a small possibility.

      In reality, Apple looks for frictionless, and least effort. 4Square obviously is not that at all. Square comes closer, but with the strength of the AppStore behind it, they are looking for something simpler. There’s more future in NFC for Apple than Square (if the are compared). But really, until Square is able to completely remove the need for cards, I don’t think things will move forward between them.

    3. Precisely. Not only are these superficially beneficial additions at most, but the valuations mentioned are a joke. Incidentally, apple is really a device manufacturer, they have so much more to do in that regard, with respect to foreign market growth etc, that moving into payments may not be a direction they want to go in.

      1. agree, whilst I think Foursquare is great community, its check-in days are clearly numbered with the recent ability to do this within Facebook  & Google+ …why would APPL want to compete here too? Moreover, I question why they would want to deviate from its strategy as a technology enabler?

    4. Techie hipsters. Definitely. Yelp is better than FourSquare. But both are for geeks and travel/foodie types. And occasional tourists. Don’t fall for it, Apple. Even the author says “Hey go spend YOUR $10 billion dollars on something that, well, may not be worth that much”. It isn’t his money.

      And Square? Clever idea that is nowhere in the wild yet to any degree of prominence. No way Apple will buy something that requires an awful yucky box sticking out of their beautiful device. The Starbucks app is way better and works better. That model, anyway. Pre-register for a particular company, pop open the app, let the vendors clunky laser scan my phone (and don’t you even think of touching my iPhone, barista!), and the transaction is paid. Apple’s POP solution at their retail stores is excellent, too. Who needs Square? It’s a nice idea and alternative and that is where it will always stay. Until it dies and goes away. Or some fool pays hundreds of millions for it.

      Local check-in is way over-rated right now. Reviews are good and always welcome, but whose going to pay for the Duke of Whatever? Lame. I hate that Yelp doesn’t let us turn that feature off.

      Just because you CAN do something with technology, doesn’t mean that everyone should.

  2. The main issue is one of anti-trust law, or in Europe and England, more commonly known as competition law.

    Now you may be looking perplex, but the issue comes about Dominance of an undertaking, that is a company. If they have a certain position on one relevant market, in this instance the comouter market, they should not use that dominance to leverage it on another market, ie restaurant one. The concern is one to do with consumer welfare. So on this basis, I would be disinclined to go along with the take over by Apple, despite how hypothetical the scenario it is.

  3. As an Apple shareholder, I would not agree with any of the proposed acquisitions.

    Foursquare: Foursquare is a location services company, focused on end consumers and business owners. It has a strong focus on gamification but that is all. It’s strength, if any, is managing and scaling the service, but they have troubled to make a business out of it. Apple is a hardware focused company, and any acquisition that does not improve its position within the hardware space would simply be absurd at may levels. Financially speaking, if I’m not mistaken, Foursquare’s latest capital raise valued the company at $600m, lead by Andreessen Horowitz. I’m certain investors in this last round won’t want to sell at any valuation below 2x cash-on-cash, i.e. valuing Foursquare at $1.2bn. Given that Foursquare has significant revenues, let alone profits, this acquisition would be value destructive for Apple shareholders. What does Apple lose if it doesn’t buy Foursquare and Google or Microsoft does? Nothing.

    Square: Apple doesn’t need to acquire Square. Square is a great service, but Apple has proven that you don’t need a credit card reader to make a sale. With the Apple Store app, Apple has proven that a store can close a transaction with much less friction (literally and figuratively) than any other retailer. All they have to do is to roll-out that same technology to third parties. This is definitely more capital efficient than spending +$4bn on Square. Again, such an acquisition would be value dilutive to Apple, and another headache.

  4. Spending $1b, let alone $10b, would be so out of character for Apple. But then again, they’ve been doing a few things out of character lately (like the celebrity Siri ads for example), so you never know :-/

    But even if you did loosen the purse strings over in Cupertino, how do these 2 purchases advance the cause of more hardware sales? Suggesting that Apple get into the POS market is no different than suggesting that Apple get into the credit card business or any other lucrative business- at this point, with $110b in the bank, and their brand cachet, Apple could probably get into *any* line of business AND make it a success :-o

  5. John Wallace Sunday, April 29, 2012

    Isn’t that illegal? And that’s a 100% innocent question, I don’t really know. It just sounds illegal when it’s described here.

    1. what is the point: always noncense merge rumors? Are you a VC with a big equity in Foursquare?

  6. Why would Apple which is world innovation leader look after a service that started as a location game, and now is desperately trying to find more serious path, not because they believe in it but because they are in trouble with present model.

    I’m sure Apple can do better on their own. They showed their superior capability already

  7. God, I fucking hope not, I’d have to stop using Foursquare.

  8. foursquare is a JOKE

  9. losingextraweight Sunday, April 29, 2012

    I think buying Square and Foursquare will fill some of Apple’s needs.

  10. Your story sounds fun – but the huge flaw in your logic is that people currently have a natural tendency to pull out their phones anyway so your idea isn’t solving any problems. Do I have to wait in line? Let me pull out my phone. Waiting for the waitress, pull out phone. Person in group talking about something boring, pull out phone. We do it so instinctively now that it’d almost be weird NOT to pull out our phone/wallet when it’s time to pay.

    Also, once NFC becomes the standard, Square probably won’t be. They’re essentially the same thing but more will understand the former and not necessarily the latter.

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