UPDATED 14:52 EDT / APRIL 06 2010

Yahoo Buying Foursquare: Sure Yahoo Would Benefit

image Yahoo is rumored to be looking hard at Foursquare at a price of around $100 million according to Nicholas Carlson of BI.

Last week I wrote a post on Foursquare when the venture capitalists started circling.  Foursquare is a great example of Silicon Valley in action.  Hot deals get pimped big time.  Foursquare is no exception.

At that time Foursquare was closing in on a monster round of financing.

Now Yahoo is in on the mix and as some (like me included) are speculating is that this is just a tactic to increase the valuation of the venture round. Yahoo certainly would look trendy in doing the Foursquare deal.

Foursquare raised a seed round of just over $1 million from some great seed investors including Union Square Ventures, O’Reilly AlphaTech Ventures, Jack Dorsey, Kevin Rose, Alex Rainert, Ron Conway, Joshua Schachter, Chad Stoller, Sergio Salvatore

This is a sweet deal for whoever gets the position. Foursquare which is far from mainstream adoption is doing great. They have validated the local check in concept. Clearly a winner there.

There is much to do beyond where Foursquare is today. Foursquare is very gimmicky in that it feels like the early days of Facebook platform – remember throwing sheep? That being said Foursquare has what I refer to as "great headroom" – the ability to pivot to a mobile ad model with a compelling user centric application. Although I’m not a power user at all of Foursquare, I like what they are doing. It’s game changing (as is Gowalla and MyTown). However, critical mass will win the day. There is really only room for two players in this market. MyTown has their work cut out for them.

Right now, it’s Gowalla and Foursquare leading the location based "check in app" market. Foursquare is smart to bulk up on funding. I would suggest that they add some serious senior talent to the team – not that the current team is not capable but instead more for extra "horsepower" – bus dev, marketing, and of course engineering. The founding team must remain the creative driving force.

Just yesterday Mark “Rizzn” Hopkins pointed out in his post titled "Is the Location Based War Real or Imagined?  [Gowalla vs. Foursquare] that GoWalla (actually a Austin company) often doesn’t get noticed as much as Foursquare – a sexy Valley deal.

More importantly, Mark went on to talk about the "real" implications to buy into this hype when the market is so early that declaring victory might not be a good thing to do.

More than likely, though, the two startups have at best around 400,000 users between them, and even less than that are active userbase.  I don’t say this to down on these two companies, but let’s be frank: this is a nascent idea, this location based participation.  We haven’t even leapt past the idea that it’s socially acceptable to constantly share your location data within the early adopter community, much less the world at large.

When you consider that this has a potential consumer base of billions of users worldwide, the idea that there has to be a winner, and a winner declared today, it’s describable by no other word thanlaughable.

Add to that the fact that, as I talked about last week, that neither one of these services will end up being the mainstream winner (due to the fact that one of the “big guys” like Facebook or Twitter, or even one of the actual big guys like Google or Microsoft, will end up integrating these very simple features into one of their products or services).

Mark points out the Gowalla grew organically on the merits of it’s product while Foursquare was overly hyped by Silicon Valley insiders mainly Techcrunch. He has a point. My angle is that this is the way Silicon Valley works that way. They steal or fast follow with big money. Gowalla might have led the way, but the Silicon Valley machine -fast follower with big money and power.

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