Foursquare is getting an offer from Yahoo! to buy the company for $125 million. A few entrepreneurs and investors on Twitter told me he should sell out: $125 million for “just hype” is a lot of money!
Here’s the counter-argument.
Those who are bullish on Foursquare believe the company’s potential is to be the “mobile Facebook.” And since mobile is bigger than the web, these people say Foursquare may even represent an opportunity bigger than Facebook, which is probably worth $20 to $30 billion.
One reason this Foursquare-Facebook comparison is convenient, is that before it got huge, Facebook was also heavily courted by Yahoo.
So let’s look at an alternative version of the past, in which Facebook had been acquired by Yahoo, see how well it would have turned out, and see if we can draw any lessons for Foursquare.
At the end of 2006, after Google acquired YouTube, Yahoo looked to make a big acquisition as well to keep itself relevant. Their target of choice was Facebook: MySpace had just been acquired and Facebook was growing like weed. It was obvious by 2006 that “social” was a huge trend that Yahoo needed to tap onto to deliver more eyeballs and user data to advertisers. The lore is that Yahoo and Facebook shook hands on $1 billion, but then either Yahoo got cold feet and suggested a lower number, or Zuckerberg woke up and demanded a higher number, but the deal didn’t go through.
What would’ve happen if it had?
- Investors would’ve been happy. A billion dollars! The venture capitalists who got in on Facebook early would’ve been very happy. Peter Thiel wouldn’t have been happy (and he’s probably the reason why the deal didn’t happen). He at that point that believed the company was worth $8 billion based on revenue projections of $1 billion by 2015, which seemed crazy then and was actually pessimistic, since Facebook is on track to reach $1 billion this year and seems worth around $20 billion.
- Mark Zuckerberg would’ve been happy, at first. After three weeks at Yahoo, he would’ve left to become Silicon Valley’s youngest top-tier angel investor. But there would always have been this nagging feeling that he could have done more, that his baby could’ve grown bigger. Maybe he would’ve started another company, maybe something along the lines of Asana, the secretive Facebook-for-businesses company started by Facebook cofounder Dustin Moskovitz.
- More importantly for Yahoo and our little morality tale, growth at Facebook would’ve flatlined. Top execs like Sheryl Sandberg and Chamath Palihapitiya, now VP of Growth, credited with designing and implementing viral features that boosted Facebook’s growth as it seemed to plateau, wouldn’t have joined. There wouldn’t have been the Facebook Platform, providing countless apps for people to play with and come to Facebook more often. There wouldn’t have been Zuckerberg’s vision to keep evolving the product to keep the site relevant.
- Yahoo would have lost oodles of money. Facebook seems to have cracked the revenue equation, but only after trying and failing over and over again (remember Beacon?). Would Yahoo have tried so hard to figure out a new revenue model for a property whose key people fled and whose growth flatlined right after the acquisition? Or would they just have warehoused it and just tried to forget about the whole thing like a one night stand gone wrong?
- Curmudgeons would be holding up Facebook as an example of Web 2.0 folly. Ha! Who ever thought that anyone could make money from a social network for college kids? Ridiculous! Those newfangled web 2.0 kids and their free interwebsites, they’re just destroying value! In this universe, we now know for a fact that $1 billion would’ve been an impossibly cheap price for Facebook, but in that other universe, Facebook would’ve looked like what curmudgeons think “web 2.0” startups are: money sinks with no real value that piggybacked on hype and smart timing to swindle the shareholders of big tech company out of too much money.
- Another company would become as big as Facebook. Social is too big a trend. Maybe Friendfeed. Maybe Twitter. Maybe Quora. Maybe some other company we haven’t heard of. And now Facebook would be a footnote, instead of an incredibly successful and innovative company.
Our picture seems bleak, but is this not, at every step, how this would have gone?
To be sure, the people at Yahoo are smart, they’re telling Dennis Crowley “You’ll get all the resources, people, money. You’ll be head of all our mobile operations. We realise how important mobile is — if we didn’t come through we’d be shooting ourselves in the foot. Come on! Right now you reach a million people at best, with Yahoo you could have a hundred million people at your fingertips tomorrow. Not maybe years from now if everything goes right, tomorrow, for sure. Your vision of making cities smarter and easier to use could be so much closer to reality!”
But history (even alternate history) suggests that’s not how it’ll go. Yahoo will throw bureaucratic barricades in Crowley’s feet, not because they’re disingenuous, but because organisations like Yahoo can’t help it. He’ll leave once again, dejected.
Look what happened to Facebook. Don’t sell, Dennis.
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