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:
* 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).
* 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).
* 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.